Trade is key to countering China’s clean energy dominance

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BY: JASON BORDOFF

Bordoff is the founding director of the Center on Global Energy Policy and professor of professional practice at Columbia University’s School of International and Public Affairs. You can reach him at cgepdirector@columbia.edu.

To counter China’s cleantech dominance without hampering the energy transition, the United States needs to expand its circle of friends.

Along with the urgent task of supporting Ukraine, another issue dominating this week’s meeting of NATO leaders in Washington, D.C. is countering Chinese aggression through deeper partnerships with Indo-Pacific nations. These discussions will build on last month’s meeting of the Group of Seven nations in Italy, which saw a sharp pivot from casting China as a potential partner on issues like climate change to a pernicious force on matters both economic and military.

The focus on expanding Washington’s circle of friends to counter China is needed not only from a military standpoint, but also to accelerate the clean energy transition. Contrary to today’s protectionist trends, the best antidote to concerns about China’s cleantech dominance is more trade, not less.

The new era of great power rivalry between the U.S. and China has profound implications for the urgently needed transition to clean energy by complicating cooperation between the world’s two largest emitters and prompting Western nations to erect significant barriers to cheap Chinese clean energy products.

While many concerns about China are valid, even if some may be exaggerated, trade barriers risk undermining the clean energy transition not just by raising the costs of Chinese goods, but by fueling broader protectionist sentiments already on the rise. Countering China’s dominant position in clean energy while minimizing deceleration of the energy transition requires policymakers to embrace open markets with the rest of the world.

Navigating the tension between a desire to make clean energy as cheap as possible and other security and economic imperatives requires clear-eyed analysis to assess potential tradeoffs, free of hyperbole and exaggeration. That is why today, Columbia SIPA’s Center on Global Energy Policy is announcing a new Trade and Clean Energy Transition program (TCET), with initial support from the BMW Foundation and Breakthrough Energy (which supports Cipher), to examine the conflicts and solutions at the intersection of climate action, trade policy and industrial strategy.

Putting up barriers

Deglobalization is gathering pace. The European Union announced last month it will impose tariffs of up to nearly 50% on Chinese-made electric vehicles. A month earlier, the White House imposed high tariffs on Chinese solar cells, batteries and electric vehicles. The fear of cheap Chinese imports extends to emerging markets, too. Brazil, for example, welcomed Chinese electric car company BYD’s $1 billion investment to build factories in the country — the company’s largest investment outside of China — but it is also raising tariffs on EV imports.

The new tariffs on Chinese products prompted debate about their long-term impact on the clean energy transition. On the one hand, neoliberal champions such as The Economist lamented that raising the cost of Chinese products would harm consumers and slow the uptake of clean energy. A February Wood Mackenzie report found that without China, the cost of a U.S. green transition would be 20% higher.

On the other hand, China’s goods are cheap not only because of China’s impressive innovation, but also because of its subsidies, protectionism, intellectual property theft and flouting of international trade rules. If other nations can’t invest in cleantech because of price volatility caused by China’s excess manufacturing capacity, that could hamper the energy transition in the long run, too.

The Biden administration has justified a tougher stance toward China on myriad grounds ranging from economic competitiveness and domestic politics to national security and the environment:

• Lael Brainard of the National Economic Council explained the Biden tariffs would create “a level playing field in industries that are vital to our future.”
• Commerce Secretary Gina Raimondo has called Chinese electric vehicles a security threat because they could transmit sensitive data back to Beijing.
• Top White House climate advisor John Podesta argued in favor of tougher import restrictions based on the carbon emitted to manufacture traded goods, which would disadvantage many Chinese products, at the Columbia Global Energy Summit in April.
• Former top White House economic advisor Brian Deese argued China’s excess manufacturing capacity for clean energy threatens to destabilize markets, exacerbate supply chain insecurity and undermine American competitiveness.

Raw politics have also bolstered the case for tariffs. Economists may celebrate the efficiency of free trade, but such an option may not exist in reality if our politics cannot abide taxpayer subsidies causing Chinese electric vehicles to flood the U.S. market while auto workers in key electoral states like Michigan lose their jobs. The best climate policy is often not the ideal, but the one that can muster enough support to become law.

The many justifications for protecting U.S. markets from Chinese green tech products have some merit but also deserve scrutiny. It may be obvious, for example, why China’s production of semiconductors with sensitive military applications would pose a national security risk, but the security threat from Chinese low-tech manufactured goods such as solar panels is less clear. Or one might argue China’s excess electrolyzer capacity, currently four times larger than global demand, could undermine American producers. But today’s demand for low-carbon hydrogen is less than one percent of what is needed in 2030 for the world to be on track to reach net-zero carbon emissions by 2050, so perhaps the better answer is dramatically increasing low-carbon fuel demand.

Resisting fragmentation

Perhaps the greatest risk, however, is that, counterintuitively, the current backlash against China stymies the energy transition by feeding growing trends of economic fragmentation.

Support for increased economic openness, new trade agreements and the World Trade Organization is already retreating in Washington. It would be a major policy error, however, to conflate concerns about imports from China with concerns about trade more broadly. Indeed, the only way to effectively counter China’s dominance in clean energy technologies is to embrace more, not less, trade with most other nations.

Consider that China mines 68% of the world’s natural graphite and processes most of the world’s cobalt, lithium and graphite. Meanwhile, it takes an average of 16 years to open a new mine, and the known North American reserves of cobalt, nickel, manganese and graphite are insufficient to meet projected demand over the rest of the decade.

It will take years to diminish China’s lead in critical mineral supply, advanced battery technology or manufacturing cost and efficiency. As Meghan O’Sullivan and I argue in the latest issue of Foreign Affairs, the rate of growth needed in clean energy is too overwhelming and China’s head start is too great to diversify supply chains away from China if the U.S. relies solely on domestic manufacturing or that of a few friendly countries.

Rather, the U.S. should expand economic cooperation and trade partnerships with a vast number of nations, aside from a small number of adversaries, to grow clean energy supply chains at the scale and speed needed while curbing China’s role. The Biden administration acknowledged as much when it highlighted the importance of working closely with other nations while announcing its new tariffs on China.

It is too simple to critique tariffs for raising clean energy costs while ignoring China’s unfair trade practices. Yet it is equally facile to argue it would be easy to rapidly expand clean energy globally without Chinese products in the mix.

Curbing Chinese influence and diversifying global supply chains without stifling growth in clean energy will require lawmakers to reject today’s protectionist trends and rediscover the advantages of economic integration and openness.

Editor’s note: Columbia University’s new Trade and Clean Energy Transition program is funded in part by Breakthrough Energy, which also supports Cipher.