For more than half a century, concerns about oil shortages or climate breakdown have prompted governments to invest in alternative energy sources.
In the 1970s, President Jimmy Carter placed solar panels on the roof of the White House to symbolize his commitment to the development of solar energy. In the 1990s, Japan offered groundbreaking subsidies for homeowners to install photovoltaic panels. And in the 2000s, Germany developed an innovative program guaranteeing consumers who adopted a solar energy system that they would sell their electricity at a profit.
But no country has come close to matching the scale and tenacity of China’s support. The proof is in production: in 2022, Beijing accounted for 85% of all investment in clean energy manufacturing worldwide, according to the International Energy Agency.
Today, the United States, Europe and other rich countries are frantically trying to catch up. Hoping to correct past industrial policy missteps and learn from Chinese successes, they are spending huge sums to subsidize local companies while also seeking to block competing Chinese products. Their progress has been modest: Last year, according to the energy agency, China’s share of investment in new clean energy plants fell to 75 percent.
The problem for the West, however, is that China’s industrial dominance builds on decades of experience using the power of a one-party state to pull every lever of government and banking. , while encouraging unbridled competition between private companies.
China’s unparalleled production of solar panels and electric vehicles relies on a prior cultivation of chemical, steel, battery and electronics industries, as well as significant investments in rail lines, ports and highways.
From 2017 to 2019, it spent an extraordinary 1.7% of its gross domestic product on industrial support, more than twice the percentage of any other country, according to one study. analysis of the Center for Strategic and International Studies.
This spending included low-cost loans from state-controlled banks and cheap land from provincial governments, without the expectation that the businesses they helped would make immediate profits.
And it has been accompanied by what the United States and other countries accuse of circumventing international trade agreements, engaging in intellectual property theft and using forced labor.
All this has allowed China to now be able to flood its rival countries with cheap electric cars, solar cells and lithium batteries, as consumers in the rich world increasingly turn to towards green technologies.
China now controls more than 80% of global production of every stage of solar panel manufacturing, for example.
“There are huge economies of scale in going big like China has done,” Gregory Nemet, a public policy professor at the University of Wisconsin who has studied the global solar industry. When investments resulted in overcapacity, suppressing the profitability of Chinese companies, Beijing was willing to take the losses.
President Biden and European leaders are determined to expand their countries’ manufacturing capacity in advanced technologies such as semiconductors, electric vehicles and batteries, in part by adopting some of China’s tactics to support industries.
China’s rise to dominate the world’s major manufacturing sectors has shown the potential and power of domestic industrial policy, said Jennifer Harris, a former Biden aide who now directs the Economy and Society Initiative at the William and Flora Hewlett Foundation.
“Was it a waste? Absolutely,” she said. “Was it successful?” Absolutely.”
Mr. Biden and European government leaders are more willing to criticize Beijing for what they say they are. illegal practices such as deliberately subsidizing excess production and then selling undervalued products to other countries.
Beijing denies violating trade rules, saying its enormous industrial capacity is a sign of success. Xi Jinping, China’s top leader, said this month that China had increased the global supply of goods and eased international inflationary pressures, while helping the world combat climate change.
Mr. Biden said this month he would impose tariffs of up to 100% on imports of Chinese green technology, including electric vehicles. The goal is to deprive China of any additional opening to America.
EU officials are expected to soon impose their own tariffs – despite warnings from some economists and environmentalists that these measures will slow progress toward meeting clean energy goals. Europe has become more concerned about security issues as China has shifted its geopolitical position toward Russia and Iran.
The West’s embrace of industrial policy departs from the ideology of open markets and minimal government intervention that the United States and its allies previously championed.
Strategies The energy crises caused by the 1970s were largely reversed when Ronald Reagan was elected president in 1980. Even the solar panels installed at the White House during the Carter administration were removed.
With the exception of certain security-related industries, the United States has adopted the view that an unfettered market is always right.
“If the end result was that you had to rely on other countries for key things, that was OK,” said Brad Setser, a senior fellow at the Council on Foreign Relations.
Joseph Stiglitz, an economist at Columbia University, said the United States has long lacked a broader industrial policy and coordinated strategy.
“Even Democrats were afraid to take a more aggressive government role,” he said, “and I think that was obviously a big mistake with long-term consequences.”
From the perspective of some Chinese economists, complaints about injustice coming from the United States and Europe are a sign of the failure of their own governments.
“The West’s decision to pursue neoliberal economic policies was a strategic mistake, which led to the deindustrialization of their economies and provided an opportunity for China,” said Zheng Yongnian, a professor at the Chinese University of China. Hong Kong.
Whatever mistakes were made, American political leaders say they are determined not to repeat them.
Last year, the United States and the European Union made “significant advances” in clean energy technologies, according to the report. International Energy Agency.
And the Biden administration’s multitrillion-dollar program constitutes one of the most expansive uses of industrial policy in American history.
Mr. Biden’s tariffs are a targeted escalation of a U.S. trade offensive against China that began under former President Donald J. Trump. Mr. Trump imposed tariffs on goods imported from China worth more than $350 billion a year, prompting retaliatory tariffs from Beijing. Mr. Biden maintained those tariffs, added or increased them for clean energy and erected new barriers to trade with Beijing, including denying China access to advanced semiconductors from the United States.
Mr. Biden’s trade agenda is “very, very aggressive,” said David Autor, an economist at the Massachusetts Institute of Technology who has extensively documented the effects of trade with China on the U.S. economy, including losses in factory jobs.
He said there are crucial distinctions between Mr. Biden’s trade strategy and Beijing’s, as both countries seek to lead the clean energy race.
China has focused more on sending low-cost exports to global markets, Autor said, and has prevented foreign companies from dominating China’s domestic markets.
Mr. Biden, he said, is working harder to prevent imports from China and deny China access to some key U.S. technologies, like advanced semiconductors.
At a meeting last week in Italy of the Group of 7 finance ministers, leaders on both sides of the Atlantic warned that the United States and Europe must coordinate their protectionism and subsidies if they hope to catch up Beijing in the race to dominate key industries.
“Overcapacity threatens the viability of businesses around the world, including in emerging markets,” Treasury Secretary Janet L. Yellen said Thursday.
“It is essential,” she added, “that we, along with the growing number of countries who have identified this as a concern, present a clear and united front. »
