Tariffs are a necessary backstop of the clean energy transition
本文论证了在清洁能源转型中，关税作为产业政策的必要补充，以应对中国垄断性贸易行为、保护国内产业并降低国家安全风险。
In May 2024, the Biden administration announced the results of a multi-year investigation into whether to extend the Trump administration's hefty tariffs on Chinese products, originally imposed in 2018 under Section 301 of the Trade Act of 1974. Biden decided to not only keep most of those tariffs in place, but to expand them to a suite of clean energy products, including electric vehicles (EVs), batteries, and solar cells (White House, 2024). Why would an administration that prides itself on being the most climate-friendly in history take steps that could increase the price paid by American consumers for clean energy products? Wouldn't $10,000 Chinese EVs be better for the climate than U.S. models priced at $30,000 or higher? There are three reasons for this course of action. First, tariffs to stabilize a domestic clean energy industry that does exist or can are preferable to carbon taxes or free trade that doesn't or can't. Second, trade between a monopolist and non-monopolist cannot be free and introduces other distortions that may be more significant over the medium to long term. And finally, the specific design of Biden's tariffs minimizes the cost of his strategy, though more can be done to ensure the long-term viability of domestic and global clean energy production. In the sections that follow, we argue why tariffs are a necessary backstop of clean industrial policy. Climate change is a massive market failure, where firms producing carbon emissions generate negative externalities on society at large. Faced with this challenge, most economists agree that pricing emissions is the most efficient way to get fossil fuel-using firms to internalize this externality (see, for example, Metcalf, 2018). Many even agree that it is worthwhile to impose carbon tariffs at the border, both to avoid emissions at home simply migrating abroad (i.e., carbon leakage), and to manage the distributional consequences of home-disfavoring taxation. Taken together, this mix can be seen as creating a carbon market. The only problem: The U.S. political system has not produced such a market, at least nationally. Climate action was largely moribund during the Bush II and Trump administrations. The efforts of the Clinton and Obama administrations that might have led directly or indirectly to carbon pricing were blocked by the U.S. Senate (e.g., Kyoto Protocol and the 2009 Waxman-Markey Act), or structured to be nonbinding so that they would not need Senate ratification (e.g., the 2015 Paris Agreement; Durney, 2017). Meanwhile, an increasingly hostile judiciary has weakened executive actions on climate, as novel legal doctrines like “non-delegation” and “major questions,” and the repeal of “Chevron deference” have shrunk the space for environmental regulation (Meyer, 2024). In the wake of these repeated failures, a new paradigm emerged—one that centered clean energy industrial policy. An early iteration of this new approach was the Green New Deal, which was debated in a 2021 JPAM Point/Counterpoint, so we need not rehearse those arguments here (Fischer & Jacobsen, 2021; Konisky & Carley, 2021). A more recent iteration was Biden's American Jobs Plan, a portion of which Congress enacted in the form of the Inflation Reduction Act (IRA), the CHIPS and Science Act, and the Infrastructure Investment and Jobs Act (IIJA). Together, these laws correct a market failure by helping firms internalize the positive externality generated by clean energy production. Indeed, the benefit to society at large from decarbonization is almost incalculable (estimates exceed $1.2 quadrillion; Alberti, 2024), while many clean energy ventures pre-IRA struggled to be financially viable (Christophers, 2024). In this perspective, even if the laws cost the taxpayer at the upper bound of trillions of dollars (Goldman Sachs, 2023), it will be a relative bargain. The early evidence from the new U.S. industrial policy regime has been encouraging. The U.S. is on track to meet a substantial share of its Paris commitments; every public dollar is drawing in six from the private sector; and there have been six straight quarters of record-breaking contribution by manufacturing construction to GDP (Boushey & Gallegos, 2024). Actual clean energy investment is up 71% in the 2 years following the IRA relative to the 2 years prior, has now surpassed investment in oil and gas production, and constitutes half of all new investment in the U.S. (Bermel et al., 2024). Seventy-five percent of announced investment is going to counties with below median income, with especially strong growth in communities previously reliant on fossil fuels, and 30% are in counties most adversely impacted by the China Shock (Haskins et al., 2024; Treasury, 2024). This boom is also drawing in foreign direct investment, with an estimated 45% of announced investment in recent years coming from companies headquartered in Japan, South Korea, and other countries (Council of Economic Advisers, 2024). Importantly, lawmakers and implementers have structured these laws to unlock important supply-side inputs like labor and materials. For example, under the refashioned investment tax credit, the amount a company can claim in tax credits starts at 6% of their capital costs, but can go as high as 70% if they pay prevailing wages and maintain union apprenticeship programs for their construction workers, invest in distressed and fossil-dependent communities, and use domestic supply chains (Gearino, 2023). Likewise, the Department of Energy's Loan Programs Office and Department of Commerce's CHIPS Programs Office score program applicants more favorably if they have community benefit programs, collective bargaining agreements, and local development strategies (Reynolds, 2024). Early reporting indicates that labor unions, a widely acknowledged lever for reducing income inequality and unlocking economic opportunity, are using the various industrial policy programs to expand their footprint (Pontecorvo, 2024). Clean energy employment increased by 142,000 in 2023, and unionization rates in the industry are 12.4%—double that of the labor force writ large and greater than the entire energy sector for the first time (United States Department of Energy, 2024). This shift in policy practice has coincided with an academic re-examination of industrial policy. Long seen as a second- or third-best solution that “picked winners,” scholars increasingly see industrial policy as valuable when systemic problems reach sufficient scale and urgency; have substantial positive externalities, innovation, or coordination failures; or involve particularly thorny distributional concerns (Armitage et al., 2023; Juhász et al., 2023). The climate crisis certainly qualifies on all these grounds. The United Nations Framework Convention on Climate Change (2024) estimated that the energy transition will require between $4 and $6 trillion annually globally by 2030. Price volatility in upstream commodities like lithium and copper is disrupting investments in finished products like EVs and vice versa, leading to bottlenecks (Moerenhout et al., 2023). The clean energy transition will cause inter-regional labor market disruptions that will rival or surpass the China Shock (Hanson, 2023). And political scientists argue that industrial policy is superior to pricing approaches in creating coalitions of climate action winners to take on blockers, creating a basis for policy credibility and longevity (Meckling & Nahm, 2022; Mildenberger, 2020). The 301 tariffs are a relatively cheap, readily available way to safeguard the economic viability of these bargain-rate investments (both for the taxpayer and industry), similar to the way carbon tariffs at the border protect the integrity of carbon prices behind it. An increasingly aggressive and monopoly-oriented Chinese economic model is taking climate policy further away from a market-oriented trajectory. Contrary to those of neoclassical economic models, extant global clean energy markets are not ones of perfect competition. Risks posed by China's upstream and downstream dominance in clean energy supply chains are not only economic ones, but consequential matters of national security. This dominance did not rise from market forces, but rather from extensive government intervention—financial and otherwise—that far dwarf (and threaten) U.S. public investments and tariff protection. Clean energy supply chains are extremely concentrated. China's share of solar panel manufacturing is greater than 80% (International Energy Agency, 2022), and it controls between 59 and 72% of refining and processing for critical minerals required for EV batteries (Cheng et al., 2024). Market forces did not drive this accumulation: China has made extensive use of subsidies and other far reaching interventions over decades. In 2019, China's industrial policy spending amounted to $407 billion, and since 2009, nearly $230 billion in financial support and tax incentives for the EV market have propelled market share expansion (DiPippo et al., 2022; Kennedy, 2024). China's industrial subsidies are 10 times those of the United States, Germany, Brazil, and Japan. State-owned enterprises receive an outsized share of these subsidies, especially through government procurement channels (Organisation for Economic Co-operation and Development, 2023). All the while, China is primarily producing to export. China's battery and solar production is already between 2 and 3 times projected global demand. Export volumes have ballooned, increasing 11.5% between the first quarters of 2023 and 2024, especially in EVs, solar, and semiconductors (Shambaugh, 2024). Between 2018 and 2023, Chinese EV exports increased by 1,016% (Coffin & Walling, 2024). As a result of this overcapacity, export prices have plummeted. A combination of labor repression, lax environmental regulation, and subsidization of otherwise unviable business practices means that low price tags like a $10,000 EV or a 11 cents per