Trump’s War on Clean Energy Would Benefit China, Economists Say

Equipo
By Equipo
13 Min Read

In the race for the White House, former President Donald J. Trump has attacked President Biden’s policies to expand renewable energy as a “plan to make China rich” because America’s greatest economic rival also controls many of the parts needed for electric-vehicle batteries, solar panels and other green technology.

But eliminating Mr. Biden’s climate policies would end up helping China, economists say, by jeopardizing hundreds of billions of dollars in manufacturing investments that have already been made in the United States and sending that work back to other countries, including China.

“If America chooses as a matter of political decision to go backward on the green transition, it won’t stop the global process because that’s already underway,” said Stuart P.M. Mackintosh, an economist and author of the book “Climate Crisis Economics. “From a manufacturing perspective, you’re just ensuring the Chinese edge in these technologies continues to get wider.”

Mr. Trump, who has called climate change a “hoax,” has targeted “every one” of Mr. Biden’s policies designed to transition the United States away from fossil fuels. That includes regulations to encourage electric vehicles and solar and wind energy while cracking down on pollution from coal-burning power plants and restricting oil drilling on public lands and in federal waters. The former president has also promised to withdraw the United States from global agreements to reduce greenhouse gas emissions.

Mr. Biden, who considers global warming an existential threat, helped Democrats in Congress to muscle through the 2022 Inflation Reduction Act. The law invests at least $370 billion in tax incentives for companies that build wind turbines, solar cells, transformers and batteries used in electric vehicles. It also provides tax credits to people who install solar panels or buy electric induction stoves, heat pumps and electric vehicles.

Last month, Mr. Trump told a crowd in Wisconsin that he would “terminate” what he referred to as “all new spending grants and giveaways under the Joe Biden mammoth socialist bills like the so-called Inflation Reduction Act.”

Mr. Trump’s spokeswoman, Karoline Leavitt, said in a statement that the Inflation Reduction Act “contributed to the worst inflation in generations.”

But more than a dozen economists, energy experts and business leaders said weakening or repealing the Inflation Reduction Act could eviscerate American competitiveness in the rapidly growing global race to dominate clean energy. “It would be a blow to manufacturing,” said Mark M. Zandi, the chief economist at Moody’s Analytics, the credit ratings agency. “China would certainly benefit”

In the first quarter of 2024, clean-energy and transportation investment hit an all-time high, reaching $71 billion, according to data from the Clean Investment Monitor, a joint project of the Rhodium Group and the Massachusetts Institute of Technology’s Center for Energy and Environmental Policy Research.

Companies have announced plans to build or expand 164 manufacturing facilities throughout the United States, creating about 44,000 jobs to develop things like wind turbines, solar cells, transformers and lithium-iron phosphate batteries used in electric vehicles. About a third of the new manufacturing is either operating or under construction.

In addition to shifting the United States away from fossil fuels, the burning of which are dangerously heating the planet, the I.R.A. is industrial policy designed to return manufacturing to the country from overseas, particularly China, where green technology is heavily subsidized.

China produces about 80 percent of the world’s solar panels (compared with about 2 percent in the United States) and makes more than half of the world’s electric vehicles, wind turbines and lithium-ion batteries.

Those figures haven’t shifted notably since the I.R.A. was signed into law. And Chinese Premier Li Qiang, the country’s second-highest official after Xi Jinping, said in March that the country would accelerate the construction of solar panel farms as well as wind and hydroelectric projects.

But Biden administration officials said they believe that by pumping hundreds of billions of dollars into lowering domestic manufacturing costs, they are helping to bring investment home and grow jobs. “We’re hearing from CEOs and investors that they’re choosing to locate expansions in the U.S. as a result of the president’s policies,” said Ali Zaidi, Mr. Biden’s national adviser on climate change.

It’s hard to know whether the investments being made now in the United States would have gone to China or Europe without the tax credits provided by the climate law, economists say. But they agreed there is strong anecdotal evidence that companies are choosing the U.S. over foreign competitors. Notably, some of the biggest beneficiaries of the new investments are Republican-led states where elected leaders opposed the I.R.A.

“If you want to be a battery player in the Western Hemisphere, you have no choice but to be in the U.S. now,” said Tom Jensen, the chief executive officer of Freyr Battery Inc., a Norwegian company building a factory in Georgia.

