Between a rock and a hard place: Europe’s clean tech industry between Trump’s policies and Chinese pressure

Authors:
Lucas Resende Carvalho, Bertelsmann Stiftung
Elisabetta Cornago, Centre for European Reform
Etienne Höra, Bertelsmann Stiftung
Philipp Jäger, Jacques Delors Centre

Executive Summary

• The second Trump administration has made a U-turn on industrial policy designed to support decarbonisation, while making a protectionist trade policy its hallmark. US tariffs make the global trade environment extremely volatile, while the rollback of generous US subsidies creates both challenges and opportunities for European clean tech producers
   
  • First, US demand for many clean technologies has started to fall, and is set to contract further as some consumer subsidies for clean tech are phased out sooner than expected and others entirely stopped.
     
  • Second, the future US supply of clean technologies will be lower than expected, but because not all manufacturing subsidies for clean tech are cut simultaneously, the drop in demand may be larger than that in supply.
     
  • Third, the new tariffs might squeeze remaining Chinese clean tech exports out of the US market, possibly providing some opportunities for EU exporters to capture China’s market share.
     
  • If US demand falls by less than domestic supply and Chinese imports combined, EU exporters could benefit from this opportunity. Otherwise, exports to the US will likely fall.
     
• In the short term, the prospects for exports of EVs and wind energy equipment will be particularly damaged, since they benefited from provisions in the Inflation Reduction Act (IRA), the post-pandemic stimulus package launched by former US President Joe Biden to support climate and clean tech investments. US domestic capacity for battery manufacturing is growing, so it will be difficult for EU battery producers to seize a large market share. Some smaller industries could benefit from Chinese goods such as heat pumps and electrolysers being largely excluded from the US market.
   
• At the same time, China’s oversupply of many clean tech products – from electric vehicles to solar panels – has increased. This puts EU-based manufacturers under pressure from low-cost, often subsidised competition, and risks deepening Europe’s dependency on Chinese tech. Due to US trade barriers, cheap Chinese exports are being redirected towards Europe, amplifying these pressures.
   
• In sum, European clean tech producers are being hit by two policy shocks, originating in the US and China: they suffer from weaker sales abroad and tougher competition at home.
   
• But the EU still has global leaders in clean tech manufacturing, in areas such as wind equipment, heat pumps, next-generation batteries and electrolysers. By building on its industrial and technological base, and leveraging its large internal market, the EU can claim a leading position – but it needs to deploy a coherent clean tech strategy quickly.
   
• A policy response is needed urgently to prevent these temporary shocks from destroying the EU clean tech industry, and from leading to long-lasting import dependency on a few suppliers of clean tech. Having recognised too late the danger of import dependency on natural gas from Russia, Europe should learn from its past mistakes.
   
• An effective EU policy strategy for clean tech should encompass trade defences against Chinese overcapacity, EU-level production support to complement national state aid for clean tech, and regulatory stability to boost domestic demand for clean tech. The EU should:
   
  • Step up trade defences against Chinese overcapacity in strategically selected clean technologies, including through targeted tariffs, European preferences in public procurement and screening foreign direct investments.
     
  • Support clean tech demand in the EU to offset the US demand shock, by sticking to a clear and predictable regulatory framework, and by providing purchase incentives where needed.
     
  • Boost EU-level support to enable strategic emerging industries to grow, complementing national state aid with EU instruments such as Important Projects of Common European Interest, the planned European Competitiveness Fund and Horizon Europe.

_{Photo: CC Engineered Solutions, Source: Unsplash}