Trump’s Attacks on Clean Energy Could Backfire, Economists Warn, Helping China’s Dominance
Former President Donald Trump’s campaign promise to roll back President Biden’s climate policies, claiming they are a "plan to make China rich", might end up having the opposite effect, according to economists. While it’s true that China currently dominates the supply chain for many crucial components of renewable energy technologies, such as electric vehicle batteries, solar panels, and other green technologies, eliminating Biden’s policies could actually strengthen China’s position. This is because it would jeopardize hundreds of billions of dollars in manufacturing investments already made in the United States, potentially driving that work back to China.
Key Takeaways:
- Trump’s Attack on Clean Energy Risks Backfiring: Despite criticizing Biden’s climate policies for allegedly benefiting China, economists argue that dismantling them would actually boost China’s dominance in renewable energy.
- Investment in U.S. Clean Energy Manufacturing at Risk: The Inflation Reduction Act has sparked major investments in clean energy manufacturing within the U.S., creating thousands of jobs and fostering homegrown innovation. Undoing these incentives could push this manufacturing back overseas, primarily to China.
- China’s Continued Growth in Clean Energy: While the Inflation Reduction Act has stimulated U.S. investment, China continues to expand its own production of renewable energy technologies, including solar panels, wind turbines, and electric vehicles.
- A Potential Economic and Environmental Setback: The Inflation Reduction Act is more than just a climate initiative; it’s also a strategic move to bring manufacturing back to the U.S. and compete with China in the global clean energy market. Scrapping this plan would not only harm the environment but also damage the U.S.’s economic standing.
The Inflation Reduction Act, a crucial piece of legislation signed into law in 2022, has been a focal point of Trump’s attacks. The act allocates at least $370 billion to incentivize companies building renewable energy technologies and provides tax credits for individuals investing in green energy solutions such as solar panels and electric vehicles.
While Trump and his supporters argue that the Act contributes to rising inflation and should be repealed, more than a dozen economists, energy experts, and business leaders believe that weakening or eliminating it would hurt U.S. competitiveness in the global clean energy race, ultimately benefiting China.
Data and Investments
The first quarter of 2024 saw a record-breaking $71 billion in investments in clean energy and transportation, according to the Clean Investment Monitor, a joint project of the Rhodium Group and MIT Center for Energy and Environmental Policy Research. This influx of investment has led to plans for 164 new or expanded manufacturing facilities in the United States, creating approximately 44,000 new jobs.
While the U.S. is making significant strides, China remains a powerhouse in renewable energy manufacturing, accounting for roughly 80% of global solar panel production and over half of electric vehicle, wind turbine, and lithium-ion battery production.
Despite the I.R.A., China’s dominance in the clean energy sector hasn’t significantly changed. China’s Premier Li Qiang has pledged continued acceleration of renewable energy projects, including solar farms, wind, and hydroelectric facilities.
Benefits for U.S. Companies
Despite China’s continued investment, U.S. companies are increasingly choosing to invest in America due to the incentives provided by the I.R.A. Companies like Freyr Battery Inc., initially planning a new factory in Norway, shifted their focus to the U.S. after the I.R.A. was enacted, taking advantage of the significant tax credits offered.
The law’s electric vehicle purchase rebates, offering $7,500 for new EVs and $4,000 for used ones, have also driven investment in the U.S. electric vehicle market. These rebates, however, have become a target for Trump and his allies, who see them as wasteful and argue that they benefit wealthy Americans at the expense of taxpayers.
The Potential Economic Cost of Repeal
Advocates for preserving the Inflation Reduction Act argue that repealing or significantly weakening it would not only set back U.S. climate goals but also undermine its economic competitiveness. Doing so would send a message to investors that the U.S. is unreliable and unwilling to support the clean energy transition, potentially pushing companies to invest in China instead.
The economic impact of repealing the I.R.A. would extend beyond lost manufacturing jobs. Companies like G.E. Vernova, which spent $50 million to create a new assembly line for onshore wind turbines in Schenectady, N.Y., have emphasized that tax credits were the driving force behind their investment. Removing these incentives could lead to a halt in future investments and jeopardize the burgeoning U.S. clean energy sector.
A Contested Policy
The Inflation Reduction Act has generated both praise and criticism. While some, like Nick Loris, Vice President of Public Policy at C3 Solutions, a conservative energy group, believe subsidies should be limited to early-stage research and development, others, including Alex Flint, Executive Director of the Alliance for Market Solutions, argue that repealing the Act would harm the U.S.’s ability to compete with China.
The Impact on the Election
Both Biden and Trump are expected to highlight their positions on China during the first presidential debate. Biden has taken steps to counter China’s growing economic influence, including raising tariffs on goods from China and imposing tariffs on Chinese electric vehicles. Trump has proposed even more aggressive actions, including 60% tariffs on all goods from China and 100% tariffs on vehicles manufactured in Mexico by Chinese companies.
While both candidates will likely portray themselves as "tough on China", the potential impact of Trump’s dismantling of Biden’s clean energy policies could have significant unintended consequences: strengthening China’s position in the global clean energy market and undermining U.S. economic and environmental goals. The outcome of this policy battle could have far-reaching effects on the future direction of the U.S. and its place in the rapidly evolving global energy landscape.
