Strange Bedfellows: How Municipal Officials are Collaborating with Local Academics to Address the Effect of a Trade War on Sustainability


Business School, University of Colorado, Denver
The Sustainability Superhero image was designed to celebrate the 10th anniversary of the Managing for Sustainability (M4S) program at the University of Colorado Business School.

Background
Municipal government officials and local academics often work in separate worlds. Local officials often spend much of their time ensuring that the daily needs of local residents are efficiently met. Roads need to be paved; garbage needs to be picked up; clean water needs to be delivered; parks need to be maintained. Academics, in contrast, often deal with theoretical and global challenges and thought leadership around issues. In this regard Denver, Colorado is no different than other cities. Its combined city and county government attend to the infrastructure and services that all cities provide to their residents. It is also home to several academic institutions, including the Business School at the University of Colorado (CU) Denver. Most of the time city officials go about the business of governing, while CU faculty go about the business of conducting basic research or training the business leaders of the future.

Denver, however, is a city that prides itself on collaboration. One notable example of this collaboration is the relationship the CU Denver Business School has formed with the Sustainability Community of Colorado through the school’s Managing for Sustainability Program and Managing for Sustainability Advisory Council. The Advisory Council consists of representatives from the sustainability departments of numerous Colorado corporations and government entities, including members of the Denver’s Office of Sustainability. Council members provide advice and feedback to business school faculty on academic offerings, particularly for its graduate program, and how those offering might better meet the needs of local businesses and governments. The Business School’s faculty in turn provide research topics of interest to business and government leaders and provide graduate students as interns to help these leaders with specific assignments in sustainability, which also provides valuable experience for students.

The Managing for Sustainability Advisory Council of CU Denver Business School was established ten years ago when sustainability was in its infancy to connect people from business, government, and non-profit sectors to advise and support the Business School on the Managing for Sustainability (M4S) program development. CU Denver Business School started its M4S program, and the advisory council had its first meeting to discuss the direction and content of the M4S program. Since then, many of the same members have served on the advisory council. The program and council have significantly grown during the last decade. This year (2018), the tenth anniversary of the M4S program, there are currently 42 sustainability leaders in the advisory council, alongside Business School faculty. The advisory council includes members from organizations such as B Lab Colorado, the City of Denver, CBRE, DaVita, Prologis, AT&T, and Xcel Energy, among many others, as well as alumni and leaders in the sustainability circle in Colorado. The members have meetings regularly to share sustainability best practices, suggest the program development plan, and help the curriculum contents. Among the members of the Advisory Council is a representative of the Denver Office of Sustainability (OOS). OOS was created by Denver Mayor Michael B. Hancock in 2012, with a mission to work with all city agencies to ensure that the city’s basic resources would be available and affordable to everyone both today and tomorrow. OOS’s Chief Sustainability Officer, Jerry Tinianow, has served on the Advisory Council since his appointment.

In 2018 Tinianow approached Dr. Jiban Khuntia, a member of the CU Denver Business School faculty and a participant in the Managing for Sustainability Advisory Council, with a question: Could trade wars actually be good for sustainability – or at least could they be leveraged to obtain some pro-sustainability results? This question had currency because U.S. President Donald Trump had begun initiating trade wars with many different trading partners – China, Mexico, Canada, and the European Union, among others.

Denver is a city that sees itself playing an ever-larger role on the international stage. Its rapid economic growth, strong cadre of cutting-edge technology businesses, and attractive location near spectacular scenic and recreational resources are attracting interest and investment on a global scale. Its airport, fifth- busiest in the U.S., had grown to be among a handful therein with over 200 non-stop destinations. As a growing international player Denver had to be concerned about the effect of trade wars, and as a city with a strong commitment to sustainability, it had to worry more specifically about whether trade wars would help or hurt the economy and sustainability.

