Britain risks being on the wrong side of China tariffs

Retaliation from Beijing is the lesser concern

Last week, EU Member States held a crucial vote on the European Commission’s proposal to impose tariffs on Chinese EVs. It was not decisively in favour, with 10 countries approving the move, 5 pushing back and the remaining 12 abstaining. Still, it was enough to give the Commission the necessary authority to go ahead with its initial tariffs plan.

This is just one part of the EU’s steady recalibration of its trade policy to a more protectionist stance. After decades of prioritising free trade deals, there is a growing feeling that the EU is being taken advantage of by developing countries, particularly China.

With large state-funding and massive industrial capacity, Beijing has been steadily stripping away European industry through subsidised overproduction. This is nothing new, but the process has become more intolerable as China has moved into more sophisticated and higher value-added goods. Europe has long since stopped being a major producer of basic goods and raw materials but it still prided itself on technical know-how and advanced manufacturing. Now that too risks being lost and politicians have decided things must change if the continent is to avoid a politically catastrophic wave of deindustrialisation.

As a result, we’ll see more rather than less of anti-China protectionism in the near future. The European Commission is cracking down on projects that use Chinese electrolysers benefiting from the flagship scheme to subsidise green hydrogen. Wind turbines are also under the microscope, especially as the EU still has some globally leading companies in this sector. Where the EU is established in an existing sector or where it spies an opportunity to get in on the ground floor of a developing one, protectionist tools will be used to shield European companies.

There is a trade-off in this of course. Having lots of cheap, clean technology is quite a good thing if the only thing we think about is climate change. If we decide to say no to that technology, or to impose policies to raise its cost, then we will slow down the pace of the climate transition. From a purely climate perspective, the world should be rejoicing in China’s clean tech production and trying to buy as much of it as it can.

In fact, in solar, this is basically the policy already in Europe. There is no solar industry to speak of in Europe and little likelihood of developing one that can compete with companies in China. Solar panel deployment is a bigger industry here than solar panel production. So unlike in other sectors, we’re not seeing restrictions on Chinese solar panels. Instead the cheap products are being used to spur a massive increase in solar power generation, moving much faster than expectations.

So there is a balance to be struck. The United States is probably too far over one side. Clearly protectionism and geopolitics dominates over addressing climate change in America’s political landscape, leading to very high tariffs and other restrictions on Chinese goods in the clean industry space. If everyone took this approach, it would have a significant negative impact on our ability to quickly decarbonise by general raising the cost of the transition.

Britain, meanwhile, risks drifting over to the other extreme. We have not developed our own tariffs on Chinese EVs and remain fairly open to Chinese imports compared to the standards that are now prevailing in the US and EU.

The UK government is understandably concerned with making the climate transition cheap. A lot rides on Labour being able to demonstrate that it’s commitment to net zero and accelerating the timetable on issues like clean power will be a practical benefit to the average person. There is also a feeling that we are exporters of EVs, so shouldn’t risk China imposing retaliatory tariffs.

But ministers have also promised the transition will bring new jobs in clean industry. If the factories that produce EVs, batteries or electrolysers set up elsewhere, while jobs in oil and gas fall away, Britain risks coming out on the losing side of the race to net zero, even if we decarbonise faster than anyone else. Focusing on a policy of non-confrontation to protect some current exports is an excessively short-termist approach that misses the larger opportunities and dangers in developing new green industry (a mistake that Germany has also made and is paying for).

We must also consider the perspectives of our allies. Already Washington is leaning heavily on other Western countries to mobilise more forcefully against China’s rise in economic and political power. Now the EU is also taking on a more hawkish stance. What will they make of a Britain that turns itself into a haven for Chinese technology? How would that impact our ability to cooperate in both trade forums and in defence and security matters?

For Britain to have a healthy, diversified economy and a moderate political environment, it will need to continue making things. As much as the speed of the climate transition is paramount, the government must deliver on the promise of green jobs. That will mean both protecting existing jobs and fostering the creation of new ones. And it will mean pushing back against China.