Yes, Biden’s Chinese Clean Tech Tariffs Are Warranted

We should set conditions on climate commodities we import from China

Yes, Biden’s Chinese Clean Tech Tariffs Are Warranted

Many climate thinkers are declaring the Biden administration’s newly announced tariffs on imported Chinese electric vehicles, solar panels, steel, and critical minerals to be a final vindication of their longstanding critiques of American automobile manufacturers.

For decades, American automakers lobbied for car-dependent infrastructure and more lenient fuel economy standards, promoted line after line of super-sized pickups and SUVs, and favored hybrids while procrastinating on electric cars, only for world-beating Chinese EVs to enter the market and send U.S. carmakers begging to the White House for market protection, many of the jeers contend. “Any American ought to be embarrassed that we have to keep Chinese EVs out with tariffs and regulations,” climate writer and podcaster David Roberts opined, “They are kicking our asses because our automakers remain hooked on the high returns of bloated, subsidized mega-trucks.”

On solar and batteries too, U.S. policymakers missed the boat and failed to prioritize these technologies early on when they had the chance. Now, given seemingly unassailable Chinese industrial competitive advantages and the continued need for ambitious clean technology deployment, many climate advocates worry that this wave of tariffs obstructs U.S. climate progress in the name of self-centered protectionism. The new policies “block US access to low-cost clean technology and undermine efforts to curb greenhouse-gas emissions,” writes Bloomberg columnist David Fickling. “A glut in renewables and green products is precisely what the climate doctor ordered,” agrees economist Dani Rodrik.

But in rushing to score points and vent frustrations about American political gridlock and lagging climate progress, climate commentators are missing key parts of the bigger picture, potentially even to the detriment of climate efforts. Namely, Chinese dominance in the manufacturing of many industrial products stems also from subsidies, market protections, and monopolistic behavior in upstream input commodities that reward environmental and social harms and run counter to decarbonization, climate justice, and clean tech progress. That newly-announced tariffs on steel, aluminum, and critical minerals have attracted far less criticism from climate advocates by contrast points to a subconscious awareness of such dynamics.

In short, the Biden administration is entirely correct to impose conditions on the clean technologies and metals we import from China. Sure, it’s fair to point out that the Biden Administration’s specific critiques of Chinese clean tech industry subsidization and overcapacity aren’t entirely robust. But the Biden administration and domestic manufacturers are in turn accurate in their diagnosis that the socially detrimental subsidies and non-market policies at play in China warrant a response. Healthy long-term decarbonization is not the same thing as importing the cheapest possible solar module or electric vehicle today. If the world wishes to strive for cleaner mining and manufacturing, such efforts simply will not progress if they must compete head-to-head with a dirtier, cheaper status quo.

Chinese subsidies distort markets, and it’s worse than you think

Amid all the angst over the implications of the new solar cell and electric vehicle tariffs for U.S. climate progress, three key statistics remain conspicuously missing from most reporting and commentary.

The Xinjiang region produces roughly one out of every six tons of Chinese aluminum, the key light structural metal used in battery packs and automobiles. 39% of China’s supply of solar-grade polysilicon also comes from Xinjiang, representing one-third of global production. The region’s share of metallurgical-grade silicon production is even higher—44% of Chinese production and another one-third of world production.

Chinese government policies have rooted these key inputs for the Chinese solar and electric vehicle supply chains in Xinjiang, where state-organized Uyghur forced labor programs are so prevalent that the United States has banned imports of any products made in the region on an automatic presumption of forced labor exposure. Other international actors like Canada and the European Union are following suit with similar, albeit weaker, measures. Clearly, such climate-concerned governments already perceive some hard limits to their willingness to welcome Chinese clean technology imports unconditionally.

In practice however, Chinese supply chains are highly opaque while automobile supply chain reporting requirements for imports remain light. It’s difficult for analysts to quantify, for instance, how much of China's domestic copper or lithium production comes from Xinjiang, and such knowledge gaps should elicit serious concern from energy transition advocates.