This article focuses on a recent collaboration that illustrates how this partnership works. This joint project with Denver Office of Sustainability to evaluate whether the recent restrictive global trade policies and tariffs on many countries’ imports imposed under the Trump Administration that have been associated with strong reactions from countries including tariffs on U.S. goods might affect worldwide sustainability initiatives. The sustainability community has generally opposed many of the initiatives of the Trump Administration including a pro-coal industry and anti-environment agenda. This opposition could affect how the community views the Administration’s new trade policies and potential trade wars that are occurring in reaction to these. The advantage of collaboration between municipal sustainability officials and academics is that rigorous academic rationale can be applied to analyze the pros and cons of the new policies for the effects on sustainability in Colorado and the U.S.

 
Trade Wars and Sustainability
A trade war occurs when one country (Country A) raises tariffs on another country’s (Country B) imports in retaliation for Country B raising tariffs on Country A’s imports. A tariff is a tax imposed on imported goods and services. It is commonly argued that a trade war is a side effect of protectionism. Trade wars can commence if one country perceives another country’s trading practices to be unfair or when domestic trade unions pressure politicians to make imported goods less attractive to consumers. Trade wars are also a result of a misunderstanding of the widespread benefits of free trade—that is a policy to eliminate discrimination against imports and exports. Buyers and sellers from different economies may voluntarily trade without a government applying tariffs, quotas, subsidies or prohibitions on goods and services. Free trade is the opposite of trade protectionism or economic isolationism.

A trade war that begins in one sector can grow to affect other sectors. Likewise, a trade war that begins between two countries can affect other countries not initially involved in the trade war. As noted above a trade war can result from a protectionist penchant. Protectionism represents government actions and policies that restrict international trade, generally with the intent of protecting local businesses and jobs from foreign competition. A trade war is distinct from other actions (e.g., sanctions) that have detrimental effects on the trading relationship between two countries in that its goals are related specifically to trade.

In 2018, the Trump Administration initiated strong reactions from countries that received large tariffs on their goods a large, precipitating a trade war, which has unfolded in an unprecedented way. For instance, on January 22, 2018, the Trump Administration placed a 30% tariff on foreign solar panels. On March 1, the U.S. also announced an increase in its tariffs for steel and aluminum products. The Trump Administration also listed US$ 50 billion worth of Chinese imports to be subject to 25% tariffs on April 3, 2018, followed by an additional US$ 100 billion in response to China’s plan to retaliate against the initial round on April 5. Further, on July 6, a 25% tariff on US$ 34 billion was initiated. On this same day, China retaliated and implemented the same size tariff on the same amount in American goods as a swift reaction. On July 10th, the U.S. administration announced that it would impose tariffs on an additional US$ 200 billion of Chinese goods. This round of tariffs went into effect on September 24th, with full implementation by January 1st, 2019.

President Trump has claimed that “trade wars are good, and easy to win.” However, historically we know that nobody “wins” in a trade war—especially in the long run. For example, during the great depression, the Smoot-Hawley Act of 1930 attempted to protect farmers through tariffs. But other countries responded with tariffs on goods shipped and sold abroad. This trade war contributed to the great depression, which led to numerous bank failures, and unemployment worldwide.

Sustainability proponents might be expected to reject out of hand any of the Trump Administration’s initiatives. President Trump had established himself as a staunch opponent of most sustainability initiatives, particularly in the areas of climate change, clean energy and public lands protection. President Trump withdrew the U.S. from the Paris climate agreement in 2017, and the Trump administration has proposed greater support for the coal industry and nuclear power plants. Other examples include a proposal to repeal the Obama Clean Power Plan, impose tariffs on imported solar panels, eliminate the Energy Star energy-efficient labeling program, and overturn other previous clean-energy policies, as well as other anti-environment initiatives.

Despite the temptation simply to oppose anything President Trump supports; sustainability advocates need to be aware of the ancient idiom that once in a while even a blind pig finds an acorn. Trade wars undercut globalization, and globalization has been seen by many sustainability advocates as undercutting sustainability. By starting trade wars, the possibility may exist that President Trump may inadvertently have discovered a sustainability acorn.

