Trade Liberalization and Pollution Havens

U.S. Presidential Executive Order 13141 commits the United States to a careful assessment and consideration of the environmental impacts of trade agreements.' The most direct mechanism through which trade liberalization would affect environmental quality in the U.S. is through changes in the composition of industries. Freer trade means greater specialization, increasing the concentration of polluting industries in some countries and decreasing it in others. Indeed, in this paper we predict a substantial reduction in U.S. pollution from 1978-94 due entirely to a shift in the composition of U.S. manufacturing toward cleaner industries. We then use annual industry-level data on imports to the U.S. to examine whether this compositional shift can be traced to the significant trade liberalization that occurred over the same time period; we conclude that no such connection exists. First, we find that a shift toward cleaner industries, similar to that observed in U.S. manufacturing, has also occurred among U.S. imports. Second, we find no evidence that pollution-intensive industries have been disproportionately affected by the tariff changes over that time period.