Nor are ethical issues in solar, electric vehicle, and critical mineral supply chains limited to China’s persecution campaign targeting Muslim minoritized peoples. Human rights groups warn that Chinese companies may be importing rare earth elements used in wind turbines and electric vehicles from destructive mining projects in northern Myanmar, helping prop up Myanmar’s increasingly desperate military junta amid the ongoing civil war and heavy international sanctions. Chinese migrant workers employed overseas at Chinese-owned nickel projects in Indonesia have vocally protested systemic labor abuse, deceptive hiring, underpayment, excessive work hours, and hazardous work conditions. A legendary artificial lake created from polluted discharge from rare earth refining in Inner Mongolia now also hosts polysilicon and battery graphite manufacturing around its edges, leaving locals complaining of water pollution.

Often, Chinese supply chain dominance and social harms share the same origin: heavy reliance on coal-fired heat and electricity throughout China’s heavy industrial sector. In Xinjiang, convoys of coal-carrying trucks run directly from open-pit coal mines to coal boilers powering aluminum smelters and polysilicon refineries just a few miles away. Shaanxi, one of China’s top coal-producing provinces, hosts 44% of global magnesium production using the high-temperature, energy-intensive Pidgeon process. Leveraging cheap and dirty coal energy, Chinese magnesium producers drove most international competitors out of the market over a decade ago, with limited American magnesium production surviving only thanks to steep import tariffs. Chinese coal mining itself remains notoriously dangerous by global standards. Fatal mining accidents remain routine to a degree unthinkable in countries with stronger safety regulations, as notably evidenced by a catastrophic collapse at one open-pit mine in Inner Mongolia in early 2023 that killed over fifty workers.

This is the bigger picture that climate reporters are missing when they protest that Biden is punishing beneficial Chinese subsidies for solar panels and electric cars. Subsidies for solar panel and electric car factories might benefit the climate in principle, but Chinese factories run on subsidized coal-fired electricity and carbon-intensive raw materials that clearly distort clean technology markets and exacerbate carbon emissions. Chinese manufacturers not only dodge the social costs of using coal power, buying cheap dirty metal, or building factories that local residents have no ability to object to, they also enjoy the rewards for such practices.

The advantages of subsidized upstream factories, energy, and materials add up across the full breadth of the supply chain. With battery packs and metals together comprising around 20% to 40% of an electric vehicle’s cost, and with minerals making up close to 60% of a battery pack’s cost, cheaper raw materials represent a significant factor in Chinese clean technology producers’ success.

Meanwhile, monopolistic behavior also distorts markets for critical minerals and clean tech. On the technology front, Chinese firms demand exorbitant prices from overseas companies seeking to buy their own rare earth metal processing units, while the Chinese government has floated potential future restrictions on exporting solar manufacturing equipment.

Meanwhile on the production front, industrial policies have favored Chinese consolidation of commodity markets. As Chinese magnesium smelting expanded, for instance, the national government offered producers tax rebates for exporting the metal up until 2006, flooding the global market and forcing cleaner producers in Norway, Canada, and the United States to exit the industry. Over the past 15 years, Chinese hikes and cuts to rare earth element production and export quotas have famously decided the fate of international competitors in the U.S. and Australia. Today, state-subsidized Chinese cobalt producers are inexplicably doubling down on cobalt mining despite falling prices, raising speculation of a ruthless drive for further market share and control. Wielding monopoly power to keep global competitors out of clean technology supply chains clearly harms climate efforts by limiting international market growth and suppressing efforts to compete using cleaner, more innovative industrial approaches.

All of that said, prudent commentators should not attribute affordable Chinese exports entirely to lower environmental and social standards. Chinese companies have moved quickly to capitalize and build new projects, encouraged by strong market signals from national and regional deployment incentives. Accumulated experience and a skilled technical and engineering workforce have helped producers achieve impressive economies of scale, extensive automation, and high product performance.

But neither should the world pretend that a diligent work ethic and virtuous public subsidies for clean technologies are the only reasons that Chinese firms can build aluminum smelters or battery graphite plants for one-quarter to one-third the cost of a project overseas. Faced with incumbent market actors that play under entirely different rules, many international competitors struggle or simply opt not to play at all. Such dynamics impose their own costs on decarbonization efforts and the energy transition.

