For now, the principal export market for China’s EVs and solar panels remains Europe. But China has also been expanding its sales to developing countries, notably in Southeast Asia and Latin America (and especially Brazil).Chalinee Thirasupa/Reuters
John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).
It may say something that in response to Canada’s imposition of tariffs on its electric vehicles, China is looking to limit canola imports. A manufacturing superpower squaring off against an exporter of farm products makes it seem like Canada is still a nation of hewers of wood and drawers of water.
That may explain the importance of the EV tariffs: protecting a domestic manufacturing industry against the subsidized exports of a competitor. Canada is merely the latest Western country to respond to China’s overwhelming edge in renewable-energy technologies with tariff measures. The imbalance between Western and Chinese manufacturing raises a strategic question about the future of the European and North American EV industries – and indeed whether the West has a strategy at all.
China’s own strategy, on the other hand, is clear. The country has invested massively in its energy transition, and in the process become a cutting-edge producer of the technologies powering this revolution, from solar panels and EVs to the integrated supply chains involved in their production. Having rapidly reduced the cost of their production through an ambitious and expensive industrial policy, it is now in a position to go out and take the world market by storm.
The closing of Western markets to Chinese goods, with Canada joining the U.S. and Europe in erecting barriers to EV imports, may actually prod China to double down on its strategy, already enunciated in its Belt and Road Initiative, of deepening its ties to emerging markets. Moreover, this forced pivot may end up inadvertently supporting complementary Chinese industries, not least because the loss of Western sales may make their exports even cheaper.
For now, the principal export market for China’s EVs and solar panels remains Europe. But China has also been expanding its sales to developing countries, notably in Southeast Asia and Latin America (and especially Brazil). Moreover, it is not only selling to developing countries, it is investing in them, building factories in Thailand, Brazil and possibly soon Mexico (to get past North American tariffs), and installing renewable-energy infrastructure in Southeast Asia. To the extent this investment helps further develop recipient economies and create demand for Chinese products, it will expand the markets for Chinese producers.
Take China’s solar panels. So far, the high financing costs and capital expenditure of renewable energy have steered many developing countries away from the rapid decarbonization under way in some developed countries. In the short term, it’s just cheaper to continue burning fossil fuels in existing plants. But with imports from China becoming so cheap, the attraction of shifting to renewable energy rises quickly.
That’s because in addition to cost savings, renewable energy offers many advantages to developing countries. First, any country that has to import its oil or natural gas can reduce its import bill. Second, electricity supply is often intermittent and unreliable in developing countries; power cuts are common, which is not only inconvenient but costly, in everything from food spoilage to lost production time. In such an environment, the beauty of being able to supplement grid energy with locally produced renewable supplies is that it may not only reduce energy bills but the overall cost of running either a business or household.
For instance, in the last couple of years South Africa has expanded its renewable energy capacity at a rate much faster than expected, not because government policy has changed but because businesses and middle-class households have taken matters into their own hands and installed a huge amount of rooftop solar in a short period of time. And as the country increasingly electrifies, the attractions of switching to an EV fleet that is itself much cheaper than the alternatives may also rise.
All told, the closing of Western markets may force China into a tactical retreat, but one that then furthers its strategic advance into the fastest-growing markets of the future. In contrast, it’s not yet clear what the strategy of Western countries is for developing the EV sector. Although the Biden administration does at least couple its tariff program with an industrial policy to compete with China, it’s still too soon to say if it will succeed. As for the Europeans and Canadians, the deeper strategy seems even murkier.
In the short term, tariffs will protect jobs and enable a local industry to keep growing. But unless the West gives serious thought as to how to develop new products and cultivate new markets for its output, it’s hard to see tariffs offering a lasting solution.