When China bids to manufacture something for the world market, a variety of things go into the price they can bid: labor, shipping, materials, and pollution, ch

When China bids to manufacture something for the world market, a variety of things go into the price they can bid: labor, shipping, materials, and pollution, chiefly (there is also research, facilities maintenance, etc). The main factors which give them an advantage are labor and pollution. Their labor advantage is internal but their pollution advantage -- the portion dumped into water or air -- they get by extracting value from a shared account. In countries with stricter pollution laws companies can't rob their neighbors to win a bid. That being said, tariffs and other mechanisms meant to force the pollution cost back onto producers really end up being paid largely by consumers anyway. You can't tax citizens of another country. So the tariff taxes citizens of your own country. The cost gets back to the producer country indirectly in that they sell less stuff, but every time the tax is paid it is paid inside the country imposing the tariff by citizens of that country. So it works more or less according to your suggested mechanism.