The National - News

Stringent US tariffs on China green energy exports could hurt climate change goals

▶ US President Joe Biden is expected to announce huge rises in charges on EVs and other clean products

- ROBIN MILLS Robin Mills is chief executive of Qamar Energy and author of ‘The Myth of the Oil Crisis’

Economist Paul Samuelson was once challenged to state an economic principle that was both true and non-obvious. He named comparativ­e advantage, developed by 19th-century British economist David Ricardo. Some modern politician­s think they can repeal this principle in the name of green advantage.

The administra­tion of US President Joe Biden is tomorrow expected to announce huge increases in tariffs on clean energy goods from China, notably in the levy on electric vehicles from 25 to 100 per cent. Tariffs on solar panels, semiconduc­tors and other products are also likely to be increased.

Speaking at the Columbia Global Energy Summit last month, climate adviser John Podesta announced the formation of a White House task force on climate and trade. Though Mr Podesta’s address spoke several times of innovation and “novel policy levers”, the US has reached first for the oldest of all trade tools – tariffs.

The alleged reason is that China is competing unfairly in the new energy landscape: subsidisin­g its industries.

Are Chinese green energy goods unfairly subsidised? They may receive various benefits in the form of cheap capital, land, tax breaks, below-cost electricit­y, and state-directed research. Some solar panels are produced in the Muslim-majority western province of Xinjiang, with credible allegation­s of human rights abuses. Chinese electricit­y supplies remain coal-dominated and so carbon-intensive, with domestic carbon prices small and largely ineffectiv­e. Unlike much of the Chinese economy, though, the EV sector is a success story for the private, rather than the state-owned sector. Upstart car makers and tech companies have piled in to produce vehicles that are more modern and much cheaper than their US and European rivals.

The US, though, has also long supported electric cars, through fuel efficiency standards that effectivel­y subsidised the rise of Tesla, and tax incentives in California.

Now, Mr Biden’s flagship environmen­tal legislatio­n, the Inflation Reduction Act, provides generous tax credits for EVs manufactur­ed in North America and meeting various criteria. A large share of components and critical minerals must be sourced from North America or other free-trade partners, and none from “unfriendly” countries – notably China and Russia. Once the

act comes into effect, it will be hard to claim that Chinese green technology manufactur­ers benefit that much more than their US-based counterpar­ts from government largesse. So why introduce these stringent tariffs now?

It is pure politics, of course. Mr Biden seeks to appear to protect manufactur­ing jobs in swing states such as Michigan and Pennsylvan­ia. This explains the absurd decision to hold up the bid by Nippon of Japan – a close US ally – to buy US Steel. Despite its famous name, US Steel is only the fifth-largest steel producer in the US, and Nippon has promised to invest and to preserve employment.

If even Japan is a target, China is an ideal bogeyman. Viewing the People’s Republic as a dangerous rival, a likely future enemy, is almost the only bipartisan issue in American politics.

Fears here range from the absurd – that a fleet of Chinese-controlled robocars would somehow be used as a weapon – to the more reasonable. China certainly seeks to dominate future strategic industries, artificial intelligen­ce being one, and clean energy technology another – EVs, solar, batteries and so on.

But the US approach carries within it three dangers. First, as in the 1980s when it imposed restrictio­ns on Japanese cars, it will mean American motorists being saddled with more expensive, fuel-guzzling and less advanced models.

Ford is already back-pedalling its EV effort, having struggled to make it profitable. So is Germany’s Mercedes. With less competitio­n, Ford and GM will fall further behind. Stellantis, which combines Chrysler with Fiat, Citroen and other European marques, looks more serious in its electrific­ation efforts.

And we needn’t suppose such punitive tariff policy applies only to imports from China. If India, Indonesia, Saudi Arabia or anyone else becomes a serious competitor in new energy tech to American incumbents, they too will face trade barriers.

Inflation will be higher, economic growth lower – particular­ly if more countries follow the US path.

Second, it will impede decarbonis­ation in the US. Europe, too, has considered tariffs on Chinese solar panels. More expensive solar, batteries, EVs and other green technologi­es, that have to jump through bureaucrat­ic hoops to qualify for subsidies, mean emissions reductions will be slower. That is at odds with official climate objectives in the EU and from the US Democratic Party.

Third, it further chills the cold peace between the US and China, damaging internatio­nal co-operation on climate and on other key issues. In the worst case, rising tariffs, “make local” mandates, exclusive supply chains and other trade barriers could fragment the world into economic blocs, stagnate growth, worsen suspicions and lead into violent conflict, as in the 1930s.

What should Washington, Beijing and other global capitals do to avoid these gloomy prospects? Instead of trying to wall off their economies, the US, Europe and other struggling industrial powers need to think about why they are losing competitiv­eness in new energy technologi­es. The short-termism of US financial markets is one problem, with investment analysts foolishly praising the car companies’ reverse gear on EVs.

They should work together in as wide and open networks as possible, including other constructi­ve partners including Japan, South Korea, the Gulf, India and Indonesia.

This demands strategic thought about value chains and the benefits of vertical integratio­n. Not every country needs to or can do everything – Ricardo’s key insight.

Where they have genuine objections to China – its high carbon footprint, for example – they should address those with standards or methods such as Europe’s carbon border adjustment, not by blanket tariffs. That requires working in good faith with China when it makes improvemen­ts.

Conversely, Beijing needs to understand exactly why others are worried about its industrial prowess, and what it can reasonably do about that. It is in its interest to ensure its export markets remain open.

Support for true “infant industries” has to be carefully calibrated, and limited in scope and time.

If a company such as Ford, which turns 121 years old in June, can’t prosper in an electrifie­d world, why should the American taxpayer or motorist bail it out? Even more importantl­y, why should the climate pay the price?

 ?? AFP ?? BYD electric cars at Suzhou Port. The US is likely to raise the levy on China’s electric vehicles from 25 per cent to 100 per cent
AFP BYD electric cars at Suzhou Port. The US is likely to raise the levy on China’s electric vehicles from 25 per cent to 100 per cent
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