China dominates the production of and supply chains for nearly all clean technologies. As the world approaches what the International Energy Agency (IEA) calls the “beginning of the end” of the fossil fuel era, this dominance puts Beijing in a prime position for the future distribution of power in the global system. Although the United States is currently a leading producer and beneficiary of oil and gas production and adjacent industries, global efforts to curb the climate crisis and the declining cost of clean alternatives have put an expiration date on this economic model. As countries around the world aim to transform their economies, they will become increasingly reliant on green technologies—and China produces more of these than any other nation.
While U.S. and European policymakers grapple with the enormity of this challenge, their responses have primarily focused on “de-risking” supply chains, in the sense of both avoiding overreliance on China and maintaining or attaining leadership in key technologies. However, reactive and short-term de-risking solutions come with their own risks. Short-sighted measures could exacerbate supply chain disruptions that could delay the global energy transition and worsen climate impacts. A delayed transition would not only weaken the United States’ and the European Union’s positions on the global stage but could also directly threaten their national security.
So, although a delayed energy transition could benefit U.S. liquefied natural gas (LNG) exports and other hydrocarbon revenues in the short term, the longer-term financial and physical impacts of climate change and extreme weather events would far outweigh these gains. The American Petroleum Institute claims that the oil and gas firms it represents “support 8 percent of [U.S.] GDP”; on the other hand, a new study in Nature has found that climate damages will reduce North American income by at least 11 percent between 2024 and 2049, relative to a baseline without climate impacts. To be clear, according to the study, these damages are already baked in due to historical emissions, and planned increases in fossil fuel emissions will only make them worse.
However, it is possible for the United States and the European Union to successfully diversify their supply chains while also driving decarbonization. But doing so will require their governments to embed a long-term, strategic, comprehensive approach to climate change into their foreign policies. Their strategies must be based on strengthened transatlantic alignment, financial support for developing green tech industries in the Global South, and bolstered domestic innovation. They must also manage tensions with the competing clean energy superpower, China.
How China Took the Lead
China’s dominance of green technology supply chains is the result of decades of strategic government support, innovation supported by economies of scale, and integrated supply chains to build up industries for the future. The government identified the strategic opportunity of developing renewables to reduce fossil fuel import dependence in the 1990s. Throughout the early 2000s, industrial policies, such as the Made in China Strategy 2025 and the Strategic Emerging Industries initiative, aimed to gain a comparative advantage by making “new energy” industries and “new energy vehicles” a national priority. Consequently, China is no longer simply copying other countries’ technologies but now leads research and development and new patent applications.
China also identified the strategic role of critical minerals early. Former Chinese leader Deng Xiaoping said in 1992 that “while the Middle East has oil, China has rare earths.” To support the manufacturing of local green technologies, the Chinese government and companies expanded into all relevant stages of mineral supply chains, including mining, extraction, processing, refining, and manufacturing of end products.
The long-term strategic policy direction has paid off. Today, China not only dominates the processing of most critical raw materials but also the entire value chain of most green technologies. In addition, it is adding clean power at home at an astonishing rate: the IEA expects China to add more renewable power capacity in 2023–2028 than the rest of the world combined. Clean energy was the top driver of China’s economic growth in 2023; without the investment and growth from the clean energy sectors, China would have likely missed its GDP growth target of 5 percent. But, as clean tech has surged to help prop up the economy, China’s unchallenged leadership in green technologies is now leading to global trade frictions.
The De-risking Challenge
In the face of China’s growing clean tech dominance, transatlantic policymakers such as European Commission President Ursula von der Leyen now speak of “de-risking” the relationship between China and the West. This entails both the United States and the European Union passing policies to strengthen domestic production. The United States launched its largest-ever climate bill in August 2022, the Inflation Reduction Act, aiming to stimulate new industries and job growth through tax incentives and subsidies, while the European Union introduced the Net Zero Industry Act in March 2023 to ramp up domestic production of green technologies. Both are also addressing the question of critical minerals, with the U.S.-initiated Minerals Security Partnership and the EU Critical Raw Material Act aiming to build global alliances to diversify mineral supply chains.
Moreover, the European Union and the United States are taking steps to curb imports from Chinese suppliers. Although their approaches and tools are somewhat different, both aim at the same target. The recent U.S. tariffs on green goods will make Chinese electric vehicles (EVs) and other green technologies much more costly, and the U.S. Uyghur Forced Labor Prevention Act led to a large-scale ban on Chinese solar components. Meanwhile, the European Union recently approved its own forced labor ban and is conducting anti-subsidy probes into Chinese EVs, solar panels, and wind turbines.
Yet, if measures such as these are not embedded in a comprehensive strategy grounded in strong global relationships and continued engagement, they risk making green goods more expensive in the West—delaying the energy transition as a result. A Wood Mackenzie study found that an effort to rapidly remove Chinese-manufactured clean tech products from global markets would result in a 20 percent increase in capital expenditure from 2023 to 2050, amounting to $6 trillion in additional costs globally.
