The return of industrial policy, and what it means for global business
Industrial policy is reshaping global competitiveness, strategy, and innovation as governments pursue resilience, security, and growth....
Geopolitics
Moving away from conflict towards a clean-energy future
Confrontation between China and the West at the G7 summit will slow climate change mitigation and impoverish everyone, warns IMD’s Julia Binder
Claims that China is seeking to secure an unfair advantage for its manufacturers in Western markets is dominating the G7 summit in Apulia, Italy. But, while experts dispute the hard facts around China’s behavior, there is a different way to look at this situation. Rather than the key imperative being to restrict and perhaps punish Chinese exporters, the reality of the climate emergency is that Europe now needs to secure products such as photovoltaic (PV) panels and affordable electric vehicles (EVs) in huge numbers.
In this context, an influx of subsidized Chinese products represents an opportunity to accelerate the global cleantech transition. Chinese exports can help to drive down the costs – direct and indirect – associated with adopting green technologies and, at the same time, accelerate decarbonization. This initiative can also benefit Western companies and economies.
“More broadly, it is imperative that the world works together to confront the challenges of climate change, advancing and scaling our collective technological capabilities.”
Carving up the new markets
PV provides a good example. China’s enormous production capacity for solar panels positions it as the global center for the industry. But there is still an opportunity for G7 countries to focus on installation, the labor-intensive nature of which holds exciting potential for job creation.
By boosting local economies in this way, Western countries will be able to adopt solar-energy solutions more quickly, expediting the move away from fossil fuels and possibly hitting climate targets earlier than expected. Viewed through this prism, calls for new tariffs or restrictions on Chinese imports are harder to justify, at least when it comes to clean technologies. Such measures risk making it both slower and more expensive to address the climate crisis.
More broadly, it is imperative that the world works together to confront the challenges of climate change, advancing and scaling our collective technological capabilities. Protectionist measures that hamper collaboration and information-sharing make that more difficult. They reduce the opportunity to disseminate effective solutions globally, particularly to the detriment of more vulnerable and underserved populations. Sustainability, equity, and inclusivity are at risk.
“Both China and the G7 have made significant investments in green hydrogen, for example, which is potentially a hugely impactful source of clean energy.”
Common ground offers the firmest footing
None of which is to suggest that the G7 should ignore concerns about Chinese overcapacity and market distortion. An unchecked influx of subsidized products can undermine local industries, harm innovation, and encourage unsustainable economic dependencies.
Already, surging exports of Chinese steel, driven by overcapacity, have led to significant disruptions in global steel markets, affecting multiple domestic producers who struggle to compete commercially, let alone work towards their transition goals.
Nevertheless, discussions about trade need to focus on what brings us together, as well as what sets us apart. International collaboration is crucial for global decarbonization. Both China and the G7 have made significant investments in green hydrogen, for example, potentially a hugely impactful source of clean energy. If these efforts are balanced and collegiate, we will move forward quickly while ensuring that no single country dominates the market.
Confrontation rarely delivers good results. As G7 leaders gather for this weekend’s summit, their goal should be to foster an environment of cooperation and mutual support. This will drive the formulation of fair and effective policies that promote sustainable development while ensuring that all countries share the benefits of the clean energy transition.
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