The prevailing sentiment in Washington is that the United States should adopt a tough stance towards China.
This is particularly evident in the clean energy sector, where Chinese suppliers are perceived as threats rather than potential partners. However, this adversarial approach is counterproductive and may hinder America’s progress.
Understanding China’s Clean Energy Dominance
The world has become heavily reliant on China, especially for the raw materials essential to the clean energy economy. China controls a significant portion of the global supply of lithium and rare earth metals, which are crucial for batteries and wind turbines.
As the demand for these minerals skyrockets with the advancement of clean energy, the real opportunities lie in collaboration and competition, not hostility.
China’s dominance in clean energy stems from its manufacturing innovations focused on producing large volumes at minimal cost and with minimal defects.
Leading Chinese producers have embraced automation in battery and electric vehicle production lines, recognizing that human workers can better ensure quality by managing robots than by competing with them.
Factors Behind China’s Success
China’s industrial policy, including substantial subsidies, has laid the groundwork for significant productivity gains. Local governments have attracted businesses and entrepreneurs through tax breaks, free land, and expedited approvals for building facilities.
These policies have effectively created thriving industrial ecosystems that attract more firms in complementary industries.
While the United States should not expose itself to overwhelming competition, the response to Chinese dominance should not be excessive tariffs, as has been the bipartisan strategy in Washington.
Tariffs harm the U.S. by increasing the cost of Chinese imports, making it more difficult to adopt clean energy technologies like solar panels and batteries.
Additionally, tariffs disrupt trade relationships with other countries as China retaliates, impacting American exports in other sectors.
Promoting Productive Collaboration
Barriers to Chinese investment in the United States should be reconsidered. Joint ventures between Chinese and American firms can lead to mutual learning and benefit local communities through investment and job creation. This was a valuable lesson learned when the U.S. faced competition from Japan around 1990.
The ongoing subsidy race in clean technology has revitalized climate policy ambitions. However, subsidy-rich industrial policies face fiscal and political constraints, distort markets, and create friction with trading partners.
A more strategic approach involves focusing industrial policies on areas where markets have failed, such as encouraging investment in innovation and early-stage technologies.
Opportunities for U.S.-China Collaboration
Collaboration with China, including academic cooperation, can unlock opportunities for innovation in clean energy technologies like carbon capture. A stronger U.S.-China relationship could also pave the way for discussions on reducing excessive subsidies, similar to efforts in agriculture.
Diversifying the global supply chains for clean energy resources is crucial. This requires international cooperation and utilizing market forces rather than anti-China mandates.
It’s also important to address instances of market manipulation by the Chinese government, such as in graphite and rare earths markets. Collaboration with other countries seeking greater security in critical minerals can encourage diverse suppliers and monitor the market for abuses.
Learning from China and Embracing Permitting Reform
Instead of erecting barriers, the U.S. should learn from China’s approach. Permitting reform, which is gaining bipartisan support, can streamline project approvals and reduce bureaucracy. Adopting Chinese manufacturing technologies and methods can also help propel local firms to the global forefront.
The clean energy revolution is accelerating globally. To fully benefit from this transformation, the United States needs to catch up to the technological frontier by learning from, rather than isolating itself from, Beijing.