Primary and embedded steel imports to the U.S.: implications for the design of border tax adjustments.

Carbon Border Tax Adjustments (BTAs) are a politically popular strategy for avoiding competitive disadvantage problems when a country implements a unilateral climate change policy. A BTA taxes carbon embodied in imported goods in order to protect domestic industry and motivate other countries to implement climate change policy. To estimate the effectiveness of a BTA, is it is necessary to know which products are covered, where they were originally produced and ultimately exported from, and how the covered amount compares to total production in foreign countries. Using a scrap-adjusted, mixed-unit input-output model in conjunction with a multiregional input-output model, this analysis evaluates the effectiveness of BTAs for the case study of U.S. steel imports. Most imported steel by mass is embedded in finished products (60%), and 30% of that steel is produced in a different country than the one from which the final good is exported. Given the magnitudes involved and complexities of global supply chains, a BTA that protects domestic industry will be a challenge to implement. We propose a logistically feasible BTA structure that minimizes the information burden while still accounting for these complexities. However, the amount of steel imported to the U.S. is negligible (5%) compared to foreign production in BTA-eligible countries and is unlikely to motivate affected countries to impose an emissions reduction policy.