Border Adjustment Tax as a Market for National Standards
Last week we established—if “established” isn’t too polite a word—that unchecked free trade is less a noble march toward global harmony and more a limbo contest in which nations compete to see who can better debase their own industry, infrastructure, and citizenry for the privilege of selling T-shirts at 19 cents less than the other guy.
It’s a race to the bottom where the “finish line” is an open sewer, and the medal is a pink slip.
Now, how to fix it.
We in the developed world have a charming habit of putting a price on everything. We tell ourselves this is a sign of sophistication—modernity’s great metric-making impulse. Of course, most of the time we’re pricing abstractions: carbon credits, “ecosystem services,” the value of “brand identity.” We pretend these numbers mean something solid. They don’t.
Doubt it? Go find your “Free Trade Forever” lapel pin and give it a good polish. There—don’t you feel better already? That faint gleam is the light of self-delusion.
This post first appeared in 2020, back when I still entertained hope that rational arguments might sway public sentiment. I’ve since remastered it—sharpened the edges, clarified the threat, and realigned it with the Grimwright ethos: use what works, discard the rest, and always—always—question the narrative. The date remains unchanged as a historical marker. The content does not.
The problem is that pricing anything—even tangible things—is always an act of artifice. How exactly do you slap a neat dollar figure on environmental collapse? On a river that will no longer support fish? On a garment made by hands you’d cross the street to avoid seeing? These are not line items on a ledger; they’re moral sinkholes. And yet, since this is never going to be a market-driven process—always political, always contested—we might as well make it interesting.
The Radical Proposal That Wasn’t
In May 1997, the American Economic Review—house organ of the American Economic Association—published a piece by economist Alan J. Auerbach. In it, he floated the concept of a Border Adjustment Tax (BAT). At the time, this was the economic equivalent of suggesting we drain the oceans and see what’s underneath.
The idea was straightforward: stop multinational corporations from playing hopscotch with tax codes. Today, a German company can set up a factory in Tunisia, sell its widgets in France, and pay its corporate taxes in Tunisia. Tunisia gets the tax revenue, France gets the product, and Germany gets the dividends. Simple enough in outline—though in reality, the accounting labyrinth is far more convoluted.
Under BAT, taxation would shift to the country of consumption. In our example, because the product is sold in France, the German company would pay French taxes on the profits from those sales—even if they have no legal presence in France. Suddenly, profit-chasing multinationals can’t simply incorporate in whichever jurisdiction offers the cushiest treatment.
It was, and remains, a sharp tool against tax arbitrage. But taxation games are just one of the ways global trade distorts reality. The deeper pathology is baked into the “free trade” creed itself.
When I Still Believed in Santa Claus
In my younger and more credulous years, I believed free trade was an unqualified good. Let borders crumble, let goods, services, capital, and people flow across the world as easily as electrons in a wire. Each nation would play to its strengths; we’d all bask in the efficiencies of comparative advantage. The textbooks promised a marketplace of Milk and Honey, and I was naïve enough to believe them.
But theory is always neat until the wreckage starts piling up. In practice, industries migrated not to where they could produce best, but to where they could produce cheapest—and dirtiest. Taxes and regulations were treated not as civic obligations but as obstacles to be dodged. American firms built factories 8,000 miles away to churn out products for American shelves, because why not? Shipping is cheap, labor is cheaper, and public outrage burns out faster than yesterday’s headlines.
The result? Jobs evaporated in the countries that bought the goods. Investment fled. Towns hollowed out. The social fabric frayed, then tore. All so the world could enjoy marginally cheaper smartphones—though even that “cheapness” was an illusion, once you counted the costs in welfare, lost tax revenue, and broken communities.
Against that backdrop, the BAT begins to look like less of a radical wrench in the machine and more like the first spanner thrown in decades that might actually jam something useful.
The Beauty of Weaponized Standards
Here’s where it gets interesting. Imagine the UK—or any country—defines a set of standards it considers worth defending. They could include anything: environmental thresholds, labor protections, minority rights, bans on child labor, you name it. If another country fails to meet those standards, a BAT is automatically applied to all goods and services from that country.
