For more than half a century, concerns about oil shortages and climate destruction have prompted governments to invest in alternative energy sources.
In the 1970s, President Jimmy Carter installed solar panels on the roof of the White House as a symbol of his commitment to solar energy development, in the 1990s Japan offered groundbreaking subsidies to homeowners for installing solar panels, and in the 2000s Germany developed an innovative program that guarantees consumers who install solar power systems the electricity they generate can be sold at a profit.
But no country has yet matched the scale and tenacity of China’s support, and the proof is in production: By 2022, Beijing accounted for 85% of global clean-energy manufacturing investment, according to the International Energy Agency.
Now the United States, Europe and other rich countries are desperately trying to catch up with China. Hoping to correct past industrial policy mistakes and learn from China’s successes, they are spending billions to subsidize their own companies while also seeking to block competing Chinese products. They have made modest progress: China’s share of new investment in clean-energy factories fell to 75% last year, according to the Energy Agency.
But the problem for the West is that China’s industrial dominance is underpinned by decades of experience using the power of its one-party state to leverage all its government and banking tools to encourage fierce competition among private companies.
China’s unparalleled production of solar panels and electric cars builds on earlier development of chemical, steel, battery and electronics industries, as well as massive investment in rail, ports and highways.
According to an analysis by the Center for Strategic and International Studies (CSIS), from 2017 to 2019, China spent an extraordinary 1.7% of its gross domestic product on supporting its industries, more than double the rate of any other country.
The spending included low-interest loans from state-run banks and cheap land from local governments, with little expectation that the companies it helped would make an immediate profit.
Additionally, the United States and other countries accuse China of circumventing international trade agreements, stealing intellectual property and engaging in forced labor.
All of this has combined to put China in a position to supply rival countries with large quantities of low-cost electric cars, solar cells and lithium batteries as wealthy consumers increasingly turn to green technology.
For example, China now controls more than 80% of global production of solar panels at all stages of manufacturing.
“When you go on a massive scale like China does, you have huge economies of scale,” said Gregory Nemet, a public policy professor at the University of Wisconsin who studies the global solar industry.When the investment created overcapacity and squeezed Chinese companies’ profitability, Beijing was prepared to weather the losses.
President Biden and European leaders are determined to develop their own manufacturing capabilities in advanced technologies such as semiconductors, electric vehicles and batteries, including by adopting some of China’s industrial development strategies.
Jennifer Harris, a former Biden aide who heads economic and social initiatives at the William and Flora Hewlett Foundation, said China’s rise to dominate major global manufacturing industries showed the potential and power of national industrial policy.
“Was it a failure? Of course,” she said. “Was it a success? Of course.”
Biden and European leaders have stepped up their accusations against Beijing of illegal practices such as deliberately subsidizing overproduction and then selling low-cost goods to other countries.
China denies it has violated trade rules and says its vast industrial capacity is proof of its success. President Xi Jinping said this month that China is increasing global supplies of goods, easing international inflationary pressures and helping the world combat climate change.
Biden said this month he would impose tariffs of up to 100% on imports of Chinese green technology, including electric vehicles, in a move aimed at blocking further Chinese penetration into the US.
Some economists and environmentalists have warned that such measures would slow clean-energy goals, but European authorities are expected to impose their own tariffs soon. Europe has become increasingly concerned about security issues as China shifts its geopolitical stance toward Russia and Iran.
The adoption of industrial policies by Western countries marks a departure from the ideals of free markets and minimal government intervention that the United States and its allies have traditionally advocated.
Policies prompted by the energy crises of the 1970s were dramatically reversed when Ronald Reagan was elected president in 1980. Even the solar panels that had been installed at the White House during the Carter administration were removed.
The United States has adopted the view that unconstrained markets are always best, except in certain national security-related industries.
“If we end up having to rely on other countries for key components, that’s fine,” said Brad Setzer, a senior fellow at the Council on Foreign Relations.
Columbia University economist Joseph Stiglitz said the United States has long lacked a broad industrial policy and coordinated strategy.
“Even Democrats were afraid to take a more active government role,” he said, “and I think that was a big mistake that obviously had long-term consequences.”
In the view of some Chinese economists, complaints about unfairness from the United States and Europe are a sign of the failure of their own government.
“The Western decision to pursue neoliberal economic policies was a strategic error that led to de-industrialization of their economies and created an opportunity for China,” said Cheng Yung-nien, a professor at the Chinese University of Hong Kong.
Whatever mistakes may have been made, America’s political leaders say they are determined not to repeat them.
The United States and the European Union made “significant progress” in clean energy technologies last year, according to the International Energy Agency.
And the Biden administration’s multi-billion dollar program represents one of the most far-reaching uses of industrial policy in American history.
Biden’s tariffs are a targeted escalation of the U.S. trade offensive against China that began under the administration of former President Donald J. Trump, who imposed tariffs on more than $350 billion in Chinese imports per year, drawing retaliatory tariffs from Beijing. Biden has maintained those tariffs and is erecting new barriers to trade with Beijing, including adding or increasing tariffs on clean energy and denying Chinese access to U.S.-made advanced semiconductors.
Biden’s trade policies are “very aggressive,” said David Autor, an economist at the Massachusetts Institute of Technology who has extensively studied the effects of trade with China on the U.S. economy, including factory job losses.
In his view, there are crucial differences between Biden’s trade strategy and Beijing’s as the two countries seek to seize the lead in the clean energy race.
China is focused on sending low-cost exports to global markets and preventing foreign companies from dominating its domestic market, Autor said.
He said Biden is focused on blocking imports from China and denying China access to some critical U.S. technologies, such as advanced semiconductors.
At a meeting of G7 finance ministers in Italy last week, leaders on both sides of the Atlantic warned that the United States and Europe needed to coordinate on protectionism and subsidies if they wanted to catch up with China in the race to dominate key industries.
“Excess capacity threatens the viability of businesses around the world, including in emerging markets,” Treasury Secretary Janet Yellen said Thursday.
“It is vital that we, and a growing number of other countries, take a clear and united stance on this issue,” she added.
