To counter China, G7 countries borrow its economic playbook
JIM TANKERSLEY
Mi d w a y through his face-to-face meeting with President Joe Biden in Indonesia last fall, the Chinese leader, Xi Jinping, offered an unsolicited warning.
Biden had in the preceding months signed a series of laws aimed at supercharging US industrial capacity and imposed new limits on the export of technology to China, in hopes of dominating the race for advanced energy technologies that could help fight climate change.
For months, he and his aides had worked to recruit allied countries to impose their own restrictions on sending technology to China.
The effort echoed the sort of industrial policy that China had employed to become the world’s manufacturing leader. In Bali, Xi urged Biden to abandon it.
The president was not persuaded. Xi’s protests only further convinced Biden that America’s new industrial approach was the right one, according to a person familiar with the exchange.
As Biden and fellow leaders of the Group of 7 nations meet this weekend in Hiroshima, a centrepiece of their discussions will be how to rapidly accelerate what has become an internationally coordinated round of vast public investment.
For these wealthy democracies, the goal is both to reduce their reliance on Chinese manufacturing and to help their own companies compete in a new energy economy.
Biden’s legislative agenda, including bills focused on semiconductors, infrastructure and low-emission energy sources, has begun to spur what could be trillions of dollars in government and private investment in American industrial capacity.
That includes subsidies for electric vehicles, batteries, wind farms, solar plants and much more.
The spending — the United States’ most significant intervention in industrial policy in decades — has galvanised many of America’s top allies in Europe and Asia, including key leaders of the G-7. European nations, South Korea, Japan, Canada and others are pushing for increased access to America’s clean-energy subsidies, while launching companion efforts of their own.
“This clean-tech race is an opportunity to go faster and further, together,” Ursula von der Leyen, the president of the European Commission, said after an economy-themed meeting at the G-7 summit on Friday.
“Now that the G-7 are in this race together, our competition should create additional manufacturing capacity and not come at each other’s expense,” she said.
Biden and his G-7 counterparts have embarked on a project with two ambitious goals: to accelerate demand, even by decades, for the technologies needed to reduce emissions and fight climate change; and to give workers in the United States and in allied countries an advantage over Chinese workers in meeting that demand.
Much of that project has roared to life since the G-7 leaders met last year in the German Alps. The wave of recent G-7 actions on supply chains, semiconductors and other measures to counter China is based on “economic security, national security and energy security,” Rahm Emanuel, the US ambassador to Japan, told reporters this week in Tokyo. He added: “This is an inflection point for a new and more relevant G-7.”
Emanuel said the effort reflected a growing impatience among G-7 leaders with what they call Beijing’s use of economic measures to punish and deter behaviour by foreign governments and companies that China’s officials do not like.
But more than anything, the shift has been fuelled by urgency over climate action and by two laws Biden signed last summer: a bipartisan bill to shower the semiconductor industry with tens of billions of dollars in government subsidies, and the climate provisions of the Inflation Reduction Act, which companies have jumped to cash in on.
Those bills have spurred a wave of newly announced battery plants, solar panel factories and other projects. They have also set off an international subsidy race, which has evolved after being deeply contentious in the immediate aftermath of the signing of the climate law.
The lucrative US supports for clean energy and semiconductors — along with stricter requirements for companies and government agencies to buy Us-made steel, vehicles and equipment — have put unwelcome pressure on competing industries in allied countries.
Some of those concerns have been quelled in recent months. The United States signed a deal with Japan in March that will allow battery materials made in Japan to qualify for the benefits of the Inflation Reduction Act.