Can the West Afford to Ditch Cheap Chinese Green Tech Imports?

• The US and EU are imposing tariffs on Chinese clean energy products to protect domestic industries and reduce reliance on China.
• While tariffs may boost US and EU manufacturing jobs, they could also slow the green transition by increasing costs and limiting access to essential components.
• Experts argue that finding a balance between supporting domestic industries and ensuring a rapid and affordable green transition is crucial.

The United States and European Union are both investing heavily in the development of their green energy and clean technology sectors; to support a green transition and ensure they can meet the growing energy demand. However, both regions are all too aware of the heavy reliance on China for energy and clean tech, as the Asian giant continues to dominate across several sectors, from critical minerals to microchip production. This has led several Western powers to consider the implementation of tariffs and restrictions on the import of Chinese products. However, many energy experts are now questioning whether this approach may limit the ability of the U.S. and EU to transition to green as quickly as they had hoped, as they must rapidly increase their green energy and manufacturing capacities to shift their dependence away from China. 

In May, President Biden introduced major new tariffs on Chinese EVs, advanced batteries, solar cells, steel, aluminium and medical equipment in a bid to protect U.S. jobs and manufacturers. Biden said that Chinese companies do not need to turn a profit thanks to the subsidies provided by China’s government, which is giving them an unfair advantage in the international market. Biden stated, “American workers can outwork and outcompete anyone as long as the competition is fair. But for too long, it hasn’t been fair. For years, the Chinese government has poured state money into Chinese companies ... it’s not competition, it’s cheating.” 

Many of the tariffs will not come into effect until 2026, giving the U.S. time to ramp up its manufacturing and increase its clean energy capacity. However, the tariffs could spell price increases, as companies battle to provide enough clean energy products without the same low-cost manufacturing capabilities and high government subsidies as in China. The tariffs will be phased in over the next three years. They are expected to help prevent the new wave of low-cost Chinese EVs from breaking into the U.S. market, keeping U.S. automakers competitive as they introduce their EV models. The tariff rate on solar cell imports will double to 50 percent this year, while tariffs on Chinese steel and aluminium products will increase by 25 percent, and tariffs on lithium-ion EV batteries will increase from 7.5 percent to 25 percent. 

The U.S. has made leaps and bounds in green energy since the introduction of the Inflation Reduction Act (IRA) in 2022. The IRA committed billions to the development of the renewable energy and clean tech sectors and has attracted even higher levels of private investment to the industry. Now, energy experts are concerned that the introduction of such far-reaching tariffs on Chinese products could undermine the aims of the IRA and derail the significant progress made over the last two years.  Related: Steel Industry Reacts to Import Caps and Tariffs with Cautious Approach

Similar issues are being seen in the EU, following the imposition of provisional tariffs on Chinese EVs by the European Commission, due to China’s “unfair subsidisation”. The new tariffs on Chinese EVs average around 31 percent, which is far higher than duties on conventional car imports. While the tariffs are expected to spur an accelerated development of U.S. and EU green energy manufacturing and support the creation of jobs, they could also hinder the speed of EV and renewable energy project rollout, as well as drive up consumer prices. 

The introduction of tariffs will undoubtedly make the green transition more expensive and difficult, even if it does have the knock-on effect of boosting U.S. energy and manufacturing jobs and decreasing reliance on China. Governments worldwide must consider their priorities when it comes to green energy. While the Chinese government has done little to hide its predatory trade tactics, China is providing the components and technology needed to accelerate the global green transition. This has indeed made many countries around the globe heavily reliant on China for their energy, transport and electronic devices. Around 80 percent of the world’s solar cells and 60 percent of its wind turbines, EVs and batteries are made in China, demonstrating just how important the country is to the global green transition. 

Nevertheless, in the run-up to the Presidential election, the introduction of tariffs on China by Biden has been a politically strong move, that has attracted supporters. The promise of an increase in American jobs will always be a winner, and it is a move that many saw as necessary for competing with Trump. However, the long-term effect of the move, which may not be immediately seen by voters, will be higher costs for consumers who are forced to subsidise domestic clean energy companies to produce the components needed for a green transition. It is yet to be seen whether the tariffs will lead to a major resurgence in U.S. and European manufacturing, but they are likely to limit the acceleration of the green transition in the short to mid-term. 

By Felicity Bradstock for Oilprice.com

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