Tariffs Can’t Stop China’s Clean Energy From Winning the Future

The shape of an abundant green future is coming into focus but is still far from certain. Rapid cost declines of solar, batteries, and wind provide a clear way to not only mitigate the worst outcomes of climate change without breaking the bank but also improve daily life.

The real action fighting climate change is happening in China. The United States—especially with President Donald Trump back in office—remains at risk of getting left in the dust as the rest of the world abandons fossil fuels for a brighter future.

Washington needs to recognize that all paths to global decarbonization in the short to medium term are partly reliant on Chinese production and technologies. Going too far on Chinese tariffs risks leaving the United States even further behind than it is, as most of the rest of the world converges on a green revolution.

The Trump administration is operating under the belief that tariffs are a one-size-fits-all industrial policy tool, with the latest round raising rates on China to 125 percent. Bans and high tariffs will not make the United States less dependent but rather raise the price of intermediate inputs for which few alternatives to China exist in many clean energy sectors. But perhaps more damagingly, they will stifle the competition needed to push U.S. companies to the technological frontier.

The infamous 1964 chicken tax—a 25 percent tariff put on light trucks in retaliation for trade restrictions on U.S. chicken exports—is a dire warning. U.S. automakers sought refuge in the protected truck segment, ultimately retreating from international markets where cars, not trucks, were the primary vehicles sold.

Understanding how we got here and what we should do about it also requires correcting common misunderstandings about how China has come to lead the world in clean tech. While many in Washington paint an ominous picture of Chinese subsidies designed to dominate key sectors that could be weaponized against the United States, the reality is much more complicated.

Chinese firms are winning the race right now because they have made big bets, buoyed by supportive policies. Chinese firms have entered markets, scaled up production, shaved down costs, developed novel technologies, and upgraded manufacturing systems to become world-beaters across a range of sectors critical to the energy transition. Chinese local and central governments aided these firms, but it was running through a gauntlet of cutthroat domestic competition that culled the field and hardened these winners to become the green industries of the future.

Massive investments in solar, batteries, and electric vehicles have led to incredible cost reductions in these key technologies of a future powered by clean electricity. JA Solar, a top global solar module manufacturer, agreed to build a 40 billion yuan solar manufacturing base in Ordos, Inner Mongolia, in 2023. And Chinese automaker BYD is now building an industrial campus larger than San Francisco. Solar panels now cost less than half of what they did just five years ago. BYD sells its electric Seagull sedan for less than $10,000. After years of viciously competitive pricing to maintain or grow market share, the top Chinese EV makers are shifting to pricing that leaves themselves with greater margins.

While Apple might have given up on its car plans, China’s Xiaomi—initially known for being a copycat of the Cupertino firm’s products—has received rave reviews for its first EV, the SU7. It has delivered more than 200,000 of them to customers so far, surpassing Tesla’s Model 3 in the country. Ford CEO Jim Farley loved the SU7 so much that he had one shipped to Chicago last year and drove it for six months.

Highly competitive companies and laggards kept alive by government subsidies coexist in the same sectors, but the top firms—such as BYD, Xiaomi, Tongwei in solar, CATL in batteries, and Goldwind in turbines—are beating their global peers on technology, cost, and scale, not just relying on subsidies.

China isn’t just making these clean technologies; it is deploying them at massive scale and pace. In 2024, China installed 277 gigawatts of solar and 79 GW of wind—that’s more than seven times what the United States installed last year in total (49 GW). China also boasts more than half the world’s EVs, and half the cars sold in the country are plug-ins. China could have already reached its peak carbon emissions in 2024, in part because of reduced emissions due to real estate investment as that critical sector retreats from prior boom times. In fact, Chinese thermal coal power is down 5.8 percent in the first two months of 2025 compared with last year.

Yet China has its own political problems to contend with. Recent moves to add coal generation capacity, walk back energy intensity targets, and relax curtailment regulations all highlight the political and economic difficulties, even under dictatorship, to remaking an energy system. Shutting down coal mines and plants means displacing workers, devaluing assets, and undercutting communities that depend on power and revenue from them.

These challenges would matter even if China didn’t export a single solar panel to the rest of the world. On its own, China is the world’s largest emitter, producing a third of global greenhouse gas emissions. But the industrial and technical developments that are taking place in a greening China are also reverberating around the world. Cheap Chinese EVs are seen as a threat to auto sectors in Europe and the United States that are lagging far behind on electrification.

But the even more jarring reality can be seen in the buzz about BYD’s new battery-charging system, which promises to power up a car in merely five minutes. While there are real questions about whether this technology is needed or whether building out such a powerful charging network is economically viable, it clarifies that Chinese firms are no longer just the cheapest producers of key technologies but increasingly the leading innovators in these sectors and making world-leading products.