Why protecting diverse supply chains is good for climate

Across the global steel and aluminum sectors, fossil fuel and process emissions add up to as much as 10 to 13% of worldwide carbon emissions annually, equal if not greater than the 10% of global emissions from passenger cars.

This statistic hints at how, for all the rhetoric that cheap Chinese solar panels and electric vehicles help drive climate efforts, unconditional imports would arguably represent a tradeoff favoring near-term deployment over longer-term deep decarbonization. In contrast, Biden’s efforts to protect the IRA’s investments in U.S. clean technology manufacturing may ultimately drive innovation in low-carbon manufacturing while bolstering supply chain resiliency.

Critics argue that the new tariffs on Chinese EVs and solar cells only encourage complacency from U.S. domestic manufacturers who will languish under market protections and fall further behind technologically. Such risks certainly exist. But it is preposterous to expect new challengers to overcome, through innovation and pluck alone, the daunting structural advantages that dominant Chinese incumbents enjoy. American firms are not just competing on the sticker price of a vehicle, but on the capital cost of establishing industrial capacity across an upstream supply chain that holds significant strategic and economic value to Americans. In the current market, an American factory project employing cheaper and more energy-efficient chemical reactors for producing solar polysilicon cannot compete against a Chinese producer enjoying half-price coal electricity. Such dynamics are particularly true in critical minerals, where the end product is indistinguishable whether produced using wind power or heavy fuel oil.

Policies to level the playing field will help encourage more global industry players with different approaches, innovating to meet more stringent environmental policies in many jurisdictions. Such activity could easily produce broader cascading benefits for the energy transition at large, uncovering useful solutions for decarbonizing many heavy industry sectors. Alternatively, the world will continue for decades to process nickel using high-pressure acid leaching, make battery graphite from petroleum coke and coal tar, and smelt magnesium with byproduct coal gas from coal chemical plants.

Indeed, a world economy in which solar wafer or synthetic graphite production can only survive commercially in China does not bode well for a successful energy transition. Some commentators may take heart from how Chinese manufacturing capacity for clean technologies, on paper, now seems sufficient to put the world on track for a 1.5C global climate target that in practice remains utterly beyond reach. But such extreme overconcentration of the solar and battery industries within a single country elevates the risk that the energy transition might stumble and unfold in a slower, more costly manner than many might hope. The lessons of the last few years, which have seen unprecedented disruptions from a global pandemic and the outbreak of a full-scale land war in continental Europe, ought to give some pause to proponents of predominantly Chinese supply chains.

Even setting black swan events aside, overconcentration may still subject clean technologies to wilder and more disruptive future market cycles. As clean technologies continue to improve and evolve, a lack of manufacturing experience elsewhere in the world may slow subsequent waves of technological diffusion. Establishing new supply chain capacity in many democratic societies already involves higher costs, more rigorous permitting, and extensive community engagement. Long-term market volatility coupled with the perceived risk of Chinese competition may continue to cut the legs out from efforts to expand key industries elsewhere.

Much of the preoccupation over the impact that Biden’s tariffs will inflict upon the affordability of clean technologies seems to obsess over near-term renewable energy and EV deployment. Many seem to see low-cost solar and batteries as the last, best hope for the U.S. and many states to achieve ambitious 2030 and 2035 climate targets that remain beyond reach and were never realistic to begin with. Even with an optimistic post-IRA view, the United States is likely to miss Biden’s lofty goal of slashing annual national greenhouse gas emissions in half by 2030 by a gap equivalent to around one to one-and-a-half billion metric tons of CO2—an amount comparable to Japan or Russia’s yearly CO2 emissions. Cheaper Chinese solar panels and EVs wouldn’t bring Biden’s 2030 goal remotely within reach, and such short-term vanities certainly aren’t worth sacrificing green manufacturing jobs or ethical supply chains for.

