A New York Times op-ed of July 9, 2022, by a former US deputy trade representative pressed the panic button over a July 2022 special report by the Paris-based International Energy Agency that says China currently dominates global solar PV (photovoltaic) supply chains.
According to the report, China’s share in all the manufacturing stages of solar panels (such as polysilicon, ingots, wafers, cells and modules) exceeds 80 percent, more than double its share of global PV demand. In addition, China is home to the world’s 10 top suppliers of solar PV manufacturing equipment.
The report points out that China has been instrumental in bringing down costs worldwide for solar PV products, with multiple benefits for clean-energy transitions. At the same time, the level of geographical concentration in global supply chains also creates potential challenges that governments need to address.
The former US deputy trade representative claims that China’s State-subsidized competition has decimated America’s solar panel industry. The US share of solar component shipments worldwide fell from 13 percent in 2004 to less than 1 percent in 2021.
He argues that failure to create a strong domestic solar manufacturing industry leaves the United States and its carbon-reduction goals not just dependent on China, but also vulnerable should China block or threaten to block its solar exports as a form of retaliation in the future.
He urges the Biden administration to tighten tariff enforcement of China’s solar panel imports allegedly via third countries in Southeast Asia, and to ensure that the US Congress reaches a spending deal for large-scale clean-energy development and solar manufacturing tax credits, with an ostensible objective of decoupling from China’s solar panel industry.
In the Hong Kong Special Administrative Region, under a Climate Action Plan 2050, the government is taking the lead in promoting use of renewable energy at government premises and incentivizing the private sector to do the same
Overdependence on a competitor’s dominated economic or financial ecosystem is seldom a good idea. Witness, ironically, how the United States has been weaponizing the dollar.
Leaving this aside, this latest saga of solar panels appears part and parcel of a persistent US bipartisan “China threat” narrative. Oftentimes, there is a tendency toward an indiscriminate maximalist decoupling strategy based on political correctness rather than reasoned analysis of costs and benefits.
For example, the Biden administration seems to have discovered recently that indiscriminate decoupling with or without tariffs could be a two-edged sword, hurting domestic interests by way of painful supply chain disruptions, rising costs of living, and inflationary pressures on the Federal Reserve’s freedom to maneuver. Hence, recent speculation that President Joe Biden may decide to cancel some Donald Trump-instigated tariffs on China’s household goods.
The need for the United States to take a more targeted approach to strategic decoupling is expounded in depth in a Carnegie Endowment for International Peace April 25 report authored by Jon Bateman with a forward by Eric Schmidt, former CEO and executive chairman of Google.
The report recognizes that the US technology base is thoroughly enmeshed with China in a larger, globe-spanning technological web. Without a clear strategy, there are risks of doing too little or, more likely, too much, to curb technological interdependence with China. In particular, Washington may accidentally set in motion a chaotic, runaway decoupling that it cannot predict or control.
The report categorizes three separate policy camps in the United States — first, zero-sum “restrictionist” China hawks; second, “cooperationist” business, techno-globalist and progressive interests; and third, a “centrist” camp embracing both zero-sum and non-zero-sum elements and mixed costs and benefits for both countries. Centrists want focused, finely tuned defensive measures plus large offensive investments. This group includes many mainstream think-tank analysts, moderate political figures, and some state and local leaders
Coming back to solar panels, first, it is important to recognize this first and foremost as a question of productive capacity, rather than cutting-edge strategic technologies.
The world’s biggest manufacturer without peer, China is the largest producer, or a key inputter of many things under the sun, not just solar panels. This is enabled by a massive nationwide interconnected manufacturing base, a global logistics network including seven of the world’s top 10 container ports (including Hong Kong’s), and global Belt and Road linkages, not forgetting a “Digital Silk Road” of e-commerce.
Second, thanks to its huge labor pool, and much lower costs of living, China is able to produce noncutting-edge products like solar panels much more economically, with or without State subsidies.
Third, it is in China’s strategic interest to combat climate change, not just for ecological sustainability but also to wean the nation’s heavy dependence on imported energy. This is vulnerable to hostile interdiction at strategic transit “choke points” like the Malacca Strait or the Strait of Hormuz.
In the Hong Kong Special Administrative Region, under a Climate Action Plan 2050, the government is taking the lead in promoting use of renewable energy at government premises and incentivizing the private sector to do the same. With a dense urban concentration of apartment buildings and offices and plentiful sunshine, Hong Kong’s demand for solar panels and other photovoltaic materials is bound to explode in the decades to come. Many countries in the world are under the same process of “decarburization” as Hong Kong, making the New York Times’ cliche of “China threat” sound even more panic-instigating.
Fourth, as the whole world is embracing renewable energy, there is no lack of customers for China’s competitively priced solar panels. By all means, rebuild America’s solar industry, but hasty decoupling from China’s solar panels would not only substantially increase the costs of America’s renewable energy transition, but possibly slow its green-energy trajectory due to inadequate substitutes or supply bottlenecks.
Fifth, it is questionable whether across-the-board decoupling from China would work. One hundred thirty countries around the world have China as the largest trading partner, compared with 57 for the United States. For all the talk of decoupling, US-China trade swelled more than 20 percent last year, to $687.2 billion, while foreign direct investment inflows rose by a third to an all-time high of $334 billion. In the first quarter of this year, they grew by more than 25 percent year-on-year, according to the Beijing-based Center for China and Globalization.
Sixth, China is unlikely to weaponize its dominance of solar panels. It has more rational and potent tools to retaliate should push comes to shove in defense of its national interests.
However, as the world’s second-largest economy on a fast track, China has grown into a million-pound panda. Even though it is peaceful, anything can be interpreted as a threat.
With four times America’s population, China would only need to increase its per capita productivity to more than a quarter of the United States’ to become the world’s largest economy, by all accounts, by 2030 or thereabouts.
While this would mean China is likely to play a more important role in the world, that won’t translate into usurping the United States’ global leadership responsibilities, given America’s many unique strategic advantages, including a well-endowed geography, natural resources, global military reach, powerful allies, technological strengths, robust institutions, more dynamic demographics, and an appealing popular culture.
So while the United States rightly needs to beef up its own global competitiveness, there is no need for knee-jerk paranoia or a one-size-fits-all maximalist antagonistic toolkit in response to an exaggerated China threat.
Apart from single items like solar panels and household goods, there are plenty of global issues like climate change, reform of world institutions including the World Trade Organization, nuclear nonproliferation, regional stability, global health and pandemic management, the Fourth Industrial Revolution driven by 5G, big data, and the internet of things, etc, for both great powers to mull over, cooperate, build trust, and compete as appropriate.
The author is an international and independent China strategist; he was previously the director-general of social welfare and Hong Kong’s official chief representative for the United Kingdom, Eastern Europe, Russia, Norway, and Switzerland.
The views do not necessarily reflect those of China Daily.