Washington and Brussels fear becoming dependent on imports of clean technology from Beijing. Indeed, China now controls key supply chain segments, raw materials, and production technologies needed to scale up clean energy sectors elsewhere, and the cost competitiveness of its clean technology exports makes it harder for such industries to scale in the rest of the world.

U.S. decision-makers in particular face some very difficult trade-offs but have a stronger hand to play because of the Inflation Reduction Act (IRA). By encouraging the production and deployment of clean energy technologies in the United States, through a series of tax credits, domestic content requirements, and other financial supports, the economics of investing in these areas was solidified.

And while data on deployment shows incremental progress, the amount of investment in new production facilities has grown rapidly. U.S.-based solar module facilities (though, importantly, not solar cells) are up to 52 GW in annual production capacity, while tens of billions of dollars are being spent building out facilities to assemble batteries and EVs.

A multifaceted political logic powered the IRA: Getting projects in the ground would encourage voting for the Democrats who passed the legislation, and the businesses (and state and local governments) that put their money into these projects would prevent the repeal of the legislation.

While the former failed in the 2024 election, indications suggest the narrow Republican majority in the House will resist full repeal of the IRA. Of course, Trump and advisor Elon Musk have threatened to impound legally authorized funds without much pushback from the legislative branch. But even if a slimmed-down IRA keeps some fuel to power on America’s progress in the energy transition, the rest of the world will increasingly leave the United States behind.

Such investments in clean energy manufacturing during the Biden administration also came with increased tariffs on Chinese clean energy products. The tariffs were justified on at least three grounds: First, U.S. investments in clean technology sectors needed to be protected from external competition until they are able to scale; second, China’s unfair trade practices required tools to level the playing field; and third, tariffs were necessary to improve supply chain resilience by creating incentives for firms to diversify away from China.

Trump’s moves are far less clear. All of the flip-flopping and on-again, off-again nature of the tariffs has created so much uncertainty that businesses are wary to invest without knowing where policy is or will be. The unprecedented tariffs are moving targets, where the White House itself seems unclear about what the policy is.

More uncertainty comes from Trump’s promises to pull back on the Biden administration’s moves to increase fuel efficiency that Trump styles as an “EV mandate,” and he has threatened to repeal the IRA.

Rather than relying solely on threats, Washington has to take seriously China’s competitive strengths. Blanket accusations of overcapacity, unfair trade practices, and government subsidies obfuscate areas where Chinese firms are out-inventing their global rivals.

Such stock-taking should aim to identify replicable lessons—for instance, in China’s financial sector, which is more willing to make strategic and long-term investments in manufacturing than its counterpart in the United States. Likewise, high degrees of automation and investments in robotics help Chinese firms manage cost and quality, as do vertically integrated business models, which help firms such as BYD shave costs along the supply chains.

Competing with China means building up U.S. capabilities in clean technology, before it is forever left behind, including by investing in next-generation fields—such as enhanced geothermal—where U.S. technological leadership remains. The United States should also copy from China’s own playbook and encourage more investment from Chinese companies in key technological sectors in facilities jointly owned with U.S. businesses so that U.S. manufacturers can catch up to the technological frontier.

Here, policies such as the IRA facilitate clean investment in the United States, including in segments of the battery sector where no alternatives to Chinese technologies, knowhow, and production equipment exist. Europe’s recent report on economic competitiveness provides a model for thinking through where national security reasons require homegrown industries, where technology transfer from China can increase domestic competitiveness and create jobs, and in which sectors the United States is unlikely to achieve competitiveness and should simply rely on imports.

While Chinese production has lowered the cost of clean technologies dramatically, their adoption—especially in the developing world—will require overcoming barriers to make those initial purchases and reap the returns. Green software and finance will be as essential to our future as solar cell factories and lithium mines.

Where the United States could indeed emerge as a climate leader is in software and finance, where it remains, for the moment, a global leader. Clean electricity will power the future, and being able to manage demand and supply—virtual power plants—will require incredibly dexterous algorithms to shift energy usage to sunny, windy moments and shave it other times without infuriating customers.

It has become fashionable to say Washington is taking a page out of Beijing’s book with nationalist industrial policy. But it’s critical to recognize that Chinese firms aren’t making world-beating products because of market interventions but because they are betting on the future.

Where the Chinese state helped these firms was by providing a stable economic, political, and policy environment for the transition. The United States is now not only questioning the transition and associated policies but creating uncertainty in broader economic policy that saps firms’ abilities to invest in the future. Instead, they are spending their resources hedging against the volatility emanating from Washington.