Too much plastic dumped into the oceans? That’s a tariff. Rampant habitat destruction? Tariff. Slave-like labor conditions? Tariff. Systematic persecution of religious minorities or sexual minorities? Tariff. A BAT could even factor in national CO₂ emissions, if one wished—though frankly, I’d prefer we target tangible harm over atmospheric bookkeeping.
“But how,” you ask, “could a country ever measure something as nebulous as how much plastic another nation’s fishing fleet dumps into the sea?” The answer: the same way developed nations already do—imperfectly, but measurably. Imperfection is not a reason to abandon the attempt.
Each importing country could write its own rulebook and calibrate the BAT accordingly. Compliance could be graded in tiers, with certification renewed annually, or every five years if one is feeling lazy. Is it open to political abuse? Absolutely. But it also forces a long-overdue linkage between behavior and cost.
The Rating Agency from Hell
Now picture this on a larger scale. Trade blocs—say, the EU or USMCA—could adopt unified BAT standards. Independent agencies could emerge to assess compliance, issuing something like a “sovereign ESG score” (though ideally less farcical than the corporate versions). Countries could choose to align themselves with these standards for a set period, knowing they’ll be judged, graded, and priced accordingly.
Would politics turn this into a sprawling, self-serving bureaucracy? Of course. But even a messy standard beats the current free-for-all, where bad actors can smile for the camera while quietly torching rainforests.
Every country, after all, should be free to decide how it interacts with the world. Bhutan chooses near-isolation, perched between China and India, and that’s its prerogative. Likewise, a nation could opt out of BAT-compliant exports entirely—though that choice would carry consequences.
The Price of Decency
Yes, BAT would raise the price of imports. But the revenue it generates could offset other taxes, especially those hitting domestic workers. If BAT receipts exceed projections, governments could even refund the surplus to taxpayers—an idea so alien to political instinct that it might only happen in theory, but still.
The levers here are many. If a manufacturer in a low-standard country knows their goods will face a steep BAT abroad, they have three choices: absorb the cost, relocate production, or lobby their own government to clean up its act. In theory, BAT becomes a form of peer pressure on a national scale.
Decent labor practices cost money. Environmental safeguards cost money. Those costs might curb some exports—but they might also push exporters toward higher-value, higher-standard goods. At present, there’s little incentive for such reforms; virtue is mostly a press release, and importing nations have scant leverage. BAT changes that equation.
The Pendulum Principle
It’s true, BAT could be abused. A nation could set standards so extreme they effectively ban most imports. Eventually, though, public demand for variety would force a recalibration. Trade policy, like most human systems, functions on a pendulum: too far in one direction, and gravity drags it back.
Importantly, BAT preserves competition in the enforcing country’s market. There are no direct subsidies to favored companies, no rigged payouts—just an even field tilted against the worst offenders. For net oil importers (most developed nations), a BAT on oil would likely depress global prices even as domestic prices rose slightly. That alone could unsettle the petrostates who’ve grown fat manipulating the market.
The job preservation alone could outweigh the pain of higher consumer prices. But “jobs” is too mild a term here—we’re talking about retaining the industrial and agricultural base without which nations slide into dependency and decline.
Dreaming Out Loud
Am I dreaming? Maybe. But when European Commission President Ursula von der Leyen starts musing about a BAT on CO₂, we’re halfway there. The tragedy is that her version targets a gas that—last I checked—makes plants grow, instead of focusing on the tangible abuses that shred lives and landscapes.
Still, if the apparatus is built for carbon, there’s no reason it couldn’t be repurposed for actual harm. Which is precisely why the people who profit from that harm will fight BAT tooth and nail. They know that once you start putting price tags on their destruction, the invoices add up fast.
The beauty of BAT isn’t that it’s perfect—it’s that it’s honest about one thing free trade has always lied about: the idea that the lowest price is the highest good. Sometimes the cheapest product is the most expensive thing you can buy, if you’re counting the cost in human dignity and national survival.