watt solar module made in China obscure the true cost of production. This threatens the ability for manufacturers not propped up by China's subsidies to exist, much less compete. By suppressing domestic demand, it shuts off potential markets for U.S. and emerging economies’ exports and floods the globe with excess supply (Boullenois & Jordan, 2024; Klein & Pettis, 2020). While World Trade Organization (WTO) enforcement or reactive trade remedies, like anti-dumping or countervailing duties, are serviceable when trading partners deviate slightly from market norms, they've proven ineffectual at disciplining China's major deviations. The 301 tariffs, thus, serve several primary functions at ameliorating the effects of monopoly presence in clean energy markets (Pancotti et al., 2024). First, they reduce price distortions. Second, they provide a temporary cushion for domestic infant industries until they are able to scale enough to be internationally competitive. Third, they reduce national security risks by combating China's strategy of monopolization for geopolitical gain (Doshi, 2023; Naughton & Boland, 2023). Combined with industrial policy incentives, the 301s create more robust, competitive, and resilient domestic and global supply chains. Finally, it's worth noting that the tariffs—along with IRA and CHIPS provisions that encourage buying supplies domestically and from allies, rather than from China—also serve a political credibility function. Domestic concerns over Chinese competition have helped derail previous U.S. attempts to address the climate crisis. In 1997, by a unanimous vote, the U.S. Senate indicated disapproval of the U.S. joining the Kyoto Protocol, which would have set binding emissions reductions targets and paved the way for carbon pricing (as it did in Europe; Grubb, 2004), unless it also bound China and other developing countries. A few years later, after negotiations finished, President Bush (2001) concurred that the Senate's worries had been realized and shelved efforts at ratification. President Trump (2017) framed his withdrawal from the Paris Agreement in virtually identical terms, citing unfair Chinese competition. For its part, the Obama administration actually managed to get a $90 billion green industrial policy package into the 2009 American Recovery and Reinvestment Act's (ARRA; Romer, 2010). But Obama removed domestic content requirements at the behest of U.S. trading partners (Lee, 2009), and industries that received investments proceeded to offshore production to China and elsewhere. Moreover, fierce Chinese competition also tanked ARRA's $535 million investment in solar manufacturer Solyndra. The combination tainted green industrial policy in the U.S. for a decade (Nahm, 2021). By 2016, Obama backed off the WTO's Environmental Goods Agreement (which would have promoted free trade in green products) over concerns that China was seeking unfair dominance in those markets (Reinsch et al., 2021). Nonetheless, while industrial subsidies hold the promise of lowering costs to energy consumers, tariffs could raise them. Luckily, the Biden administration is showing itself adept at managing some of the trade-offs inherent in its industrial strategies. Domestic content and friend-shoring requirements phase in gradually, and can be adjusted based on material availability. Some of the section 301 tariffs—like those on graphite—do not phase in immediately, allowing Chinese sourcing while domestic capacity is established. Others, like those on electric vehicles, are high and immediate, but on products that Americans do not currently import much of. A final category including lithium-ion batteries phases in now with mid-sized tariffs. And this is before we even get to the tariff exclusion process, which the government has used to address hiccups in implementation for projects or firms experiencing particular hardships. Taken together, Biden's tariff actions should be seen as prospective market shaping, not a penalty on existing consumption patterns. Still, more can be done to ensure that industrial policy and tariffs put U.S. firms on a pathway to surviving, decarbonizing, and eventually competing globally. An IRA 2.0 could enhance state capacity by learning from best practices in other countries’ industrial policies (Tucker et al., 2024). Sectoral trade agreements can open up trade with allies in low-carbon steel, critical minerals, and other sectors (Mulholland et al., 2024). More nimble financing and stockpiling tools can help create new partnerships with the Global South (Deese, 2024). And, provided it is able to keep its own policy regime intact, the U.S. should never give up on efforts to coordinate with China on climate and establish carbon pricing if and when credible opportunities arise. Elizabeth Pancotti is a Director at the Roosevelt Institute, 570 Lexington Ave, 5th floor, New York, NY 10022 (email: [email protected]). Todd N. Tucker is a Director at the Roosevelt Institute, 570 Lexington Ave, 5th floor, New York, NY 10022 (email: [email protected]).