In recent years, there has been a dramatic transformation in the economic philosophy guiding the world’s rich countries. After the supply chain shocks brought on by the Covid-19 pandemic and the Russian invasion of Ukraine — and forced by political movements on the left and right to recognize the community-level blight wrought by deindustrialization in the West — many governments began to reverse a decades-long commitment to free trade and sought to bring back manufacturing to their shores. Governments around the world also rediscovered an instrument that they had more or less neglected since the advent of neoliberalism: industrial policy, or the exercise of deliberate control over the production of goods within a nation’s borders.

This has coincided with a massive surge of investments in green technology. It’s hard to wrap one’s head around the sheer scale of these investments. At the time of Donald Trump’s first inauguration, the world invested just as much in clean energy as in fossil fuels. Today, clean energy investments are nearly double those in fossil fuels.

But all that money is likely still insufficient — particularly in the absence of coordinated regulatory action against fossil fuel emissions — to help the world achieve the global climate target of 1.5 degrees of warming. And to translate the progress the world has made on clean energy innovation into emissions reductions, governments will have to cooperate on encouraging an industrial buildout whose benefits can be shared by the poor as well as the rich nations of the world. Recent signs, however, point in the other direction.

On December 3, the Chinese government announced a ban on exports of several rare minerals used in semiconductor manufacturing to the U.S. It was the latest salvo in a trade war between the world’s two largest economies that has steadily ratcheted up under the last three U.S. presidents. The trend toward increasing protectionism in American trade policy is expected to continue under the second Trump presidency.

To understand how the escalating U.S.-China trade war has affected the world’s practical ability to fight global warming, Grist interviewed Tim Sahay, who co-directs the Net Zero Industrial Policy Lab at Johns Hopkins University, which analyzes global green industrial policy, and co-authors an indispensable newsletter — The Polycrisis — on the political economy of climate change. The interview has been edited for clarity and length.

Q. What is green industrial policy and why is it needed to fight climate change?

A. Industrial policy is usually pigeonholed as just being about making things. The machines that we need to fight climate change and cut pollution are things like EVs, batteries, solar panels, chips, and so green industrial policy is about how governments can support firms and support markets in making and accelerating the manufacturing of these green technologies.

But if you zoom out and you think about what industrial policy is meant to do, it’s actually a broader objective: It’s about what we make, and how we make, and what we collectively decide not to make. In the case of green technology, we want to not make fossil fuel cars and turbines and steel furnaces. Ultimately, green industrial policy is about who has the power to change the production and provisioning systems of our world.

Here, since many people are suspicious of industrial policy as either enabling crony capitalism or great power rivalry, I want to make a positive case for why countries should do green industrial policy. As the economists Dani Rodrik and Joseph Stiglitz have recently argued: there have been no successful cases of economic development without industrial policy. The reason developing countries want local clean industries is clear. They could boost profits, tax revenues, create higher-skilled jobs and political coalitions that support deep decarbonization. Secondly, industrial policy returns public purpose to politics. Neoliberalism evacuated economic decision-making from democracy and handed it over to firms and markets. By making government something worth arguing about, green industrial policy supports democracy. 

Q. What roles do the U.S. and China play in enabling the world to fight climate change?

A. We live in a G2 world: There are two superpowers, the United States and China. In terms of fossil fuels, these two countries are the current largest polluter (China) and the largest historic polluter of greenhouse gases (the U.S.). And lest you think that this is about the past, as of 2024, the U.S. is producing more oil than ever before, and China is producing more coal than ever before.

They are also two enormously rich and capable economies who are number one and number two in the green economy — in terms of patents, in terms of renewable resources, in terms of educated, skilled people who are going to do the green manufacturing. And the political leadership in both of these countries sees green technologies as key to maintaining their advantage in the 21st century. 

But there is a wide gulf between number one and number two. Very few people outside of energy and industrial circles know this, but China is now leading the world in solar and wind manufacturing, in solar and wind installations, in EV manufacturing and sales, in hydroelectricity, even in new nuclear and high voltage transmission lines and high speed trains. These are the machines that are relevant to the green economy, and China is indisputably far, far ahead of the United States and of Europe and East Asia. 

One way to think about how all of this comes together is what we’ve been calling China’s “solar hockey stick of hope” — the immense acceleration in solar production coming out of China. The cost of solar panels is now $0.11 per watt. Just three years ago it was $0.30 per watt, and in another five years, people expect it to fall to two or three cents per watt. Dirt cheap solar is helping developing countries rapidly replace coal and gas in their electricity, and cheap electricity transforms manufacturing possibilities.

