The U.S. Will Lose the Economic-Industrial War With China on the Renewable Energy Front

President Biden’s attempt at reviving U.S. industrial policy is likely to fail, as it comes two decades too late to effectively compete with China. The greater concern is that the tariffs embedded in this policy may add to existing global tensions, potentially steering the world toward broader conflict.

Biden’s industrial policy includes increased spending on the energy transition, and tariffs to protect emerging U.S. industries. ​ The Inflation Reduction Act (IRA) provides around $369 billion to support energy security and climate change initiatives. The IRA extends and modifies the federal EV (electric vehicle) tax credit, provides substantial incentives for domestic manufacturing of EVs and their components, and allocates funds for the development and expansion of EV charging infrastructure across the country.

The tariffs aim to protect American workers and industries from what the administration considers unfair trade practices by China, including forced technology transfers, intellectual property theft, and industrial subsidies that lead to overcapacity and market dumping.

Biden’s policy is intended to re-industrialize the American economy, and protect it from Chinese dominance. It is more likely to increase inflation and consumer costs, aggravate supply chain issues, and further push the Global South further into China’s orbit. It will fail, however, mostly because the U.S. is already too dependent on Chinese imports for the very industries that the new policies are designed to promote.

EVs Are a Poor Climate-Change Solution

EVs are unlikely to reduce carbon emissions or replace conventional cars in the window of climate-change urgency. Passenger cars accounted for only 8% of global CO2 emissions in 2020 (Figure 1). That’s not nothing but it’s an odd place to start saving the planet from climate change considering that 40% of emissions are from electric power generation used to charge EV batteries.

A Volvo study in 2021 revealed that the manufacture and operation of an electric vehicle generates approximately 70% more emissions than its ICE (internal combustion engine) counterpart. The increased emissions are primarily due to the energy-intensive production of batteries and the use of materials like aluminum, which have high production emissions. Assuming that an average car in America is driven 10,000 per year, it takes about seven years before an EV’s net emissions are less than those from an ICE car. Volvo’s and a similar study by Volkswagon tested EVs with small batteries whose driving range averaged only 175 miles.

The EVs selling in America today have 300-400 mile ranges and much larger, heavier batteries. They will take about ten years to emit fewer emissions than an ICE car. Few Americans keep a car that long so EVs will probably never result in lower emissions.

“It’s dishonest – intellectually dishonest – to pretend…that electric vehicles are zero emissions. They’re not.

“Obviously it offsets emissions from combusting gasoline…but it’s not zero emissions. It’s “other place emissions“…We have to have a power plant. Everybody jokes about how the power plant could be coal fired. Well that’s no joke.”

Mark Mills

Another study by The Institute of Physics reaches very different conclusions from Volvo and Volkswagon. It found that the crossover to net fewer emissions for EVs versus ICE cars is less than two years. Its authors acknowledge that the life cycle emissions of EVs are double that for ICE vehicles but their use cycle emissions are closer to half. In other words, emissions from EV charging are less than from burning liquid fuel in an ICE vehicle.

The problem with the study is that it assumes that electric power will become ever-emission freer in the future with renewable sources replacing coal and natural gas. There is no evidence that this will be true globally beyond optimistic projections.

It is similar to repeated claims that electric power from wind and solar keeps getting cheaper. Unfortunately, there is no state or country in the world in which the increased penetration of these energy sources has led to reduced utility grid costs; the inverse is the norm.

Too Little, Too Late to Compete With China

Leaving aside that EVs aren’t much of a climate-change solution, the business component of Biden’s industrial plan is too little, too late. China had an EV industrial policy twenty years ago, and the U.S. is just getting around to it now.

The Chinese government has provided substantial support and subsidies to the EV industry since the early 2000s, encouraging its growth and development. Europe became China’s largest market for EV exports, accounting for 36% of China’s total EV exports, while the United States lagged behind at just 1%. ​ Chinese companies strategically targeted the international market, establishing partnerships and manufacturing plants in countries like Hungary and Brazil. ​

In 2023, China accounted for 57% of global EV stocks in 2023 (Figure 2). The EU accounted for 16% and the U.S. for 12%. Optimism about not betting against America is one thing; the business reality of China’s overwhelming dominance is another.

Compounding this issue is the United States’ substantial reliance on imported critical minerals and materials from China necessary for electric vehicle production. ​ These include minerals such as lithium, cobalt, nickel, rare earth elements, copper, aluminum, graphite, manganese, and more. The U.S. currently relies on imports for 100% of some 17 critical minerals, and for 28 others. Net imports of these components account for more than half of domestic demand. ​

China dominates the downstream and midstream global EV battery supply chain (Figure 3). Yet Biden’s tariffs include the batteries, graphite, steel and aluminum as well as rare earth minerals and derivative products that are crucial components in EV batteries and motors. The apparent lack of analysis in these recent U.S. policies is perplexing.

In addition to EVs, the new U.S. policies include a 50% tariff on solar panels and semiconductors. Solar panel imports from China, including those funneled through countries like Malaysia, Vietnam, and Thailand, account for approximately 84% of U.S. solar panel imports as of the fourth quarter of 2023. Moreover, around 80% to 90% of the components used in U.S.-assembled solar panels, such as silicon wafers, cells, and other key materials, are sourced from China.

