Our climate crisis is now an emergency. While efforts at multilateral cooperation should continue, it is too late to delay legal multilateral and unilateral trade measures any longer. This chapter sketches a preliminary illustration of a border carbon adjustment (BCA) proposal that differs significantly from earlier ones. Its goals are to induce policy improvement by governments of high-polluting countries and defend the Paris Agreement. Each country that imposes positive net taxes on fossil fuel use at home should set a default BCA on an imported product from a high-emitting country equal to net fossil energy taxes applied on the competing home good throughout its supply chain. The government should deduct from this surcharge for a given import shipment to the extent that costs due to carbon energy taxes — or other measures that are comparable in effectiveness in reducing emissions — have already been paid on the import. These surcharges should exempt all exports from countries whose per capita carbon dioxide emissions are low. Such BCAs could be consistent with World Trade Organization rules and should minimize additional transaction costs on trade. Objections are addressed. Paradoxically trade itself in the long term needs carefully limited trade restrictions in the short term.

This chapter first characterizes the fundamental purposes of the WTO and trade agreements, which should be viewed as much broader than trade liberalization. It then presents the major challenges that the trade system now faces. Special emphasis is paid to technological change since the WTO was created in 1995, namely, the development of global value chains. Finally, the author contends that trade agreements, in response, must be designed and conditioned upon social policy commitments. They should include, or be conditioned upon, agreements that cover: coordinated tax policy to combat harmful tax competition, tax avoidance, and tax evasion; domestic social security and job retraining, supported by trade adjustment commitments; labor protection; protections against social dumping; and accommodation of industrial policy experimentation for development. It will not be an easy process to reconceive trade agreements to better ensure social inclusion through these means, but the current system otherwise could unravel.