Green partnership is better than trade war

When the man who will most likely be China’s next president meets the man who will most likely be re-elected US president, it’s wise not to expect any concrete outcomes. Domestic political priorities will be on both men’s minds: Xi Jinping’s road to power may be less transparent than Barack Obama’s re-election campaign, but the contest is none the less intense and brutal for that.  Xi needs to demonstrate that he can handle top-level dealings with China’s key strategic rival. President Obama needs to show his political critics that he can defend US interests against a contentious rising power that many in the US believe to be accelerating US decline. It is not a conjuncture likely to produce a groundbreaking deal.

Demonstration exercises for domestic constituencies have their importance, however. If they go wrong, they threaten future, more substantive meetings, and this one comes with complications for potential future partnerships in renewable energies. In theory, there is much to gain: the combination of US technologies and Chinese low cost manufacturing and large markets could bring benefits to the world’s two largest emitters of greenhouse gases – between them they account for 40 per cent of the world’s current emissions. Better, cheaper and more widely available clean technologies are urgently needed. Getting to real cooperation, however, has proved difficult.

To add to complaints of Chinese IP theft, there is now the contentious question of subsidies, with each side accusing the other of unfair practices. The global clean energy sector is worth  $240bn a year, but in two key sectors, wind and solar, manufacturers are struggling with over-supply and faltering demand. Since the US investigation into Chinese wind subsidies in 2010, and further investigations in 2011 into Chinese solar cells and panels, China has come under pressure from its own domestic industries. The result is an investigation into US subsidies for clean energy and Chinese hints of  for counter-measures. In the spotlight are $1.7 billion US sales of polysilicon, used in Chinese solar panels. Mutual recriminations and threats of retaliatory action are currently drowning out the warmer messages.  

The spectacular — and, for some, threatening — growth of China’s wind and solar industries is not necessarily the product of strategic subsidies. China still enjoys cheap labour and a large domestic market, along with impressive supply chains and the benefits that come with economies of scale, all of which have helped to generate a China price that has brought the cost of some renewables almost to par with fossil fuels, threatening the viability of the industry elsewhere and stimulating calls for higher tariffs and anti-dumping measures against Chinese imports.

But the issue is more complex than simply unfair Chinese subsidies. US subsidies of fossil fuels, the lack of a global climate deal and the political warfare that rages around the commitment to clean energy in the US have helped to undermine domestic renewables. The cuts to subsidy regimes for renewables programmes in Europe, brought on by the global financial crisis, have weakened the global market and left Chinese manufacturers overstocked with unsold goods.

Despite the chilly atmosphere, however, the overall trade picture is brighter than these exchanges suggest. Although the EU remains China’s largest trading partner, Sino-US trade continues to grow, reaching a new high of $446.7 billion last year. US exports to China grew by 20 per cent to $122.2 billion in the same period.  Both sides stand to lose if these incipient trade disputes get out of hand and the potential gains from cooperation remain tantalizingly seductive. This visit, however, is unlikely to resolve the immediate difficulties: the best outcome would be a promise to keep the potential gains in sight and to go on talking in a constructive spirit.

This article is translated and published here as part of our Green Growth project, a collaboration between chinadialogue and The Energy Foundation.

Image courtesy of Mytudut