This is because—as with EVs—China has had an industrial policy for solar panels and components for at least twenty years. In the early 2000s, German solar panel manufacturers were quite strong and competitive in the market. However, with the global financial crisis in 2008, China implemented a massive fiscal stimulus package that included significant subsidies for its solar panel manufacturing industry.

China’s subsidies led to a rapid increase in the production of solar cells, with an 800% increase between 2009 and 2011. This surge in production allowed Chinese manufacturers to offer solar panels at lower prices compared to their competitors.

“By this time, the German solar panel manufacturers had been decimated. So China won. I mean, that is quite a sobering story…I guess the lesson is you’re doomed to lose. If you go up against the Chinese, you just can’t compete.”

Helen Thompson and Tom McTague

When I worked for a major U.S. oil company decades ago, we would routinely exit lucrative markets for gasoline and other products in which we couldn’t be number one, in favor of areas where we could dominate. This is how to win in business.

There is almost no possibility for the U.S. to become number one in EVs or solar panels against China. A smarter industrial policy would be to position American renewable products in areas where they can dominate or to focus on different markets where the U.S. is already is number one.

Economic Warfare Adds to Risk of World War

It’s time to be honest about what’s happening in the world. The U.S. and its NATO allies are in an industrial and economic war with China, Russia, Iran and their supporters. At the same time, there are hot wars taking place in Ukraine and the Middle East between the same protagonists.

Military warfare is the twin of economic warfare as nineteen-century economist Frédéric Bastiat noted,

“If goods don’t cross borders, soldiers will.”

Frédéric Bastiat

In the aftermath of Russia’s invasion of Ukraine, the global geopolitical, economic, and social landscape has profoundly changed. The Covid-19 pandemic of 2020 triggered a reconfiguration of supply chains and trade dependencies, compelling nations to confront the vulnerabilities of their interconnected production networks. The unipolar era dominated by the United States is transitioning towards a multipolar world. The alliances and partnerships that characterized the post-World War II order are unraveling.

On the eve of Russia’s incursion into Ukraine, China and Russia issued a joint declaration, proclaiming their partnership as having “no limits” in their opposition to NATO expansion. They also stated their vision to remodel the global governance system to better reflect shifting global dynamics toward the developing world, posing a challenge to the US-centric world order.

The Axis of Resistance is an informal coalition led by Iran, comprising various political and militant groups across the Middle East and North Africa. This alliance includes the Syrian government, Hezbollah in Lebanon, the Houthi movement in Yemen, and various Shia militias in Iraq, among others. The coalition aims to counter Western influence, particularly that of the United States and Israel, and to promote Iranian interests in the region.

The BRICS consortium—comprising Brazil, Russia, India, China, and South Africa—expanded to include Saudi Arabia, Iran, the United Arab Emirates, Ethiopia, and Egypt in 2024. These nations now command a dominant share of over half of global oil exports, influencing oil prices and the geopolitics of energy. This bloc is poised to challenge the supremacy of the US dollar in the oil market, reshaping the control and operation of global energy markets.

Chinese president Xi Jinping presented himself as the leader of the BRICS bloc when he recently met Arab leaders in Beijing. He laid out a vision for collaboration on technology and finance. He also described the need to develop an alternative world order to challenge the US, to embrace Russia and other emerging economies in the so-called Global South.

As part of the current economic war, there are 54 countries subject to some form of sanctions, accounting for one-third of global GDP. 

“We would do well to consider where this ever escalating economic warfare will lead to…The US is being challenged…in an unprecedented way because a growing number of economic heavyweights in the developing world are aligning themselves with America’s traditional enemies Russia and China in a rapidly expanding BRICS.”

Jeff Rubin

The global situation is disturbing. Fighting in Ukraine and in the Middle East has worrisome potential to expand into broader conflicts or even world war.

Russia has recently begun conducting tactical nuclear weapons drills in regions of Ukraine that Russia has annexed. The exercises, ordered by President Vladimir Putin, are a response to perceived threats and provocative statements from Western officials.

French President Emmanuel Macron suggested that France might consider sending ground troops to Ukraine, and has prepared a plan to send military instructors to Ukraine. UK Foreign Secretary David Cameron’s stated that Ukraine could use British-supplied weapons to strike targets inside Russia.

The ongoing conflict between Israel and Hamas in Gaza continues to be a flashpoint. The offsetting attacks by Iran and Israel into their respective sovereign territories appear to be contained for now but were a serious departure from regional precedent. The Iran-aligned Houthi movement has continued its attacks on commercial and military vessels in the Red Sea, further destabilizing the region and threatening international shipping routes​. China has conducted significant military exercises around Taiwan, and the United States has recently increased its military presence in the area.

In the broader geopolitical landscape, Biden’s decision to challenge China over electric vehicles and solar panels seems almost absurd, except for the fact that it risks escalating global tensions. This is a conflict that appears unwinnable for the U.S., raising the question: why engage in it at all?

What about the climate-change implications of conflict?

The added carbon emissions from rerouting shipping from Houthi attacks in the Suez Canal are significantly higher than the emission savings from adding more EVs to the current U.S. vehicle fleet. The rerouting of shipping may add as much as 20 million metric tons of CO2 emissions annually, which far exceeds the zero emissions savings achieved by increased adoption of EVs in the U.S.

We would do well follow Jeff Rubin’s advice and carefully consider the potential outcomes of ever-escalating economic warfare.