China Leads in Clean-Energy Manufacturing as USA and Europe Struggle to Catch Up

For more than half a century, concerns about oil shortages and climate change have spurred governments to invest in alternative energy sources. In the 1970s, President Jimmy Carter symbolized this commitment by installing solar panels on the White House roof. Japan offered subsidies for photovoltaic panels in the 1990s, and Germany introduced a program in the 2000s to ensure profitable returns for solar energy adopters. However, no country has matched China’s scale and persistence in supporting clean-energy initiatives.

According to the International Energy Agency, China accounted for 85 percent of global clean-energy manufacturing investment in 2022. This dominance is prompting the United States, Europe, and other wealthy nations to frantically catch up. They are now spending heavily to subsidize domestic companies while attempting to block competing Chinese products. Although there has been some progress—China's share of new clean-energy factory investment fell to 75 percent last year—the West faces an uphill battle.

China’s industrial supremacy is supported by decades of leveraging state power to mobilize government and banking resources, combined with intense competition among private companies. This approach has resulted in China’s commanding presence in solar panel and electric vehicle production, built on prior investments in chemicals, steel, batteries, and electronics, as well as infrastructure such as rail lines, ports, and highways.

Between 2017 and 2019, China spent an extraordinary 1.7 percent of its GDP on industrial support, more than double the percentage of any other country, according to the Center for Strategic and International Studies. This funding included low-cost loans from state-controlled banks and cheap land from provincial governments, with little expectation of immediate profits. The United States and other countries have accused China of violating trade agreements, intellectual property theft, and forced labor, further complicating the competitive landscape.

China now controls over 80 percent of worldwide solar panel manufacturing. “There’s enormous economies of scale by going big as China did,” said Gregory Nemet, a public policy professor at the University of Wisconsin who has studied the global solar industry. Despite initial overcapacity and suppressed profitability, Beijing’s willingness to endure short-term losses has paid off.

President Biden and European leaders are now adopting some of China’s tactics to build up their own manufacturing capacities in advanced technologies such as semiconductors, electric vehicles, and batteries. The Biden administration’s multibillion-dollar program represents one of the most extensive uses of industrial policy in American history. Last year, the United States and European Union made "significant inroads" in clean energy technology, according to the International Energy Agency.

However, the shift towards industrial policy marks a departure from the previously championed ideology of open markets and minimal government intervention. The policies initiated in response to the 1970s energy crises were largely reversed when Ronald Reagan became president in 1980, and even the solar panels installed during the Carter administration were removed.

Joseph Stiglitz, an economist at Columbia University, noted that the United States had long lacked a coordinated industrial policy. “Even the Democrats were afraid to take a more aggressive government role,” he said, citing long-term consequences.

From a Chinese perspective, Western complaints about unfairness are seen as signs of their governments’ failures. “The West’s decision to pursue neoliberal economic policies was a strategic mistake,” said Zheng Yongnian, a professor at Chinese University of Hong Kong.

Political leaders in the United States are determined to avoid repeating past mistakes. President Biden recently announced tariffs of up to 100 percent on Chinese green technologies, including electric vehicles, to prevent China from gaining further market share in the U.S. European officials are also expected to impose tariffs, despite warnings from economists and environmentalists that such measures could slow progress on clean energy goals.

David Autor, a Massachusetts Institute of Technology economist, highlighted differences between the trade strategies of the U.S. and China. While China focused on exporting low-cost goods and preventing foreign domination of its markets, Biden’s strategy emphasizes keeping out Chinese imports and restricting access to American technologies.

At a recent meeting of the Group of 7 finance ministers in Italy, leaders underscored the need for coordinated protectionism and subsidies to compete with China. Treasury Secretary Janet L. Yellen emphasized the importance of presenting a united front to address global industrial overcapacity.