Cleaner skies, shifting shadows: how trade policy with China transformed US manufacturing emissions

Research from an international team of economists, including researcher Jay Hyun from the University of Alberta’s School of Business, suggests that the dramatic decline in toxic emissions from US factories was largely driven by offshoring "dirty" production to China following a landmark change in trade policy.

The study, published in the Journal of International Economics, examines the long-term environmental impact of the United States granting Permanent Normal Trade Relations (PNTR) to China in the early 2000s. This policy shift effectively ended years of trade policy uncertainty and paved the way for a surge in imports. The researchers found that US manufacturing establishments responded to this change by significantly reducing their toxic emissions — not by going out of business or inventing cleaner technology, but by moving their most pollution-intensive tasks abroad.

The move to "dirty" offshoring

By tracking nearly two decades of emissions data (1997–2017) and matching it with establishment-level business activities, the researchers discovered that the reduction in American pollution was most pronounced in industries that faced the highest trade barriers before the 2000 policy change.

Interestingly, the study found that factories didn't necessarily shrink their overall operations. Instead, they changed how they operated, sourcing more parts from abroad and establishing new subsidiaries in China. This was particularly true for "dirty" industries — those that emit high levels of pollutants or face strict environmental regulations at home.

“Achieving clean production is another critical margin possibly facilitated through offshoring,” says Hyun, pointing out that growing costs of "dirty" production in developed countries have emphasized this shift.

A limited role for green tech

Contrary to popular belief, the study found little evidence that the "cleanup" was driven by the adoption of green technologies or better waste management within US borders. Instead, the researchers suggest that offshoring served as a substitute for environmental innovation.

As global debates intensify over policies like the European Union's Carbon Border Adjustment Mechanism (CBAM), which seeks to tax imports based on their carbon footprint, this research highlights a critical challenge for policymakers.

“Our results highlighting the role of trade in triggering cross-country pollution transfers articulate the importance of coordinating both trade and environmental policies across borders,” says Hyun.

Key takeaways

• Significant decline: US manufacturing toxic emissions dropped by approximately 30 per cent between 1997 and 2017. 
• The China connection: A major driver of this decline was the 2000 trade policy change (PNTR), which encouraged US firms to offshore pollution-intensive tasks to China.
• Persistence of production: The reduction in emissions wasn't caused by factory closures; instead, surviving establishments stayed in business while shifting their "dirtiest" work overseas.
• Lack of innovation: The study found no significant evidence that the decline in emissions was due to US factories adopting cleaner, "green" production technologies.
• Policy implications: The findings suggest that trade liberalization can lead to "pollution offshoring," where domestic environmental gains are mirrored by increased emissions in trading partners with laxer regulations.

Read the full article in the Journal of International Economics at DOI:10.1016/j.jinteco.2025.104046

*This article was co-written using Gemini AI.

U of A research. Real-World impact.

Can you see a sustainable future? From cutting waste to improving resource management, learn how the U of A is striving to achieve the UN's goal of responsible consumption and production.

Explore Our Sustainable Solutions