In a recent Foreign Affairs piece entitled "The Case for a Clean Energy Marshall Plan," Brian Deese -- the Director of the White House National Economic Council from 2021 to 2023 and a current economic adviser to Kamala Harris -- sets out a vision for how a Harris administration might lead international action against climate change. My overall reaction was that I'm not sure how well some of his arguments will be received in other countries, in particular in the developing world. I'm going to focus on two points in particular.
First, if I understand Deese correctly, he is trying to make the case that the U.S. should take the lead in manufacturing clean energy products and then sell these American-made products in developing countries (and provide subsidies to help people in developing countries make these purchases). Deese starts out by offering up the Marshall Plan as a blueprint:
... the clean energy transition remains the most important planetary challenge. It also presents the greatest economic opportunity: it will be the largest capital formation event in human history. And it presents the United States with a chance to lead. Thanks to its still unparalleled power and influence, Washington maintains a unique capacity—and a strategic imperative—to shape world outcomes.
In 2022, the United States recognized these opportunities when it passed the Inflation Reduction Act, the world’s largest-ever investment in clean energy technologies. This transformative industrial strategy was a crucial first step for the United States in positioning its economy for success by accelerating the clean energy transition at home. Now is the time to take this leadership to the global stage, in a way that promotes U.S. interests and supports aligned countries. But the United States need not create a new model for doing so.
Seventy-six years ago, also facing a fractured world order and an emerging superpower competitor, U.S. President Harry Truman and U.S. Secretary of State George Marshall launched an ambitious effort to rebuild European societies and economies. Although often associated with free-market neoliberalism, the 1948 Marshall Plan was hardly laissez-faire. It was, in fact, an industrial strategy that established the United States as a generous partner to European allies while promoting U.S. industries and interests. Generations later, the Marshall Plan is rightly understood as one of the great successes of the postwar era.
Although today’s challenges are undoubtedly different, the United States should draw lessons from that postwar period and launch a new Marshall Plan, this time for the global transition to clean energy. Just as the Marshall Plan assisted those countries most ravaged by World War II, the new Marshall Plan should aim to help countries most vulnerable to the effects of climate change: the United States’ partners in the developing world. Developing countries and emerging markets will need access to cheap capital and technology to transition away from fossil fuels quickly enough to halt global warming.
This idea sounds plausible in general terms, although it would be politically difficult domestically for a number of reasons. But when he gets to the details, the plan takes a turn towards economic nationalism, as he appears to suggest that U.S. products will be the only/dominant ones sold in developing countries:
The United States again has the chance to help others while helping itself. Putting its own burgeoning industries front and center in the energy transition will generate further innovation and growth. ... By creating global markets for its own clean energy industries and innovators, the United States can scale these economic gains and strengthen domestic support for an energy shift that has not always been an easy sell to voters.
The fracturing world order and the ominous climate crisis lead some observers to focus on the potential tensions between those two developments. But they also provide an opening for the United States to deploy its innovation and capital in a generous, pragmatic, and unapologetically pro-American way—by launching a Clean Energy Marshall Plan.
Like the original Marshall Plan, a Clean Energy Marshall Plan should meet other countries’ development needs while advancing U.S. interests. In this case, the goal is to speed the adoption of low-cost, zero-carbon solutions, such as the manufacture of batteries, the deployment of nuclear and geothermal energy, and the processing of critical minerals. This approach reflects the basic intuition that, as useful as it can be to make carbon pollution more expensive by putting a price on it, the most credible way to accelerate the adoption of zero-carbon technologies is to make that technology cheap and widely available.
...
Implementing a Clean Energy Marshall Plan won’t be easy, but the process must begin now. As after World War II, the United States can be generous as well as pro-American in its approach. It can promote U.S. interests by scaling its industries to meet global needs while winning greater influence in this new geopolitical landscape. And it can meet developing countries where they are—supplying them with the energy they need to expand their economies and the innovation they need to decarbonize efficiently.
...
The United States should begin with a focused investment and commercial diplomacy effort, akin to that of the Marshall Plan. The Marshall Plan had a straightforward aim: subsidize European demand for U.S. products and services needed to rebuild Europe. Today, the United States should establish a Clean Energy Finance Authority with an updated mission: subsidize foreign demand for clean energy technology and put American innovation and industry at the front of the line.
...
