Trade tensions and climate goals: are political agenda undermining green economy?

Muhammad Zamir Assadi

As climate change increasingly affects economies worldwide, the urgency for a united, green economic transition has never been greater. However, experts - at the 7th China International Import Expo (CIIE) Hongqiao International Economic Forum sub-forum "Sustainable Trade amid Climate Change" held on November 6 - warned that political agendas and trade tensions may be hindering this effort, creating obstacles that undermine a globally coordinated response.

Erik Solheim, Co-Chair of the Europe-Asia Centre, former Under-Secretary-General of the United Nations and Executive Director of the UN Environment Programme, has been vocal about the critical role of China and the EU in leading global climate cooperation. Solheim emphasized that "Europe and China must work together to defend trade," especially in light of recent political shifts in the U.S., which might increase trade tensions in days to come. Without robust trade, he argued, the shift to green development could take far longer, leaving global economies more vulnerable.

In recent years, with repeated shocks from the global pandemic, frequent geopolitical conflicts, and a resurgence of trade protectionism, the multilateral trading system has become increasingly fragile. Unilateral trade protection measures introduced by a few major trading nations could be the final straw that breaks the WTO, warned Yi Xiaozhun, former Vice Minister of Commerce of China and former Deputy Director-General of the WTO.

Last month the European Union has decided to increase tariffs on Chinese-built electric vehicles to as much as 45.3% at the end of its anti-subsidy probe. Solheim believed Europe should embrace the challenge of green competition rather than resort to defensive measures like tariffs on Chinese products, such as electric vehicles and solar panels. "Europe needs confidence in its ability to compete," Solheim said.

"Rather than hindering competition, we should welcome Chinese products that advance sustainability while encouraging Europe's own industries to improve." According to Solheim, trade restrictions are short-sighted responses to competition, and embracing green competition can help European industries thrive.

Echoing this, Yi argued that these measures, primarily driven by a few developed economies, increase the risk of retaliatory trade conflicts, further stifling green cooperation. “Green transitions should respect WTO rules and not come at the cost of undermining the multilateral trade system,” Yi asserted. “Using climate policies as a guise for protectionism ultimately hinders sustainable development efforts.”

"I'm from Europe, not America, so why should I buy an iPhone? The reason is that Apple produces a huge number of phones, with an excess capacity beyond what the U.S. market alone can absorb, so these phones are exported to various other regions. As a result, Apple has become one of the most valuable tech companies globally," Solheim cited an example.

Solheim further explained, "China has an excess production capacity in solar cells and EVs, which means it is producing a substantial supply of high-quality green products for the world. These are precisely the green products the world needs - green public goods that benefit all. We need to recognize these demands and improve market regulation to ensure fair competition, fostering a more balanced global market for these essential green products."

The Center for China and Globalization (CCG) reinforces these points in its recent report, "Sustainable Trade Amid Global Climate Change 2024". The report cautions that excessive trade restrictions may obstruct global climate cooperation. The report further warns that the politicization of climate action risks fragmenting global trade policies, weakening collective responses to climate change.

Henry Huiyao Wang, Founder and President of CCG and Former Counselor to China's State Council highlighted how accusations of "overcapacity" aimed at China overlook the vast global demand for green technologies. He pinpointed that global demand for solar panels and electric vehicles (EVs) is rapidly increasing, yet production is struggling to keep up.

The International Energy Agency (IEA) projects a need for 820 gigawatts of new photovoltaic installations, but 2022 production met only a quarter of that target. Similarly, global EV sales rose by 35% in 2023, and demand is expected to hit 30 million units by 2027. Despite this, China exported just 1.2 million EVs in 2023, highlighting "a significant supply shortage in the global market", Wang said.

Therefore, open, multilateral trade remains essential for advancing green initiatives. Solheim called for enhanced EU-China cooperation, noting that climate goals depend on the exchange of green technologies, as well as fair competition across markets. He added, "Europe and China must ensure that their trade mechanisms support a fair and competitive environment, fostering innovation and economic growth globally."

While climate goals demand international cooperation, political agendas threaten to derail these efforts by introducing trade barriers and unilateral policies. Only by fostering transparent, rules-based competition can the world avoid a counterproductive divide and achieve a true global green economy. The question remains: Will political interests give way to sustainable collaboration?