China's Strategy Amid U.S. Tariffs and Geopolitical Shifts

The New Battlefield: Chinese Solar Dominance vs. U.S. Supply Chain Dependency

China is not only maintaining but amplifying its dominance in the global clean energy market. The International Energy Agency (IEA) projects that China's exports of solar panels, wind turbines, batteries, and electric vehicles (EVs) are set to triple over the next decade. By 2035, these exports are expected to soar to an astounding US$340 billion, skyrocketing from nearly US$100 billion last year. This explosive growth underscores China's relentless pursuit to lead the global transition to sustainable energy.

"Despite the strong impact of the Inflation Reduction Act and Bipartisan Infrastructure Law in the United States, China is set to remain the world's manufacturing powerhouse for the foreseeable future," the IEA reports. 

This sustained dominance is attributed to China's greater economies of scale, a vast domestic market, and highly integrated supply chains for clean energy technologies—factors that collectively give China a competitive edge that's hard to match.

However, industry observers suggest that Chinese companies are likely to increase their production of solar panels in the United States to mitigate any fallout from possible higher tariffs on their exports from Southeast Asia next year. This anticipation comes amid political uncertainties, including the possibility of policy shifts in the U.S. following the return of Donald Trump to the White House in 2025. If policies were to change under Trump’s administration, the landscape could shift dramatically.

"Demand for solar will remain strong, since it is a proven technology and customer awareness and acceptance is high. It is very affordable compared to just a few years ago." 

says Frank Haugwitz, founder of Asia Europe Clean Energy (Solar) Advisory. 

Even if future U.S. administrations were to act on plans to cancel President Joe Biden’s US$400 billion incentives for clean energy projects under the Inflation Reduction Act, demand in the U.S. is expected to remain robust.

The Biden administration has already announced preliminary countervailing duties of 2.9 to 30 percent on solar cells from Vietnam, Cambodia, Malaysia, and Thailand, most of which are produced by Chinese-owned factories. This move follows allegations by U.S. manufacturers that Chinese firms benefit from unfair subsidies. Additionally, the U.S. has doubled the tariff on Chinese solar cells to 50 percent. With potential higher tariffs looming, Chinese companies are strategizing to circumvent these barriers.

By increasing production within the U.S., Chinese companies aim to maintain their market share while navigating the evolving trade policies. This move not only helps them avoid tariffs but also positions them favourably in a market that is expected to grow, regardless of political shifts. Solar power equipment, lithium batteries, and EVs are among the bright spots in China's economy, especially as it seeks to strengthen its dominance in these "new three" industries amid challenges in other sectors.

International strategic competition is now deeply entrenched in the energy industry. With China's control of more than 80 percent of the supply chain for solar panels and over 70 percent of the world's lithium-ion batteries, the stakes are higher than ever. The IEA notes that the global market for clean energy technologies is projected to expand to over US$2 trillion by 2035, from US$700 billion in 2023.

Meanwhile, companies like Switzerland-based Climeworks are advancing in carbon capture technology, seeking investments for ambitious projects costing between US$2 billion and US$3 billion. Climeworks is even exploring collaborations with Chinese renewable energy firms to build carbon capture projects in Inner Mongolia. Such partnerships highlight the complex interplay of competition and cooperation in the current energy landscape.

Despite China's dominance, opportunities remain for other nations. Southeast Asia could emerge as a low-cost producer of solar components, and regions like North Africa could become EV manufacturing hubs. 

"Growth in the manufacturing and trade of clean energy technologies should be for the benefit of many economies, not just a few," emphasises IEA executive director Fatih Birol.

The energy arms race is on, and its outcome will have profound implications for the world's sustainable future. It's imperative that nations and industries alike recognize the high stakes involved. Strategic investments, policy decisions, and international collaborations will play pivotal roles in determining who leads in the next era of energy innovation.

As Chinese companies adapt to potential trade barriers by boosting production within the U.S., they exemplify the dynamic strategies employed in this global competition. Their actions underscore a critical reality: in the race toward clean energy dominance, agility and foresight are just as important as technological prowess.