T he global race for dominance in green technologies is intensifying tensions between China—the world’s largest manufacturer—and its major trading partners, particularly the US and the EU. These tensions have been exacerbated by new trade policies aimed at countering China's significant influence in the clean energy sector.
China’s Leading Role in Clean Energy
China has established itself as a powerhouse in clean energy technology, investing heavily in areas like solar panels, lithium batteries, and electric vehicles (EVs). Last year, China accounted for 75% of global investment in clean technology manufacturing, though this figure has dropped from 85% in 2022. For 2024, China is on track to invest $676 billion in clean energy—more than double the US's projected $315 billion and significantly ahead of the EU’s $370 billion.
This substantial investment has enabled China to become the world’s largest and most cost-efficient supplier of critical green technologies and minerals. Chinese carmakers produced over half of the world's electric vehicles last year, and the country dominates global manufacturing capacity for EV batteries, wind turbines, and solar panels. Additionally, China processes more than half of the world’s lithium and cobalt, and almost all refining of graphite and rare earths essential for clean technologies.
Western Responses and Tariffs
In response to China’s dominance, the US and the EU have implemented tougher trade policies. The US has increased tariffs on a range of Chinese products, including EVs, batteries, solar panels, and critical minerals. The EU has also announced substantial increases in tariffs on Chinese EVs, citing the need to protect local industries from what it views as unfair competition.
The EU’s executive body has argued that these tariffs are necessary to prevent the green transition from relying too heavily on subsidized imports from China. However, experts caution that these tariffs may have unintended consequences, potentially slowing down the global shift to green energy and increasing costs for businesses and consumers.
Impact on the Green Transition
Critics argue that tariffs on Chinese green technologies could hinder progress in the global transition to clean energy. Academics David G. Victor and Michael R. Davidson assert that high tariffs drive up the cost of essential components like solar panels and batteries, making it more difficult to reduce emissions. Pierre-Olivier Gourinchas, IMF chief economist, has also warned that protectionist measures could complicate global coordination on climate policies.
The McKinsey Global Institute reports that the current deployment of low-emission technologies is only about 10% of what is needed to achieve net-zero carbon emissions by 2050. Delays in the transition could exacerbate the impact of climate change, particularly on the world’s poorest nations, who are most vulnerable to extreme weather events and rising costs.
A Call for Diversification and Innovation
To address these challenges, experts suggest focusing on diversifying supply chains and investing in innovation rather than implementing broad tariffs. Fatih Birol, CEO of the International Energy Agency (IEA), advocates for trade policies that reduce reliance on any single country for critical technologies. He emphasizes the need for energy security and competitiveness through diversified supply chains.
David G. Victor suggests that Western policymakers should target protectionist measures more narrowly, focusing on areas with genuine national security concerns, such as advanced semiconductors and certain AI technologies. He also advocates for reducing onshoring and friendshoring requirements for critical minerals and investing in emerging technologies rather than subsidizing established industries.
In conclusion, while the competition for green technologies is driving significant geopolitical tensions, it also highlights the critical need for a balanced approach that fosters both innovation and cooperation in the global effort to combat climate change.
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