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(Not sure if this should be on the Politics SE, but I'm looking for an Economics-based answer, since the political answer seems obvious enough.)

Source

In China over the past few days, [US Treasury Secretary] Yellen wasn't so shy. She hammered Chinese officials for exporting too many clean-energy goods, warning regional officials, as well as Vice Premier He Lifeng and Premier Li Qiang, to scale back industrial production.

"This is a very important concern of ours. I think my job here is to make sure I've explained this very thoroughly and presented this concern at the highest levels of Chinese leadership," Yellen said at a press conference Monday, at the end of her trip. "I do not want to see the U.S. economic relationship or overall relationship with China deteriorate or fray."

Why is it a problem if China is exporting too many clean-energy goods? From my limited understanding of economics, it looks like free trade at play. I vaguely remember reading that most economists support free trade because it allows countries to leverage their relative efficiencies at producing goods such that everyone ends up with more. The book had a nice calculation where there are only two countries and only two goods, and by allowing free trade, both countries ended up with more goods than they could've produced on their own.

But if this were the case, then if China being able to produce more clean-energy goods for cheaper than the rest of the world, it seems like the rest of the world ought to encourage them to do so, since everyone benefits.

I am wondering if there is an economics-based reason to be very concerned about China doing this, or if the US objections are based solely on political reasons.

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  • $\begingroup$ Not economics, but "China being able to produce more clean-energy goods for cheaper than the rest of the world" is in a large part due to lax environmental regulations. Solar panels are incredibly energy-intensive to make, and China's energy mix is 2/3 coal, with minimal regulations. $\endgroup$
    – user71659
    Apr 9 at 19:14
  • $\begingroup$ @user71659 can't you say the same of many other goods though (like bitcoins)? $\endgroup$
    – Allure
    Apr 9 at 23:13
  • $\begingroup$ This is basically politics. We think it's bad because they're beating us at our own game and that's bad because we're supposed to be the only ones winning our own game and they are not us. Economically, a glut of these goods is good no matter what. $\endgroup$ Apr 14 at 17:42

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UPDATE:

Renowned socialist news site Bloomberg.com ran an opinion piece on this calling out Yellen:

Yellen Junks 200 Years of Economics to Block China Clean Tech

There is also this claim in the article:

As we’ve shown, clean-technology firms there [in China] are no more dependent on soft money than rivals elsewhere in the world.


There is no claim in the article you cite that there is an economic efficiency or ethical argument against unrestricted trade. You can easily find a political explanation by googling around for other articles, e.g.; Reuters writes

...U.S. President Joe Biden would not allow a repeat of the "China shock" of the early 2000s, when a flood of Chinese imports destroyed about 2 million American manufacturing jobs.

She [Yellen] did not, however, threaten new tariffs or other trade actions should Beijing continue its massive state support for electric vehicles (EVs), batteries, solar panels and other green energy goods.

Yellen used her second trip to China in nine months to complain that Beijing's overinvestment has built factory capacity far exceeding domestic demand, while fast-growing exports of these products threaten companies in the U.S. and other countries.

See also by What’s behind latest US-China trade fight by the AP.

You can also see the argument that people who sometimes claim to support free trade will make for restrictions: the Chinese state has invested in these sectors, so they can argue that this is not fair competition, but private American companies going up against the economic might of Chinese state supported enterprises.

Why the American companies would lose that fight, why it might be bad for consumers or how such unequal competition is different from the way American companies act in some foreign markets is not investigated.

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  • $\begingroup$ One could argue that from a purely economic perspective, if the Chinese goverment heavily subsides their export production, that shouldn't be an issue for the US because it essentially means the Chinese government spends money so US consumers can buy goods cheaper. $\endgroup$
    – quarague
    Apr 12 at 7:18
  • $\begingroup$ I think one could argue many things, this is the main point of my answer. There is no singular let alone clear argument voiced by Yellen. $\endgroup$
    – Giskard
    Apr 12 at 9:02
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The question assumes it is a problem.

But is it really a problem? Even if it is, who’s problem is it?

