Developed Countries Face Tough Road Ahead on China Overproduction Problem
― Difficulties in balancing decarbonization and de-risking from China over supply-chain restructuring in the clean-energy sector ―

The industrialized countries of the West (hereinafter, "developed countries") are ramping up criticism of China for overproducing clean-energy products. The U.S. has not only admonished China for dumping, but has also gone as far as imposing punitive tariffs, and Europe may soon follow suit in taking tough measures to deal with the issue. These developments demonstrate the commitment of developed countries to nurture their own industries, and strengthen and restructure their supply chains to achieve the twin goals of decarbonization and de-risking from China. Looking at the situation from another angle, it can be said that, like China, developed countries are placing much more emphasis on policies oriented toward protectionism rather than free trade doctrine.

However, these policies of developed countries lack economic rationality, and it will prove challenging for them to successfully reorganize supply chains in the clean-energy space. Above all, attention needs to be paid to the following facts: 1) China's overproduction is unlikely to be halted as a result of these measures, and 2) China is highly cost-competitive in the field of clean-energy. Even if developed countries slap hefty tariffs on Chinese goods, the proliferation of Chinese products outside the developed countries will continue, and the influx of Chinese wares into developed countries will be impossible to stop completely as, for example, Chinese manufacturers move to boost roundabout exports. In addition, although developed countries are employing subsidies to develop their industries in a manner similar to China, they still lag substantially behind China in competitiveness in the clean-energy field. It will not be easy for developed countries to replace supply from China with their own products.

Developed countries must be prepared to face economic risks such as inflation if they proceed with supply-chain restructuring in the clean-energy sector through forceful policies and stop buying cheap Chinese products.

To reduce such risks, developed countries could employ such policies as 1) cooperating with emerging countries and 2) building supply chains for clean-energy products that meet high standards. Specifically, developed countries can promote the "China Plus One" strategy in private business for diversifying investments to encompass countries/territories other than China, and are collaborating with ASEAN and India, which are the main investment destinations in this strategy, to enhance their cost competitiveness. Furthermore, EVs manufactured in China are seen as causing significant environmental harm during the production process. If, through cooperation between developed countries and leading emerging countries, clean-energy products are manufactured within supply chains that adhere to tough environmental standards and also to ESG standards, including labor standards, this will go a long way to establishing a fair global market in this field.

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