Setting arbitrary targets aside, protecting the U.S. market on behalf of non-Chinese producers may benefit solar and battery technology at large in ways that lend momentum to the global energy transition as a whole. Alternative producers possess strong incentives to innovate in areas like energy and environmental efficiency, improved chemical processing, or materials circularity in ways that Chinese manufacturers do not. Encouraging the scale-up of new industrial capacity within a different business environment could thus yield new technological developments that more than compensate for higher tariffs on clean tech imports to one single—albeit important—country.

Similarly, U.S. supply chain investments may help assuage wider concerns regarding supply chain injustices, strengthen the low-carbon credentials of technologies like solar and batteries, foster a new expert technical workforce, and bolster investors’ broader willingness to pursue new manufacturing projects outside of China.

Put differently, both from the perspective of heavy industry decarbonization and solar and battery supply chain insurance, the world may well come to thank the United States for taking bold steps to carve out an alternative manufacturing hub for the energy transition.

Tariffs are blunt, but so are politics

To be fair, the arguments above differ distinctly from the Biden administration’s own professed justifications for the new tariffs. U.S. officials have stressed terms like “overcapacity” and “unfair” and “nonmarket” practices in calling attention to unbalanced, over-concentrated mineral and clean technology markets. Yet as many have written, subjective accusations of overcapacity and unfair subsidization provide a shaky basis for criticizing Chinese exports, while sector-wide tariffs are an imprecise policy remedy. Some point to the administration’s rhetoric on distorting Chinese subsidies for clean technologies as hypocritical, considering the generous competing incentives that the Inflation Reduction Act offers to domestic producers.

But ultimately, U.S. leaders possess more than ample justification to subject Chinese metal, battery, and solar imports to trade conditions. Economists can endlessly debate whether a subsidy for a battery pack factory distorts markets and social welfare, but the negative societal externalities of subsidies for coal power plants, coal electricity, and poorly-regulated refineries and smelters are patently clear.

Ideally, more optimal U.S. policies might have made trade restrictions contingent on pollution below certain environmental thresholds, imposed scaling fees based on carbon footprint calculations, or required imports to comply with international standards for supply chain transparency and responsibility. These more specific policies would establish a more fair playing field while leaving Chinese producers with a path to improve and achieve trade policy compliance. But Congressional political constraints blocking more nuanced trade reforms remain formidable, carbon border fee calculations difficult, and international standards insufficiently developed.

Particularly given the looming 2024 presidential election, Biden’s choice of a blunt tool is not only defensible but strategic. Carbon-intensive, unethically-produced clean technology imports from China remain a constant vector of political attack against Biden’s clean energy policies. Meanwhile, demonstrating a firm commitment to the IRA’s promises of green manufacturing jobs could yield significant dividends at the ballot box in electoral battleground states.

Finally, it is worth recalling that leading up to the tariff increase, U.S. and Chinese delegates conducted numerous rounds of negotiations over trade, overcapacity, and commodity market manipulation. American officials made it publicly clear that the Biden administration was considering revised tariffs. Global commentators may debate the merits of the U.S. or Chinese positions as they please, but the path leading up to the White House’s announcement was neither unforeseeable nor sudden. This was a negotiation, and Beijing evidently declined to pursue a better compromise.

The new U.S. tariffs on solar, batteries, and critical minerals may further distort global trade, but they give alternative producers much-needed space to advance supply chain diversification, while protecting innovative market players pursuing cleaner manufacturing. Further policy measures and bold business strategies will need to capitalize on the window of opportunity that tariffs momentarily protect, but if executed well, such developments can powerfully benefit both decarbonization efforts and supply chain justice over the long-term.

In a way, increased trade-related sparring between international governments over solar panels and electric vehicles is one of the more compelling indicators that the energy transition is underway. If such technologies are to truly reinvent our energy and transportation systems and surpass fossil fuels in capabilities, then they must necessarily become alluring economic growth sectors worth competing over. As historians caution and as climate activists often lament, global trade patterns in fossil energy have never operated under anything like a free market. That clean energy products and their raw material inputs might be no different perhaps shouldn’t surprise us.