The Clean Energy Finance Authority should be capitalized with a significant upfront commitment of money—enough to generate market momentum that tips the balance of clean energy investment toward the private sector; ultimately the private sector, not the public sector, will need to provide the majority of the financing the energy transition needs over the coming decades. If this new authority is set up and deployed properly, U.S. companies and innovators would gain more foreign demand, on favorably negotiated terms, and new market share. Foreign consumers, for their part, would gain access to new channels of cheap clean energy technology. For emerging-market countries and major emitters—such as Brazil, India, and Indonesia—the United States could act with both generosity and its own interests in mind.
He later adds: "... the [U.S.] needs to turn to foreign markets to boost demand for U.S. products."
The first problem I see here is that many developing countries -- he mentions Brazil, India, and Indonesia -- want to be producing these products themselves. They aren't going to like a plan that makes them dependent on the U.S. for these products. There are producers in the U.S. that complain about subsidized imports, and there are producers in these other countries that will do the same. As a result, I don't think the reaction to Deese's plan will be to thank the U.S. for the subsidies and happily rely on U.S.-made products. Rather, I think these countries are more likely to adopt policies that attempt to stimulate their own domestic production and to limit competition from subsidized U.S. producers.
Now, as this blog's readers know, I'm not a fan of this type of tit-for-tat protectionism/industrial policy, either from those who start it or those who respond to it. Nevertheless, as a matter of political reality, I think this is where we would likely be headed under a U.S. approach such as this one.
Another problem is that producers in Europe, South Korea, Japan and other places will have their own objections, and are likely to respond with subsidies or trade complaints of their own. Subsidy races of this kind end up being contentious, and trade wars are not a very efficient way to expand these industries.
In addition, this kind of subsidized production designed to supply the rest of the world appears to be similar to the overcapacity the U.S. has been complaining about in relation to China. The U.S. government has been struggling for years to come up with an effective response to Chinese non-market practices, and this plan might make the issue even more difficult: Why would China change if the U.S. is now doing something very similar?
Having said all this, I do think there is room for international cooperation on reducing carbon emissions. However, if the goal is to get developing countries on board with U.S. efforts, I think there's going to have to be acceptance of the idea that developing countries can make these products as well. It's worth noting that more competition has the benefit of bringing prices down and helping adoption by consumers happen more quickly.
Second, Deese wants to use tariffs as a tool to promote the fight against climate change:
As part of the Clean Energy Marshall Plan, Washington must level the global playing field through the active yet measured use of trade tools such as tariffs. Doing nothing and being resigned to China’s statist approach is neither economically nor politically sustainable. And using blunt tools to effectuate what amounts to a unilateral retreat is dangerous. Former U.S. President Donald Trump's call to essentially end all imports from China within four years is a cynical fantasy playing on populist fears. In 2022, U.S. goods and services trade with China amounted to over $750 billion. It is not practicable to decouple from any major economy, let alone the United States’ third-largest trading partner. Global trade delivers important benefits, whereas unilateral, asymmetric escalation would leave the United States isolated and vulnerable.
The right approach is to harmonize more active trade policies with like-minded countries. Indeed, Brazil, Chile, India, South Africa, Thailand, Turkey, and Vietnam, among others, are all investigating or imposing tariffs on Chinese dumping practices. China is now the object of twice as many retaliatory measures as it was four years ago. This growing pushback represents a chance for the United States to address the Chinese-driven global trade imbalance by crafting a global coalition to galvanize a coordinated response while creating more global trade in clean energy goods and services.
To accomplish this, the United States must use expanded, stronger, and smarter trade authorities. For example, Washington should build into its tariffs on imported goods an assessment of how much carbon was used to produce them. Tariffs should be determined by the emission intensity of the trading partner’s entire industry, rather than company by company, to avoid “resource reshuffling,” whereby countries try to dodge penalties by limiting their exports to only products manufactured with clean energy instead of reducing their emissions overall. These tariffs should be aimed at all countries, but given its current production practices, China would be hit the hardest.
This form of tariff regime could be coordinated with what other countries are doing on the same front. The effort should begin with the steel sector. Chinese-made steel is two to five times as carbon-intensive as U.S.-made steel and is being dumped in markets around the world. The United States has been working on an arrangement with the European Union to harmonize tariffs on steel and aluminum. But the EU need not be the United States’ first or only partner in this initiative. There is a global appetite to enact a common external tariff regime on China to respond to its overproduction and carbon-intensive practices. Washington should work to pull this group together through the G-7 and G-20.
...
