Something remarkable is happening in China. With potentially significant consequences for Europe. Last week, The Economist reported that the fall in profitability of Chinese companies has never been as severe as it is now.
Well, you might think they would go bankrupt. But that doesn’t happen. The influx of the Chinese government continues, and these companies keep producing. China is creating ‘overproduction’ to keep its own economy going. The country produces large quantities of electric cars, solar panels, and wind turbines. This drives prices down significantly. Good for the consumer, good for the sustainable energy transition.
What exactly is wrong with this? A lot.
Because it’s more than just the consumer and the energy transition. Every society needs an industrial base to provide everyone with decent work: whether local or migrant, man or woman, theoretically or practically educated. Not only to give everyone an income safely, but especially to give everyone a decent place in a community: meaningful work, self-confidence, a social network. This fact often remains underexposed in the industrialized rich Western economies. China has realized this and has industrialized at breakneck speed. It is not just about increasing consumption; it directly involves the core of society. This affected millions of people and gave rise to a middle class. It became the vital breeding ground for discontent in industrial states like Ohio, Michigan, and Wisconsin. It was precisely from these areas that the victory of Trump in 2016 emerged.
The new wave of overcapacity that China is creating will hit Europe especially hard.
America has since better shielded its own industry with its industrial policy, the Inflation Reduction Act (IRA), which includes higher energy prices. The blow will be even greater here. Chinese overproduction is much larger, and Europe has already lost twice as much production. Moreover, the social fabric in large European countries has been showing deep cracks. The rise of extremist rights in France and Germany and the shocking results in England illustrate this. And this process threatens to accelerate further.
Europe must come out of this. It is precisely here that the consensus was based on globalization for a long time. The idea was always that purchasing power would increase and that as a result, everyone would have better things: things that are made elsewhere that are the best (read: cheapest). Yes, but that only works if you have your own industry for everything that is needed.
Yet in 2019, when the European Commission laid the foundation for its Green Deal, it was written that what was needed was a massive scaling up of the production of wind turbines, solar panels, and electric cars in the European Union. Not to mention the question of where all those things would come from. Europe didn’t realize that at the time, but that should have been the purpose of the new green industry.
Five years later, three times the amount of production has been outsourced worldwide. Then Russia invaded Ukraine, and it became clear that raw materials for our prosperity were not subject to the laws of Friedman but rather to the laws of Putin and Xi. In response, China is accelerating its own industry.
The European Commission has now realized that and has come up with the ‘Net Zero Industry Act.’ A European answer to the American IRA. But where the IRA is well-funded with an estimated $2 billion annually, the money and ambition in the European Industry Act is completely lacking.
The coming months must bring about change.
Europe must allow the green industrial revolution to take place here and show China where to go. Not because of the climate. But primarily because society demands it. An agreement must be made between the ECB president and the European heads of government to direct their policy towards prosperity in their own countries. How much industry is needed for that? How much prosperity must come from that? Europe must now take that step. Otherwise, the Chinese will keep shouting that there’s no alternative. But that can’t last much longer.
This piece was published by Diederik Samsom in Dutch. See the original here: https://www.volkskrant.nl/columns-opinie/europa-moet-de-eigen-groene-industrie-beschermen-tegen-chinese-overcapaciteit~bda61e7d/
Diederik Samson is a Dutch physicist, former politician, and columnist for de Volkskrant