Freyr was planning a new factory in Norway when the I.R.A. took effect. The company quickly switched direction and built its Giga America battery plant southwest of Atlanta, where it will earn between $500 and $600 million annually in tax credits once the factory is online, a company spokeswoman said.

Electric-vehicle manufacturing has seen one of the biggest booms since the I.R.A. was signed into law. The law provides car buyers with a $7,500 rebate when they purchase a new electric vehicle, and $4,000 for a used one, as long as the automobile isn’t made with Chinese materials.

Those rebates have become a particular target for Mr. Trump and Republicans. Senator John Barrasso, Republican of Wyoming, and 18 other Republicans have introduced legislation to repeal the rebates.

“The electric vehicle tax credit benefits the wealthiest of Americans and costs hardworking American taxpayers billions of dollars,” Mr. Barrasso said. “Repealing these tax credits keeps China out of our markets and lets Americans, not Washington, use their hard-earned money to purchase the vehicles that are best for them.”

A number of Republicans also want to get rid of the tax credits for wind turbines, solar panels and electric vehicles in order to renew corporate tax cuts that expire next year. A repeal of the Inflation Reduction Act would require Republican majorities in both the House and the Senate.

Short of repeal, a Trump administration could use its executive authority to delay the implementation of certain parts of the law, or make it difficult for businesses and consumers to access the tax incentives and rebates.

Elaine Buckberg, the former chief economist for General Motors, said the even if Republicans target only the consumer rebate for electric vehicles — leaving untouched the manufacturing credit that companies receive — it would “absolutely” still hurt American competitiveness.

“Right now there’s a real preference for putting your plant in the U.S. and meeting the criteria so your vehicles can be $7,500 less expensive,” said Ms. Buckberg, currently a senior fellow at Harvard University’s Salata Institute for Climate and Sustainability.

Without the I.R.A. and subsequent uptick in wind demand in the United States, G.E. Vernova would never have spent $50 million last year to hire 200 people at its plant in Schenectady, N.Y. and establish a new assembly line for its onshore wind business, said Roger Martella, the company’s chief sustainability officer and head of government affairs. It has since completed the first 6.1 megawatt wind turbine, the largest ever manufactured in the United States.

“These tax credits are what drove the investment,” Mr. Martella said. The company has invested nearly $100 million in turbine and grid-related manufacturing and repair capabilities in the United States since passage of the climate law, including the Schenectady plant, an onshore wind turbine factory in Pensacola, Fla.; and a grid factory expansion in Shreveport, La.

Mr. Martella, who was general counsel at the Environmental Protection Agency under President George W. Bush, said his company and likely others are preparing to make a case to Republicans that the law should be preserved because it’s been good for job creation, energy security and competitiveness.

“We think these are priorities that are important to a President Trump,” he said. “We’re in the early days of a decade-long space race for who is going to lead the energy supply chain in manufacturing and innovation, and these policies have really put the U.S. in the lead.”

Ellen Hughes-Cromwick, the former chief economist of the U.S. Department of Commerce, noted that companies are investing nearly six dollars for every dollar they reap in rebates. “We’re not seeing the same sort of double digit growth in many of these sectors in other countries, frankly,” said Ms. Huges-Cromwick, now a senior fellow at Third Way, a center-left think tank.

Leaders of organizations that promote free markets were split over the effects of repealing the climate law.

Nick Loris, the vice president of public policy at C3 Solutions, a conservative-leaning energy group, said he believed subsidies should be reserved only for things like early-stage research and development of new technologies. He called the $488 billion that has poured into the United States from private companies a “mixed bag” and said he worries the tax credits have created a manufacturing bubble that might not be able to survive without subsidies.

Alex Flint, the executive director of the Alliance for Market Solutions, a conservative group that advocates for a carbon tax to fight climate change, also opposes subsidies. But the tax credits have created “the hope that we will catch up with China” in clean technologies and repealing them would make the United States seem unreliable, he said.

“Turning subsidies on and off diminishes their immediate value and discounts the value of any U.S. policies in the future,” Mr. Flint said.

Both Mr. Biden and Mr. Trump are expected to try to outdo one another to appear tough on China on Thursday when they meet for the first presidential debate. Mr. Biden has increased some tariffs on steel and aluminum products from China and imposed a 100 percent tariff on Chinese electric vehicles, concerned that cheap imports from China could undermine American manufacturing. Mr. Trump has proposed charging a 60 percent tariff on all goods coming from China and a 100 percent tariff on cars made in Mexico by Chinese companies.

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