A carbon-based tariff, or a carbon border adjustment, should further motivate climate action by exempting countries that are hitting their nationally determined goals under the 2016 Paris climate agreement or those that fall below certain income and emission thresholds. To complement the Clean Energy Finance Authority, the tariff could be lowered in exchange for foreign procurement of clean energy technologies or of clean products made in the United States. For many developing countries, the tariff would act as a powerful accelerant to their energy development plans.
This approach would allow the United States to transition from its current indiscriminate, broad-based tariff regime to a more comprehensive carbon-based system that more accurately targets Chinese overcapacity and trade imbalance concerns. And the United States should leave the door open to cooperating with China in this context, as well.
Policymakers will have to reimagine existing trade rules—and be willing to lead the World Trade Organization and other international institutions in thinking about how trade can accelerate the clean energy transition. The WTO’s objective was never just to promote free trade for free trade’s sake; its founding document includes a vision for sustainable development. The WTO must reform if it is to deliver on that vision, but in the meantime, the United States shouldn’t cling to old trade conventions when more targeted and effective approaches exist.
I'm skeptical that tariffs on products associated with high carbon emissions will have the impact Deese thinks. The main reaction I would expect from the developing world is annoyance and resentment. From their perspective, the U.S. is much more of a problem in terms of carbon emissions, so why should the U.S. be trying to punish them through tariffs on their exports? Some people in the U.S. like to focus on carbon emissions related to manufacturing, but for people elsewhere that just feels like cherry-picking to make the U.S. look better. And with regard to whether this tariff and a possible exemption would motivate countries to take action on climate, it's worth noting here that even if they could avoid this particular tariff, U.S. trade remedy tariffs are likely to be used against them if their exports reached a significant level.
In addition, the reports of an increase in trade remedy actions by other countries against China are a bit misleading. As Huan Zhu and I explain on China Trade Monitor, there has been a pretty steady use of these measures dating all the way back to China's WTO accession. It may turn out that there is a slight increase in trade remedy measures against China in 2024, but this isn't really a big new development. Rather, it's just a core feature of the trading system since I've been involved in it (and a lucrative feature for trade lawyers!). Can these measures be ratcheted up and coordinated? Maybe. But past usage was already pretty strong.
What I might suggest, instead of an emphasis on punishing others with tariffs, is a more positive approach, perhaps along the lines of the new Agreement on Climate Change, Trade and Sustainability (ACCTS). Deese talks about reimagining trade rules so as to promote the clean energy transition. That, I would say, is what the ACCTS negotiators have done, and it would be interesting to see Harris's reaction to some of the ideas in there.
Comments
U.S. Leadership on Trade and Climate Policy
In a recent Foreign Affairs piece entitled "The Case for a Clean Energy Marshall Plan," Brian Deese -- the Director of the White House National Economic Council from 2021 to 2023 and a current economic adviser to Kamala Harris -- sets out a vision for how a Harris administration might lead international action against climate change. My overall reaction was that I'm not sure how well some of his arguments will be received in other countries, in particular in the developing world. I'm going to focus on two points in particular.
First, if I understand Deese correctly, he is trying to make the case that the U.S. should take the lead in manufacturing clean energy products and then sell these American-made products in developing countries (and provide subsidies to help people in developing countries make these purchases). Deese starts out by offering up the Marshall Plan as a blueprint:
... the clean energy transition remains the most important planetary challenge. It also presents the greatest economic opportunity: it will be the largest capital formation event in human history. And it presents the United States with a chance to lead. Thanks to its still unparalleled power and influence, Washington maintains a unique capacity—and a strategic imperative—to shape world outcomes.
In 2022, the United States recognized these opportunities when it passed the Inflation Reduction Act, the world’s largest-ever investment in clean energy technologies. This transformative industrial strategy was a crucial first step for the United States in positioning its economy for success by accelerating the clean energy transition at home. Now is the time to take this leadership to the global stage, in a way that promotes U.S. interests and supports aligned countries. But the United States need not create a new model for doing so.
Seventy-six years ago, also facing a fractured world order and an emerging superpower competitor, U.S. President Harry Truman and U.S. Secretary of State George Marshall launched an ambitious effort to rebuild European societies and economies. Although often associated with free-market neoliberalism, the 1948 Marshall Plan was hardly laissez-faire. It was, in fact, an industrial strategy that established the United States as a generous partner to European allies while promoting U.S. industries and interests. Generations later, the Marshall Plan is rightly understood as one of the great successes of the postwar era.
