The $36 Trillion Bill for Neglecting Climate and Free Trade

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In the Covid crisis, governments have struggled to find the right national policies—and also to coordinate an effective global response. They’ll have to do better when it comes to confronting the biggest challenges of the age: rising temperatures and a fracturing world economy.

Taken together, rapid action against rising temperatures and a renewed commitment to globalization would put the world economy on track for 2050 output of $185 trillion. Delaying moves to cut carbon emissions, and allowing cross-border ties to fray, could cap it at $149 trillion—the equivalent of kissing goodbye to the entire GDP of the U.S. and China last year.

If there were such a thing as a global economic planner, they would clearly pick the first option.

In the real world, it’s not that simple. Whether they’re in Washington DC or Beijing, Brussels or New Delhi, leaders don’t typically make the pursuit of a global optimum their top priority. They’re focused instead on national interests, and the relative economic strength that determines the geopolitical pecking order.

Choices in the fight against climate change, and the degree of cross-border integration don’t just affect the size of the global economic cake. They affect how it’s divided up as well.

An early start on cooling a hot planet would be good for everyone, but it would benefit Southern-hemisphere emerging markets much more than advanced Northern economies. And the same goes for globalization. More of it would make all countries better off—but the biggest gains would accrue to middle-income economies sprinting toward the technological frontier, not wealthier rivals attempting to cling onto their competitive edge.

In that sense, Donald Trump was right.

For the U.S., commitment to a low-carbon, free-trade future would—all else being equal—hasten the moment when it gets overtaken by China as the world’s biggest economy. In Bloomberg Economics’ baseline forecast, that seismic shift occurs in 2035. By 2050, China would have significantly extended its lead.

In an alternative future, where the U.S. delays action against climate change and throws up barriers to trade and technology transfers—as it has in the past four years—China catches up with the U.S. in the 2040s, but never moves decisively ahead. In a smaller and hotter global economy, the U.S. would still have a claim to the number one spot.

Forecasting this far into the future isn’t a precise science. Bloomberg Economics projections represent the best estimate of stylized models that don’t claim to account for every variable. Still, they provide a sense of the immense impact that paths chosen today will have on the size and shape of the world economy. And the conclusions are clear enough.

The Covid shock—more than a million dead and the worst recession since the 1930s—provides a wake-up call on the need for an early, aggressive and coordinated response to the threat of climate change and risk of de-globalization. That response will have distributional implications that may not look favorable to governments in the West, and they will be tempted to hit the snooze button.

Without farsighted leadership, progress on the greatest challenges of the age will be difficult to achieve.

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