Defining sustainability is always confusing as multiple definitions and perspectives exist, from environmental sustainability to firm viability. The policy imperative of sustainability as a concept originated in the Brundtland Report of 1987.1 In the realm of the tension between the aspirations of mankind towards a better life on the one hand and the limitations imposed by nature on the other hand, sustainable development has to meet the needs of the present without compromising the ability of future generations to meet their own needs. The concept of sustainability is future-oriented and has a long-term perspective. Subsequently, the concept has been re-interpreted as encompassing three dimensions, namely social, economic and environmental, and the United Nation’s Agenda for Development reflects that: “Development is a multidimensional undertaking to achieve a higher quality of life for all people. Economic development, social development, and environmental protection are interdependent and mutually reinforcing components of sustainable development.” A much-accepted perspective is the triple bottom line analysis to favor programs that minimize consumption of non- renewable resources, reduce health and other risks to humans, promote equity and provide economic opportunity (For detailed discussions around the triple bottom aim perspective to sustainability, see2,3 amongst other studies). Often this involves balancing some of these values against the others and balancing the future against the past, but the balance is always struck mindfully with an effort to achieve as much concurrently as possible. With globalization and free trade, how to balance the three dimensions and achieve sustainability becomes a global issue.
 

Business School, University of Colorado, Denver
Business School, University of Colorado at Denver

 

Critics of globalization can argue that many of its objective features run against the environmental and social aspects of sustainability. Globalization is often associated with evils that cut against sustainability. It favors production where it can be done at the lowest cost while preserving a modicum of quality. Costs are often contained by minimizing charges for externalities and by abusing workers through low wages, long hours, and unhealthy working conditions (including child labor). Some proponents would point to the positive influences of a trade war on sustainability through reduced consumption, reduced emissions and pollutants, and similar effects. Indeed, the pollution haven hypothesis posits that, when large industrialized nations seek to set up factories or offices abroad, they will often look for the cheapest option in terms of resources and labor that offers the land and material access they require. However, this often comes at the cost of environmentally sound practices. Developing nations with cheap resources and labor tend to have less stringent environmental regulations, and conversely, nations with stricter environmental regulations become more expensive for companies as a result of the costs associated with meeting these standards. Thus, companies that choose to physically invest in foreign countries tend to relocate to the countries with the lowest environmental standards or weakest enforcement.4

Also, the plausible positive impacts of a trade war on sustainability may be through direct reduced consumption, while incomes go low and prices may increase. The consumption of energy, non-renewable resources such as production materials will also be reduced. Because of less production, there will be reduced environmental damage and decreased emissions, including greenhouse gas (GHG) and other pollutants. The local economy and society will become more resilient as self-sufficiency ability will be improved. The labor issues criticized by opponents of globalization may get relief (however, we should note that the labor issue is very complicated and is not the focus of this article) and thus a trade war may bring reduced imbalance and inequities. In addition, trade wars deter the comparative advantage from free trade, thus the pollution haven may not exist in developing countries, leading to reduced economic displacement and environmental degradation. Furthermore, developed countries generally have better environmental technologies and policies. With the production center relocation, we anticipate less environmental damage and fewer emissions for the same amount of production. Overall, sustainability positives from a trade war may include reduced consumption, with related reductions in energy usage, consumption of non-renewable resources, and release of greenhouse gases and other pollutants; reduced competition from abroad, preventing local jobs from disappearing; and push to communities to develop greater self-sufficiency.

This is not to say that President Trump’s trade wars automatically promote sustainability. Trade wars are complex, and notwithstanding the President’s belief that they are “easy to win,” they can produce unpredictable outcomes. As abovementioned, the Smoot-Hawley Act of 1930 was meant to resolve the Great Depression and instead worsened the situation.

