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Why a Tariff War May not Decrease Global CO2 Emissions

Johansson, Eleanor LU ; Norbäck, Pehr-Johan and Persson, Lars (2025) In IFN Working Paper series
Abstract
It has been suggested that an intensified trade war between China and the US could reduce CO2 emissions associated with exports. We develop an export-greenfield-endogenous merger model, showing that significantly increased tariffs can enable domestic firms to undertake entry-deterring acquisitions. This forces foreign firms to remain exporters, which, in turn, leads to higher emissions. Strong competition policies and support for green technologies can help address this issue, resulting in lower emissions. Furthermore, we show that implementing an emissions trading system combined with a carbon border adjustment mechanism has effects comparable to those of increased tariffs.
Please use this url to cite or link to this publication:
author
; and
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Tariff war, CO2 emissions, M&A, Endogenous Mergers Emission Trading System, Carbon Border Adjustments, Competition policy
in
IFN Working Paper series
issue
1526:2025
pages
24 pages
DOI
10.2139/ssrn.5253998
language
English
LU publication?
no
id
362653c9-3b3d-4da3-b398-92dee14d3363
date added to LUP
2026-06-05 12:29:27
date last changed
2026-06-08 14:01:30
@misc{362653c9-3b3d-4da3-b398-92dee14d3363,
  abstract     = {{It has been suggested that an intensified trade war between China and the US could reduce CO2 emissions associated with exports. We develop an export-greenfield-endogenous merger model, showing that significantly increased tariffs can enable domestic firms to undertake entry-deterring acquisitions. This forces foreign firms to remain exporters, which, in turn, leads to higher emissions. Strong competition policies and support for green technologies can help address this issue, resulting in lower emissions. Furthermore, we show that implementing an emissions trading system combined with a carbon border adjustment mechanism has effects comparable to those of increased tariffs.}},
  author       = {{Johansson, Eleanor and Norbäck, Pehr-Johan and Persson, Lars}},
  keywords     = {{Tariff war; CO2 emissions; M&A; Endogenous Mergers Emission Trading System; Carbon Border Adjustments; Competition policy}},
  language     = {{eng}},
  month        = {{05}},
  note         = {{Working Paper}},
  number       = {{1526:2025}},
  series       = {{IFN Working Paper series}},
  title        = {{Why a Tariff War May not Decrease Global CO2 Emissions}},
  url          = {{http://dx.doi.org/10.2139/ssrn.5253998}},
  doi          = {{10.2139/ssrn.5253998}},
  year         = {{2025}},
}