Climate action, economic competition and geopolitical shifts are more intertwined than ever. In the wake of the skyrocketing inflation and deteriorating China relations, United States President Joe Biden signed the Inflation Reduction Act (IRA) into law on 16 August 2022. Conceived as the foundation of the new US industrial policy, the IRA aims to rebuild the country’s industrial capacity, including 500 billion US dollars in new spending and tax breaks, among which almost 400 billion aimed at boosting clean energy.[1] Across the Atlantic, the European Union expressed concerns about the potential loss of industrial competitiveness resulting from the IRA. In response, the EU unveiled its own Green Deal Industrial Plan (GDIP) in February 2023.[2] The objective of this plan is to promote the enhancement of net-zero manufacturing capacities in order to meet the EU’s climate targets.
Both the IRA and the GDIP have a common goal of reducing dependence on China, especially in clean technology, although through different approaches. The US focuses on bringing high-value production back to its shores, while the EU aims to develop and diversify supply chains.[3] This divergence is also reflected in the debate between “decoupling” and “derisking”, with the latter recently gaining prominence as policymakers recognise the challenges of completely reshoring supply chains domestically.[4]
The US and the EU share industrial and geoeconomic objectives, but will also encounter similar challenges, in particular concerning the first stages of green supply chains. Despite their heterogeneous approaches, Western policymakers will in fact have to secure critical raw materials for clean technology manufacturing, with the aim of resourcing the energy transition.
Topic:
Security, Politics, European Union, Institutions, Energy, and Raw Materials
Determining what policies to implement and how to implement them is an essential government task. Policy learning is challenging, as policy effectiveness often hinges on the nature of the policy, its implementation, the degree that it is tailored to local conditions, and the efforts and incentives of local politicians to make the policy work.
Topic:
Political Economy, Politics, Policy Implementation, and Economic Policy
In recent years, Xi Jinping has taken China to the “left” politically and economically, but to the “right” with his deeply nationalist narratives at home and a more assertive foreign and security policy abroad. More recently, this has contributed to a slowdown in the Chinese economy and an increase in the level of political and policy reaction against Xi’s anti-market measures. Now, with last month’s Central Economic Work Conference, the Communist Party appears to have now acknowledged a number of Xi’s measures have indeed gone too far, especially as Xi himself seeks to maximize economic stability ahead of his bid for reappointment to another term in office at the 20th Party Congress this November. But whether these corrective measures will be enough to restore economic growth in the short term given the Chinese private sector is now “once bitten, twice shy” is another question altogether.
In China: An Economic and Political Outlook for 2022 – Domestic Political Reaction to China’s Economic Slowdown ASPI President and CEO Kevin Rudd tackles these questions and provides an analysis of how China’s economic challenges are likely to shape its politics and policies in the year ahead.