An example of this uncertainty is President Trump’s action in early 2018 to raise tariffs on imported solar panels. In response to a complaint filed last year by Suniva, an American solar panels company, President Trump signed tariffs as much as 30% on imported solar panels in January 2018, with the aim to protect American manufacturers and create jobs.

The higher tariffs on imported solar panels actually predated the announced start of President Trump’s trade wars. They were ostensibly undertaken to provide temporary protection for the domestic U.S. solar panel industry so that it could regain market share. But the tariffs raised the cost of solar installations in the U.S., particularly when paired with President Trump’s new tariffs on imported steel, which were part of his trade war. Some feared that this one-two punch could trigger the death knell of the U.S. solar industry.5 Later evidence, however, suggests that the effects have not nearly matched up to the early fears.6,7
Solar tariffs are merely one example of how actions in a trade war could help or hurt sustainability. Another area of recent interest is the effect of decisions by China and other countries to bar or limit imports of recyclable items like plastics and newsprint. In July 2017, China initiated the campaign against foreign garbage such as paper and waste plastic, creating turmoil in the global recycling industry. According to the US Institute of Scrap Recycling Industries (ISRI), the ban would disrupt exported scrap worth a total of $5.6 billion from the U.S. to China in 2016 and affect about 150,000 jobs.8
 

Business School, University of Colorado, Denver
Discussion among M4S advisory council members during the M4S advisory council meeting in May 2018

 

Denver’s case and future Government-University collaboration on Sustainability
Denver has a strong interest in both the solar industry and the recycling industry. With over 300 days of sunshine every year, Denver is one of the best locations on the planet for solar power; it is no surprise that in 2013 Denver was named America’s first “Solar-Friendly Community” by the Colorado Solar Energy Industry Association. In contrast to its rapid ascent in the solar world, Denver had struggled with waste diversion. While it has increased diversion from the landfill from 14 percent of household waste in 2012 to 22 percent in 2018, it still lags well behind the national average of 35 percent.

Since Denver’s Office of Sustainability has to care about whether a Trump-driven trade war will help or hurt the economy and sustainability in Colorado, CU Denver’s Managing for Sustainability Advisory Council provided the perfect vehicle for Denver to tap into the research expertise at the business school. In collaboration with the co-authors of this article, DOS can get the guidance it needs to decide how the city should react to the President’s trade initiatives. Plausible areas of research may emerge from this collaboration. For example, collaborative research may guide us to ask: What are the plausible theoretical explanations for the trade war and its sustainability impact? How do we manage and allocate sustainability resources to offset the effects of a trade war on local sustainability? When one or more optimality conditions in a trade war and sustainability relationship cannot be satisfied, what is the new-best solution9—and what may those solutions be from a local economic viewpoint? As the largest city in a growing “purple” state, Denver’s positions matter, and guidance is needed.

 
Reference

    1. Brundtland, G. H. What is sustainable development. Our common future, 8-9 (1987).
    2. Elkington, J. Partnerships from cannibals with forks: The triple bottom line of 21st‐century business. Environmental Quality Management 8, 37-51 (1998).
    3. Berger, I. E., Cunningham, P. H. & Drumwright, M. E. Mainstreaming corporate social responsibility: Developing markets for virtue. California management review 49, 132-157 (2007).
    4. Levinson, A. & Taylor, M. S. Unmasking the pollution haven effect. International economic review 49, 223-254 (2008).
    5. Penn, I. Trump’s Solar Tariffs Cause a Scramble in the Industry, (2018).
    6. Gearino, D. How Much Damage are Trump’s Solar Tariffs Doing to the U.S. Industry?, (2018).
    7. Rhodes, J. Trump’s Solar Tariffs Go Into Effect Today. So What?, (2018).
    8. Reuters. The US wants China to reverse its decision to bar foreign garbage, (2018).
    9. Lipsey, R. G. & Lancaster, K. The general theory of second best. The review of economic studies 24, 11-32 (1956).