Although today’s challenges are undoubtedly different, the United States should draw lessons from that postwar period and launch a new Marshall Plan, this time for the global transition to clean energy. Just as the Marshall Plan assisted those countries most ravaged by World War II, the new Marshall Plan should aim to help countries most vulnerable to the effects of climate change: the United States’ partners in the developing world. Developing countries and emerging markets will need access to cheap capital and technology to transition away from fossil fuels quickly enough to halt global warming.
This idea sounds plausible in general terms, although it would be politically difficult domestically for a number of reasons. But when he gets to the details, the plan takes a turn towards economic nationalism, as he appears to suggest that U.S. products will be the only/dominant ones sold in developing countries:
The United States again has the chance to help others while helping itself. Putting its own burgeoning industries front and center in the energy transition will generate further innovation and growth. ... By creating global markets for its own clean energy industries and innovators, the United States can scale these economic gains and strengthen domestic support for an energy shift that has not always been an easy sell to voters.
The fracturing world order and the ominous climate crisis lead some observers to focus on the potential tensions between those two developments. But they also provide an opening for the United States to deploy its innovation and capital in a generous, pragmatic, and unapologetically pro-American way—by launching a Clean Energy Marshall Plan.
Like the original Marshall Plan, a Clean Energy Marshall Plan should meet other countries’ development needs while advancing U.S. interests. In this case, the goal is to speed the adoption of low-cost, zero-carbon solutions, such as the manufacture of batteries, the deployment of nuclear and geothermal energy, and the processing of critical minerals. This approach reflects the basic intuition that, as useful as it can be to make carbon pollution more expensive by putting a price on it, the most credible way to accelerate the adoption of zero-carbon technologies is to make that technology cheap and widely available.
...
Implementing a Clean Energy Marshall Plan won’t be easy, but the process must begin now. As after World War II, the United States can be generous as well as pro-American in its approach. It can promote U.S. interests by scaling its industries to meet global needs while winning greater influence in this new geopolitical landscape. And it can meet developing countries where they are—supplying them with the energy they need to expand their economies and the innovation they need to decarbonize efficiently.
...
The United States should begin with a focused investment and commercial diplomacy effort, akin to that of the Marshall Plan. The Marshall Plan had a straightforward aim: subsidize European demand for U.S. products and services needed to rebuild Europe. Today, the United States should establish a Clean Energy Finance Authority with an updated mission: subsidize foreign demand for clean energy technology and put American innovation and industry at the front of the line.
...
The Clean Energy Finance Authority should be capitalized with a significant upfront commitment of money—enough to generate market momentum that tips the balance of clean energy investment toward the private sector; ultimately the private sector, not the public sector, will need to provide the majority of the financing the energy transition needs over the coming decades. If this new authority is set up and deployed properly, U.S. companies and innovators would gain more foreign demand, on favorably negotiated terms, and new market share. Foreign consumers, for their part, would gain access to new channels of cheap clean energy technology. For emerging-market countries and major emitters—such as Brazil, India, and Indonesia—the United States could act with both generosity and its own interests in mind.
He later adds: "... the [U.S.] needs to turn to foreign markets to boost demand for U.S. products."
The first problem I see here is that many developing countries -- he mentions Brazil, India, and Indonesia -- want to be producing these products themselves. They aren't going to like a plan that makes them dependent on the U.S. for these products. There are producers in the U.S. that complain about subsidized imports, and there are producers in these other countries that will do the same. As a result, I don't think the reaction to Deese's plan will be to thank the U.S. for the subsidies and happily rely on U.S.-made products. Rather, I think these countries are more likely to adopt policies that attempt to stimulate their own domestic production and to limit competition from subsidized U.S. producers.
Now, as this blog's readers know, I'm not a fan of this type of tit-for-tat protectionism/industrial policy, either from those who start it or those who respond to it. Nevertheless, as a matter of political reality, I think this is where we would likely be headed under a U.S. approach such as this one.
Another problem is that producers in Europe, South Korea, Japan and other places will have their own objections, and are likely to respond with subsidies or trade complaints of their own. Subsidy races of this kind end up being contentious, and trade wars are not a very efficient way to expand these industries.
In addition, this kind of subsidized production designed to supply the rest of the world appears to be similar to the overcapacity the U.S. has been complaining about in relation to China. The U.S. government has been struggling for years to come up with an effective response to Chinese non-market practices, and this plan might make the issue even more difficult: Why would China change if the U.S. is now doing something very similar?
Having said all this, I do think there is room for international cooperation on reducing carbon emissions. However, if the goal is to get developing countries on board with U.S. efforts, I think there's going to have to be acceptance of the idea that developing countries can make these products as well. It's worth noting that more competition has the benefit of bringing prices down and helping adoption by consumers happen more quickly.