Solar panels in the United States already cost twice as much as they do in Europe because of import restrictions on Chinese panels. Trying to diversify from China too quickly could result in major supply disruptions that could slow down the global transition that is already behind schedule. For example, in response to U.S. efforts to contain Beijing’s access to advanced chips, the Chinese Ministry of Commerce announced an export licensing regime on minerals required in chip production, a template for how a tit-for-tat scenario could yield unforeseen consequences.
The administration of U.S. President Joe Biden justified the May 2024 tariffs on Chinese clean technologies as needed to protect “key sectors that are vital for America’s economic future and national security.” However, slowing the adoption of clean energy also threatens U.S. national security. More frequent extreme weather events will create risks to food safety and human health as well as financial markets and supply chains. In 2023, extreme weather events in the United States resulted in $73 billion of damages and cost hundreds of lives.
How the United States and Europe Should Respond
For better or worse, it appears that the United States and Europe are determined to strengthen domestically produced green technologies rather than relying on Chinese ones. If this strategy of de-risking green tech supply chains from China is to succeed, the United States and the European Union will need a long-term strategic approach focused on four areas.
Achieving U.S.-EU Alignment on Green Tech
The United States and the European Union need to strengthen transatlantic engagement to find alignment on the question of how to address the challenges that reliance on China poses based on strategic foresight. The failure to reach transatlantic agreement on how to advance clean tech policies such as the EU-US Global Arrangement on Sustainable Steel and Aluminum and the Trade and Technology Council represent major stumbling blocks to successfully advancing more resilient supply chains. Similarly, Europe was surprised by the unilateral nature of the United States’ recent measures such as the Inflation Reduction Act and U.S. tariffs on EVs and components.
Given the long-term nature of the climate challenge, both sides should think through their ultimate objectives in the power struggles that accompany the green transition and, based on that, develop an aligned strategy. The U.S. Climate and Trade Task Force’s aim to draw on the negotiations with the European Union to develop a climate and trade policy toolkit is a step in the right direction. However, transatlantic engagement should go further. For example, the two sides could hold a transatlantic summit of the Climate and Trade Task Force in Europe to address the dual challenge of China’s clean tech leadership and climate change.
Bolstering Green Industries in the Global South
The United States and the European Union can leverage and expand their foreign financing to bolster supply chain security and reduce China’s dominant role in extraction across the Global South. Many countries that will be vital to green tech supply chains are currently under debt stress and risk become merely sources of raw materials that benefit little from an extractivist economic model. Enabling countries in the Global South to take full advantage of the green transition to build out their economies will make them less dependent on China—while making supply chains more resilient.
This can come in the form of technology transfer and capacity building but, crucially, relies on financial backing. Both the United States and the European Union have already pledged financial support for developing green technology industries in the Global South. The multilateral Minerals Security Partnership aims to facilitate targeted financial and diplomatic support for strategic projects along the value chain. The U.S. Clean Energy Supply Chain Collaborative pledges to mobilize climate finance from a network of institutional investors managing $10 trillion in assets, prioritizing clean energy and critical minerals projects. And the EU Global Gateway hopes to mobilize up to 300 billion euros of investments for sustainable and high-quality projects by 2027. To ensure the credibility of these initiatives, they need to deliver tangible results for recipient countries and investors quickly to create a beneficial environment for enhanced project development and investment. Moreover, the United States and Europe should also leverage their positions within leading multilateral development banks to champion a comprehensive reform of the global financial system to mobilize the finances needed, as suggested by the Bridgetown Initiative.
Focusing on Domestic Innovation
The United States and the European Union should focus on their innovation power and comparative advantages rather than falling into a trap of protectionist measures. Current green technologies still face many challenges, including high minerals demand, environmentally and socially challenging production processes, and energy storage capabilities. While they provide better solutions than current fossil fuel energy and industrial systems, innovation will be needed to ensure a truly sustainable, circular, and swift energy transition. The United States and Europe are both innovation powerhouses with the best academic and research communities in the world. Through dedicated research and development support and the fostering of global cooperation between academia and industry, the United States and Europe could pioneer greener technologies for the global transition.
Intensifying competition from China should be a wake-up call for the United States and Europe, as well as other partners, to jump-start their financial firepower to accelerate innovation and recycling of resources in green technology supply chains.
Pursuing Dialogue with China
Finally, the United States and the European Union should aim to advance diplomatic dialogue with China on clean technology supply chains and focus on joint efforts to tackle climate change wherever possible. There is no way around China’s dominance in the sector in the short term. Therefore, any policy approaches to address overreliance should be accompanied by a diplomatic strategy to manage tensions with China and prevent unnecessary, additional supply chain disruptions. This could include identifying sectors where dependence on China does not pose a direct national security threat and continuing technical dialogues on these climate- and energy-related topics to keep people-to-people channels open and build trust amid geopolitical tensions.
The United States and Europe are both investing in their own production of clean energy goods and taking steps to curb imports from a competitor that has a monopoly in many key sectors. What they need now is a third pillar of this strategy, specifically, international coordination: with one another, with partners in the Global South who have urgent investment needs, and with China.
Correction: A quote from Deng Xiaoping was incorrectly dated to 1987; he actually said it in 1992.
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