This morning the Senate Energy and Natural Resources Committee held a hearing on the impact of China’s policies on the U.S. clean energy industry. China’s impact is of the utmost importance because as we speak, the United States is in a race for leadership of the rapidly growing clean energy economy and the economic growth and jobs that come with it. But this fierce competition is being undermined by countries that don’t want to play by the rules of global free trade. In a new ITIF report, Green Mercantilism: Threat to the Clean Energy Economy, some countries are adopting policies that give their domestic firms an unfair advantage, undercutting more advanced competitors, stifling innovation, and limiting the global communities ability to mitigate climate change.
The report documents in a first-ever survey how mercantilism is pervading the nascent clean economy, including the use of unfair trade practices like import tariffs, forced technology transfer, IP theft, currency manipulation, export dumping, unfair production subsidies, and limits on government procurement.
While mercantilism is present in nearly all economic industries, the rise of “green mercantilism” is troubling because it impacts a key growth industry and hurts countries that largely implement “good” innovation policies, like the United States. Citing ITIF’s report, Sen. Ron Wyden (D-OR) stated at the hearing, “I think the principle question for our panel and for our challenges in the days ahead is how we’re going to respond to what some experts define as green mercantilism…Is it acceptable for Chinese industrial policy to shape the U.S. economy?”
Green mercantilism is also troubling because it harms the global community’s ability to innovate the cheaper and better next-generation clean technologies we need. Hearing panelist and Director for Advanced Technologies at SEMATECH Dan Holladay put this in stark terms: “The clean energy technologies we deploy today aren’t the technologies we’ll deploy at the terawatt scale in the future.” And these next-generation technologies will be the bedrock of global reductions in greenhouse gas emission and whether the world addresses climate change.
And while recent Department of Commerce tariff rulings against Chinese export dumping policies are a great first step, more aggressive actions are needed because the U.S. is already losing ground. For example, the United States has recently watched its first-generation solar PV export market share fall from 30% to 7% in under a decade while China’s grew from 2% to 55% because of their green mercantilist policies. And China isn’t the only green mercantilist, as other countries like India, Italy, the Philippines, and Brazil are increasingly using green mercantilist practices to spur similar rapid growth in wind turbines, biofuels, energy storage, and electric vehicles.
So what else can be done to combat green mercantilism? Panelists at the hearing echoed many similar ITIF proposals. Economic Strategy Institute President Clyde Prestowitz Jr. states that the United States must “pre-empt mercantilist policies” before domestic industries are severely harmed. This should include boosting financial support for the Office of the U.S. Trade Representative (USTR) so that the U.S. can more quickly address mercantilist policies and by developing a new Office of Globalization Strategies within USTR that can step up enforcement of trade laws for industries of strategic importance like clean energy.
Heritage Foundation Senior Research Fellow Derek Scissors responded that “the best response [countries that practice mercantilism] is to get them to do less of it and that may include threatening them.” ITIF proposes that a good place to start is for the United States to announce that the federal government will not procure any products from countries that don’t have open government procurement policies. For example, the federal government shouldn’t procure clean energy technologies from China until it abides by WTO rules and doesn’t discriminate against foreign companies vying for procurement contracts.
But while enforcing clean energy free trade and aggressively prosecuting green mercantilists is vitally important, combating green mercantilism by continuing to invest in the fundamental building blocks of clean energy innovation is just as important. As ITIF has reported before, the world is significantly underinvesting in government clean energy RD&D and United States investments – historically at the top of global rankings – is stagnating and even declining at a time when we should be doubling down on innovation. Clyde Prestowitz Jr. explicitly addresses why this matters: “If you’re not keeping up with the investment and R&D, you’re falling behind. This is a trend that the U.S. is falling into.”
As such, policymakers and clean energy advocates face a fundamental choice: cheaper existing clean energy that is reliant on government subsidies or cheaper next-generation clean energy that is competitive on their own through innovation. Green mercantilism not only continues the former but makes the latter much more difficult. How the United States and other innovation-oriented countries address this issue may very well define the future of clean energy.