In Janet Yellen’s own words: “Credibility abroad begins with credibility at home.” When the United States itself has its own turbocharged, state-incentivized industrial revival, it’s obvious enough that this is a US problem dressed up as China or the world’s problem with the US interests at its core. Yellen also doesn’t think it’s a problem when the US is supplying the whole world’s advanced computer chips and is using whatever means available to keep China from even buying these chips.

Yellen claimed that these Chinese products are artificially cheap. Is this true?

I happen to be Chinese and recently took a trip home. I was blown away by what I saw on the way back. My hometown is among the poorest provinces in China and supplies most of the coals in the country. But on the plane flying back I saw remote mountains covered with wind turbines and countless solar farms along main intercity roads. There were few exposed roofs in villages as most of them are occupied by solar panels. I regretted that I slept most of the way as I wonder if remote areas like these are full of green energy products what does the rest of the country look like?

I know that government subsidies were crucial during the rise of the Chinese clean energy economy but with a domestic market this huge, the current cheap price is just a product of demand and supply.

Similarly, Chinese EVs didn’t have a market outside China until recent years. But the prices for these cars were already very cheap many years ago simply because of the domestic demand. Chinese government subsidies for individuals purchasing EVs and PHEVs were already insignificant since 2018 and were fully terminated in 2023. But this didn’t slow the growth of the EV market. Tesla is currently selling at a 50% discount compared to its prices outside China. That is the power of the Chinese domestic market. I know for a fact that most Chinese EVs are selling at a large premium overseas as I’m currently considering buying a Chinese PHEV in Australia.

China’s domestic market for clean energy products grows at such a pace that it is dead wrong to use its current market size to judge that it has a massive production surplus. China has a very ambitious carbon emission plan and the country so far still relies heavily on coal to generate electricity.

There is very little coverage about China’s ambition in this in the English language news media but in Chinese language websites, you can easily find articles about new solar and wind farms in remote desert areas commencing operation. The domestic demand won’t stop growing until either the country’s deserts are covered with solar panels or electricity generation has reached net-zero emissions. But the Western media won’t stop making mistakes about underestimating China’s domestic clean energy market as most of them have very limited capacity to understand how big and how much potential this market has as their environment growing up offers nothing remotely comparable. You can not imagine what Santi looks like if all you know is Earth.

Since the low prices of Chinese clean energy products came from domestic demand and competition and are not a product of ongoing government subsidy, it only benefits the world and provides the world a better chance at reaching the net-zero target. It may still be a US problem though as the US protectionism is dead set on giving critical industries a leg up.

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Why is it a problem if China is exporting "too many clean-energy goods"?

Even if closing inefficient US EV plant might lead to higher overall US welfare, it is not a pure Pareto improvement as workers in that plant will be affected. Depending on what kind of moral weight you place on the benefits of whole society vs those laid off workers, this can become economic concern. To be more clear, the moral decision itself is non-economic, but once you decide what is 'moral' it becomes part of your policy welfare function, and maximizing it is then an economic problem.

Economics, and economic problems are not necessarily about maximizing economic activity or output. Economics studies the relationship between people's various goals and scarce resources (Robins 1935). Even if economy grows and average incomes increase, if people's goal is to benefit specific part of an electorate that does not partake in this growth as much as average person, this might be still economic problem.

Hence, depending on what sort of policy function you adopt, these Chinese exports might be concerning or benign development, even from economic point of view. This holds even if majority of US residents would benefit from this development. Even if it would be pareto improvement (there are only benefits and no looses to anyone), if some benefit more than others and welfare function puts large malus on increase in inequality, it might be, economically speaking, better for everyone to be materially poorer.

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It seems the idea is that Chinese exports are state-subsidized, so your country's businesses can't compete with them without subsidies of your own. It does mean that you get lots of cheaper goods this way (subsidized by the Chinese taxpayer too), but your country's businesses will be driven out of business. It's true that in theory, they can shut up shop and go do something else, but then China gets a monopoly, and if one day China stops its subsidies then you have trouble - sort of like state-sponsored predatory pricing.

Not being very knowledgeable about economics, I cannot evaluate how robust the above argument is.

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  • $\begingroup$ If anyone knowledgeable about economics can evaluate how robust the argument is, I'll be interested. $\endgroup$
    – Allure
    May 9 at 13:12

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