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Don’t Fret About Green Subsidies

Governments should stop decrying each others’ green industrial policies as norm violations or dangerous transgressions of international rules. The moral, environmental, and economic arguments all favor those who subsidize their green industries, not those who want to tax others’ production.

CAMBRIDGE – A trade war over clean technologies is brewing. The United States and the European Union, worried that Chinese subsidies threaten their green industries, have warned that they will respond with import restrictions. China, in turn, has lodged a complaint at the World Trade Organization about discriminatory provisions against its products under US President Joe Biden’s landmark climate legislation, the Inflation Reduction Act (IRA).

On a recent trip to China, US Secretary of the Treasury Janet Yellen warned China directly that the US would not stand by in the face of China’s “large-scale government support” for industries such as solar, electric vehicles, and batteries. Reminding her audience that the US steel industry had previously been decimated by Chinese subsidies, she made clear the Biden administration’s determination not to allow green industries to suffer the same fate.

China has scaled up its green industries with mind-boggling speed. It now produces nearly 80% of the world’s solar PV modules, 60% of wind turbines, and 60% of electric vehicles and batteries. In 2023 alone, its solar-power capacity grew by more than the total installed capacity in the US. These investments were driven by a variety of government policies at the national, provincial, and municipal levels, allowing Chinese firms to travel rapidly down the learning curve to dominate their respective markets.