The filing of a case by an American labour union, the United Steelworkers, that charges China with violating international trade rules has injected a fresh irritant into a fraying relationship between the world?s two largest economies. The 5000-odd page dossier submitted to the office of the US trade representative contains a litany of allegations that China unfairly subsidises its clean energy industry to outcompete rivals, thereby risking jobs of American workers.
Since the highest echelons of Chinese policymaking have prioritised export-oriented production of wind, solar and nuclear energy equipment, there is zero likelihood that Beijing will back down on this. Should the US government carry forward the Steelworkers? case by launching legal proceedings against China at WTO, Beijing will brace itself to fight yet another front in a drawn-out conflict.
But unlike previous clashes over conventional Chinese export items such as steel pipes, the Steelworkers case contends that China is not only giving anti-competitive subsidies to wind turbines and solar panel producers but also raising the costs of entry into its own domestic market for foreign producers of substitutes. China?s blueprint of import-substitution and export-promotion in green technologies is a current-day manifestation of the classic ?strategic trade policy? that Japan had perfected in the 1970s to cocoon domestic high-tech industries and prime them as world beaters. Many other states simultaneously propped up exports and worn down imports in particular sectors identified as ?national champions? to shift terms of trade in their favour against foreign competitors.
China has taken the plunge into harnessing its formidable industrial base to master low-cost alternative energy solutions with the undeniable objective of dominating global trade in a niche area whose demand is bound to rise alongside climate change anxieties. Beijing insists that state subsidies like cheap-to-free land, unlimited credit lines and tax concessions for green product manufacturers are aimed at meeting China?s own domestic energy efficiency targets, but the country?s capture of nearly half of the world?s solar panel and wind turbine markets has sent shivers up the spines of European and American companies that desperately wish to gain an early foothold in a nascent sector with vast potential. Beijing, of course, has accumulated massive foreign exchange reserves and commands growing state revenues to continuously outspend Washington, Berlin, London or Stockholm.
Freezing of private credit since 2008 and the political backlash against public debt have rendered the US and Europe toothless to walk the talk. As with the entire gamut of prickly US-China trade issues from undervaluation of the Yuan to deficits and imbalances, the alternative energy spat is ultimately a reflection of the synchronous decline of Western economies and incline of China. The dismay and frustration of US green technology firms stem from knowledge that their government and capital markets cannot realistically match China?s deep pockets.
The tactic of letting a workers? union file the case instead of the injured American companies doing so themselves is an acknowledgement that China has the upper hand in the entire saga.
According to NYT, American alternative energy companies are scared of retribution from China in the form of import restrictions or regulatory hindrances if they are seen to be openly spearheading the subsidies case. The only option left for cornered American green manufacturers is to hope that the politics of Congressional elections in November will rally the US state firmly behind them. The timing of the Steelworkers? case is such that the Barack Obama administration will have to decide, just one week before voting for legislatures, whether or not to take the complaint to WTO. Sticky unemployment leads the array of American economic woes that is predicted to deliver a drubbing to the Democratic Party. Obama the politician cannot risk alienating the 8,50,000-member-strong Steelworkers union on the eve of a crunch election.
But Obama the statesman and champion of green energy should know that China is providing a global public good by subsidising mass production of solar panels and wind turbines. If the worldwide adoption of still relatively costly green technologies expands due to China?s possibly WTO-violating but definitely price-slashing subsidies, the losers would be few and the gainers many, except in the improbable scenario of China obtaining an absolute world monopoly in this sector.
Wind and solar power machinery are incomparable to any other commercial product because they have extraordinary positive externalities for the environment. To unleash wars over green technology is to collectively hack at humanity?s future.
But Washington might do so owing to pressure group politics and we could all end up losers as a consequence.
?The author is associate professor of world politics at the OP Jindal Global University