Industry Market Trends
More Questions Raised About Whether U.S. or China Dominates in Cleantech
March 25, 2013
We published a piece here at IMT Green & Clean Journal a few weeks ago implying exactly that. So you can imagine our surprise when the Pew Charitable Trust's Environmental Initiatives group came out with a report this month claiming that the U.S. actually has a trade surplus over China in solar photovoltaic (PV), wind and smart energy technologies. The report makes the contrarian statement: "Considering all aspects of the value chain, U.S. exports and trade to China actually exceeded Chinese exports to the United States by $1.63 billion in 2011," 2011 being the latest year in which data were available for the purposes of the report. Overall, says Pew, the U.S. and China, the world's leading economies, trade more than half a trillion dollars in goods and services back and forth. In that big picture, China exported $4.00 in 2011 for every $1.00 by the U.S., reflecting "the reality that China is a low-cost producer and the United States a high-volume consumer of finished products." But in the area of clean energy technologies, the U.S. has some advantages that aren't reflected in that larger picture. Pew finds that, because of the country's expertise in innovation and entrepreneurship, U.S. firms "excel in production and sale of complex, high-margin and performance-critical goods," while "China's strength is more narrowly based on assembly and high-volume manufacturing." The purpose of the Pew study, conducted in partnership with Bloomberg New Energy Finance, is to unpack the some of the complexities of the U.S.-China relationship in the clean energy sector and to explain "the relative strengths and weaknesses of each country in key subsectors." In solar, the two countries in 2011 traded about $6.5 billion worth of services and products such as polysilicon, wafers, cells, modules and equipment. Most of China's solar exports to the U.S. were high-volume manufactured products like solar modules. But the U.S., says Pew, has an advantage in "producing high-value inputs (polysilicon and wafers, both for making photovoltaic cells), materials used in making photovoltaic modules, and the capital equipment and systems necessary in solar factories." In solar, U.S. companies export more than $3.7 billion to China, compared to $2.8 billion coming back the other way, giving the U.S. a $913 million surplus. In the relatively smaller area of wind technologies, the two partners trade about $923 million in goods and services. China's advantage is in things like turbine towers and rotors, whereas U.S. companies tend to excel in higher-margin specialties like electronic control systems. In this area, the U.S. exports $534.9 million to China's $388.7 million, affording the U.S. a surplus of about $146 million. The third subsector, which Pew calls "energy smart technologies" includes smart meters, LEDs, advanced lithium-ion batteries and electric vehicles. The two economies trade about $1.1 billion in equipment back and forth in this area. In reality, both countries trade these technologies to each other, but overall the U.S. shows a $571 million trade surplus over China. I asked Joseph Sarkis, management professor and supply-chain expert at Clark University in Worcester, Mass., for his take on the Pew report. Sarkis wondered about the motivation for the report. Think-tank reports can come out differently depending on who's paying the bills and whether the organization in question is trying to move the policy needle to the left or the right. Still, neither I nor Sarkis saw any particular reason to question the motivation of Pew and Bloomberg in this case. Discussing his more serious reservations, he told me, "As an academic, when I look at a report, other than motivation I want to know the methodology -- what are the assumptions, how did they do the calculations?" In this case, his greatest concern has to do with "where you draw your boundaries" in defining the products to be considered for purposes of the study. If you're comparing exports of complex machinery, how fine-grained do you get in your analysis? "The U.S. sells nacelles to China, China sells nacelles to the U.S. But what about the materials that go into the nacelles, the metals? Where do they come from? That's not included in the calculation." Chris Martenson, an economic researcher specializing in energy and resource depletion, is not so sanguine about the picture seemingly presented in the Pew study. Interviewed for my February article about U.S.-China cleantech competition, Martenson pointed out that the U.S. is investing very little at the national level in cleantech research, which does not bode well for the country's future competitive position. When I contacted him more recently about the Pew study, Martenson told me,Conventional wisdom says that, when it comes to cleantech manufacturing, China is cleaning the United States's clock.
China has made a commitment to spend $80 billion a year internally to advance their use and production of alternative energy technologies. In the U.S. everything is on the chopping block now that the sequester has hit and cheap natural gas has taken the wind -- sorry for the pun -- out of wind and solar PV, so the private market is weak too. Where China has a national policy of wanting to get onto alternative energy for obvious reasons, the U.S. seems content to provide a little bit of government support and let the market figure out the rest.Sarkis, too, questions how long the U.S.'s edge can be maintained. The Pew study claims, he said, that "the U.S.'s advantage is in innovation, in knowledge, in this high-quality equipment going overseas. But down the road, China likely won't be buying a lot of equipment from the U.S. Either they will already have enough equipment or they'll know how to build it for themselves by then." Sarkis points out that "this isn't the first time this has happened in the U.S." America had an early advantage in both automobiles and electronics but saw its dominance erode in the face of Asian competitors. "The same thing might occur as clean energy matures." The Pew report acknowledges that the U.S.'s advantage is not fixed; its trading relationship with China is fluid and could shift to the other direction in the future. For now, the high-level capabilities of U.S. clean-energy industry players give them an advantage "in production and sale of complex, high-margin, and performance-critical goods," says Pew, such as manufacturing equipment and specialty chemicals and materials. The U.S. has 15,000 cleantech firms, China only 5,200. In the U.S., 2,000 venture deals have raised more than $34 billion in capital during the past decade, whereas China lags at only $3 billion from 90 deals. U.S. firms account for 31 percent of cleantech R&D worldwide, China only 2.9 percent. But clean energy policy in the U.S. is "in flux," say the report's authors, with key federal initiatives and incentives expiring and policymakers divided on whether government should continue to support the expansion of these technologies. Demand and deployment of clean energy technologies are growing around the world, stressing that "it is a strategic national and business priority to gain a competitive foothold" in this promising sector, asserts the group.