I’m definitely not going to be sugarcoating; there’s also dark sides of it. Most of the polysilicon is coming from Xinjiang, which is rife with human-rights abuses. That has justly led to a lot of human-rights campaigners and energy and climate advocates saying that we should be making solar panels in other places, and particularly try and make polysilicon without coal and without the almost slave-like conditions of labor in Xinjiang.

Q. How did the U.S.-China trade war begin? What steps did U.S. presidents take, and why?

A. The reason is essentially that wide gulf between number one and number two. For the first time in its history, the United States found itself very much like a developing country in terms of having to do catch-up growth with an advanced competitor. The tools of catch-up growth, since Alexander Hamilton, have been pretty much the same: use a lot of protectionism, prevent the cheaper goods from abroad from coming into your country with high tariff walls, and combine that with subsidies to encourage domestic production.

The United States government, since Obama, since the 2009 ARRA [the American Recovery and Reinvestment Act, the stimulus bill passed by Congress following the 2008 recession], has been trying to incentivize green manufacturing under and behind tariff walls. The first tariffs put on Chinese green goods were in 2012, on solar panels. These tariffs were extended by the Trump administration, which didn’t particularly care about protecting green industries, but just protecting industries overall, and put a more general tariff on steel and aluminum. Then the Biden administration, after it gave those domestic Inflation Reduction Act subsidies to manufacturers, increased the tariffs on EVs that were already at 27.5 percent. Now there is a 100 percent tariff on EVs. The goal was to protect domestic industries and the domestic workers who are in those industries.

And the IRA did not just have tariffs, but also tried to incentivize domestic manufacturing of everything from the battery minerals all the way to the batteries and the EVs themselves. Congress said that it’s going to bar any American subsidies from going to China, and that the batteries and battery metals that are processed in China, whether by foreign or Chinese firms, will not get the EV subsidy. Regular consumers get a $7,500 discount, of which $3,750 is barred if the components in that battery come from China. So what you basically had is a great green wall put up by the Biden administration. But this is part of a 15-year fight where the United States has tried to catch up to Chinese technological dominance.

Q. What steps has the Chinese government taken in retaliation?

A. This technological competition and green tariff war have been paired in the United States with chip export controls. The United States is trying to maintain its technological lead in chips, and the Chinese have responded by controlling the exports of various metals where they have a technological lead. They have responded by banning exports to the U.S. of gallium and germanium, which are essential to manufacturing semiconductors. They have also announced that they are going to think carefully about which firms are allowed to get components like graphite that go into batteries, etc. 

So the Chinese have used export controls on materials, and the Americans have used export controls on chips, and tariffs on green goods. This is now an escalating trade war that is slowing down American decarbonization.

But then again, I would like to stress that this is not just a trade war — this is a U.S.-China competition across all spheres of economic life. That means that the United States and China, which are also two very large creditors to developing countries in terms of loans, have refused to cooperate on any debt relief to developing countries. They each play a game of hot potato where they say, “We are not going to give any write-offs to a developing country unless your banks suffer more losses than our banks.” So essentially, you’ve had a breakdown in relations between the two countries, which has just worsened the debt crisis in developing countries.

That debt crisis has meant that developing countries have less money to spend overall, whether they’re investing in green or climate goals, or whether they’re investing in their health and education. Their interest bills have shot up. Over 3 billion people currently live in countries where their interest payments are much, much higher than their health and education payments. Green goals have just suffered, have been a casualty of the U.S.-China economic war.

Q. The U.S.’s economic stance against China is often rhetorically justified as being in the interest of domestic workers. How should ordinary people concerned about their livelihoods and the cost of goods think about trade policy when politicians pitch competing visions to them?

A. If we are in a zone of trade war and geopolitical competition, what consumers are going to face is much, much higher prices. Those higher prices would affect poorer people a lot more than richer people. And inflation makes societies boil; it makes politicians’ heads roll. We’ve had a wave of anti-incumbent elections where politicians are just thrown out of office because people have suffered a few years of high prices. 

The question about who benefits from trade protectionism is a really important one, because there’s always going to be more consumers than producers or workers in firms that are making domestic green goods. And the Biden administration very straightforwardly says, ‘Look, we are trying to protect workers, not consumers.’ You could say that consumers are going to pay through higher prices; the planet is going to pay through slower climate action. But the idea was to generate a stable political coalition such that these green policies become entrenched and both parties end up voting for these green policies, because both parties have workers and states that benefit from this production and the protection of producers at the expense of consumers. 

The other argument that you often hear is that workers want their industries not to be offshored. If you use industrial policy to give these industries subsidies and you protect them with tariff walls, then sure, workers are going to have jobs temporarily. 

But the question is, can you create technological learning and can you make these goods more efficiently and cheaply over time? If you want productivity improvements, then you basically need to be working with the world’s best companies. And if the world’s best companies happen to be Chinese companies, and the United States is not inviting Chinese companies to set up factories and plants inside the United States, then United States workers are going to suffer, and those goods that they make are going to become uncompetitive. So it’s unclear to me whether this kind of protectionism is going to be sustainable in the long run, whether it’s going to be good for either workers or consumers.

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Q. You mentioned in a recent essay that, partly as a result of American import controls, there’s so much new Chinese capital investment in the Global South that China has actually shifted to being a net exporter of capital, rather than an importer. Do some developing countries stand to benefit from this trade war?

A. The Chinese firms that are benefiting from domestic green industrial policy are now starting to export their factories and plants overseas: not just sending EVs and solar panels overseas, but actually setting up manufacturing plants overseas. And this has been a very substantial shift just in the last two years, as a lot more capital investment is going outside China. And it’s not going just to the Global South, it’s also going to the Global North.

What we are finding in many countries, such as in the EU, such as Brazil, such as India, is that they are basically inviting the leading Chinese EV manufacturers to set up a factory and then telling their workers to basically be trained by Chinese engineers and slowly learn how to make that good themselves. Later on, you know, you can throw out the Chinese engineers and the Chinese firms in much the same way that China has done with Western firms over the last 30, 40 years.

To the question of which countries are benefiting: If a good is produced in China, it is slapped with a tariff when it lands on American shores, so instead, Chinese firms have decided to go into countries that have free trade agreements with the United States. In particular, the countries that have seen a surge of Chinese investment in the last two or three years have been Vietnam, Mexico, Morocco, Indonesia, Poland, and Hungary. And these are countries that the International Monetary Fund is now calling “connector countries” because they are countries from which Chinese firms are setting up manufacturing bases so that they can continue to export to both the U.S. and to Europe. So it’s by no means only losers in this trade war.

Q. What should we expect to see in Trump’s second term? Do you expect continuity with Biden on trade and economics?

A. Anyone who thinks that they know what Trump is going to do or what the different firms around Trump are going to do is deluding themselves. But if you just go by the stated policies, the stated policies are high tariffs that are broad — not targeted tariffs, the way the Biden administration did, on strategic technologies. That is going to slow down climate action more than it already has.

Trump promised to repeal the IRA and end the “green new scam.” A lot of firms have already announced a pause or a cancellation of projects, whether they’re solar panels or batteries or wind turbines. That kind of uncertainty just means that there’ll be fewer green goods made in America by American workers, and what we would get instead is just more green goods being demanded and consumed in the U.S., but not made in the U.S..

We expect the “drill, baby, drill” crowd to get even more of what they want. The likely outcome is just an increase in oil and gas production. And if that happens, prices might collapse, and if prices collapse, Trump’s policy might counterintuitively end up hurting American oil and gas firms.

What we might see in the Trump era is an isolation of the U.S., as other countries coordinate with each other, and we in the U.S. would just be behind a tariff wall, rejecting these high-quality, cheap green goods. And instead we would be boiling in our own oil. We would be drilling and fracking till kingdom come.

Q. When people argue that fighting climate change requires the world’s rich countries to finance a massive industrial buildout, are they relying on assumptions about the necessity of economic growth? Is there another path involving reducing consumption and changing our relationship to nature?

A. The green-growth, investment-led approach, which is largely the form that industrial policy has currently taken, is meant to create political coalitions to support climate policy, and to create new machines and electrification and new housing and cities and ways of life. The idea is to then fully power down oil, gas, and coal, because you would have made a lot of green supply, and stop fossil fuel supply in the 2030s. This is an assumption that this would actually lead to fossil fuel phaseout rapidly, because you would have created that political coalition through these investments.

I think degrowth offers an alternative suggestion, which is: Yes, you need to invest massively in these new systems, but you also need to create new ways of consuming them and new ways of minimizing the economic material throughput and waste’s ecological burden upon the planet. I think there’s definitely going to be a lot of resistance by existing industries and existing political interests to accept any kind of degrowth. We are actually seeing quite a lot of resistance, particularly in developing countries, that basically say that we need to invest in a lot more — because essentially they are on average five times poorer than richer countries — in infrastructure and in these green assets.

I think perhaps the degrowth view would be better focused upon transforming not just national systems but also international systems, because if you want to build out this new order, you need to change the technologies, you need to change our financial system, you need to change our trading system that entrenches unequal North-South exchange, and consumption systems. I would really like the degrowth movement to focus upon these international organizations, like the IMF and the World Bank, that are currently holding back climate action. Degrowthers should be worrying more about the debt crisis that is currently [imposing] a forced degrowth on so many countries in the world that are suffering from slashing of health and education and climate budgets. That just requires a level of political action and commitment and internationalism that is currently really missing, but was very much a powerful social movement in the 1990s with the WTO protests, or the 1990s and 2000s with the debt jubilees.