Second, Deese wants to use tariffs as a tool to promote the fight against climate change:
As part of the Clean Energy Marshall Plan, Washington must level the global playing field through the active yet measured use of trade tools such as tariffs. Doing nothing and being resigned to China’s statist approach is neither economically nor politically sustainable. And using blunt tools to effectuate what amounts to a unilateral retreat is dangerous. Former U.S. President Donald Trump's call to essentially end all imports from China within four years is a cynical fantasy playing on populist fears. In 2022, U.S. goods and services trade with China amounted to over $750 billion. It is not practicable to decouple from any major economy, let alone the United States’ third-largest trading partner. Global trade delivers important benefits, whereas unilateral, asymmetric escalation would leave the United States isolated and vulnerable.
The right approach is to harmonize more active trade policies with like-minded countries. Indeed, Brazil, Chile, India, South Africa, Thailand, Turkey, and Vietnam, among others, are all investigating or imposing tariffs on Chinese dumping practices. China is now the object of twice as many retaliatory measures as it was four years ago. This growing pushback represents a chance for the United States to address the Chinese-driven global trade imbalance by crafting a global coalition to galvanize a coordinated response while creating more global trade in clean energy goods and services.
To accomplish this, the United States must use expanded, stronger, and smarter trade authorities. For example, Washington should build into its tariffs on imported goods an assessment of how much carbon was used to produce them. Tariffs should be determined by the emission intensity of the trading partner’s entire industry, rather than company by company, to avoid “resource reshuffling,” whereby countries try to dodge penalties by limiting their exports to only products manufactured with clean energy instead of reducing their emissions overall. These tariffs should be aimed at all countries, but given its current production practices, China would be hit the hardest.
This form of tariff regime could be coordinated with what other countries are doing on the same front. The effort should begin with the steel sector. Chinese-made steel is two to five times as carbon-intensive as U.S.-made steel and is being dumped in markets around the world. The United States has been working on an arrangement with the European Union to harmonize tariffs on steel and aluminum. But the EU need not be the United States’ first or only partner in this initiative. There is a global appetite to enact a common external tariff regime on China to respond to its overproduction and carbon-intensive practices. Washington should work to pull this group together through the G-7 and G-20.
...
A carbon-based tariff, or a carbon border adjustment, should further motivate climate action by exempting countries that are hitting their nationally determined goals under the 2016 Paris climate agreement or those that fall below certain income and emission thresholds. To complement the Clean Energy Finance Authority, the tariff could be lowered in exchange for foreign procurement of clean energy technologies or of clean products made in the United States. For many developing countries, the tariff would act as a powerful accelerant to their energy development plans.
This approach would allow the United States to transition from its current indiscriminate, broad-based tariff regime to a more comprehensive carbon-based system that more accurately targets Chinese overcapacity and trade imbalance concerns. And the United States should leave the door open to cooperating with China in this context, as well.
Policymakers will have to reimagine existing trade rules—and be willing to lead the World Trade Organization and other international institutions in thinking about how trade can accelerate the clean energy transition. The WTO’s objective was never just to promote free trade for free trade’s sake; its founding document includes a vision for sustainable development. The WTO must reform if it is to deliver on that vision, but in the meantime, the United States shouldn’t cling to old trade conventions when more targeted and effective approaches exist.
I'm skeptical that tariffs on products associated with high carbon emissions will have the impact Deese thinks. The main reaction I would expect from the developing world is annoyance and resentment. From their perspective, the U.S. is much more of a problem in terms of carbon emissions, so why should the U.S. be trying to punish them through tariffs on their exports? Some people in the U.S. like to focus on carbon emissions related to manufacturing, but for people elsewhere that just feels like cherry-picking to make the U.S. look better. And with regard to whether this tariff and a possible exemption would motivate countries to take action on climate, it's worth noting here that even if they could avoid this particular tariff, U.S. trade remedy tariffs are likely to be used against them if their exports reached a significant level.
In addition, the reports of an increase in trade remedy actions by other countries against China are a bit misleading. As Huan Zhu and I explain on China Trade Monitor, there has been a pretty steady use of these measures dating all the way back to China's WTO accession. It may turn out that there is a slight increase in trade remedy measures against China in 2024, but this isn't really a big new development. Rather, it's just a core feature of the trading system since I've been involved in it (and a lucrative feature for trade lawyers!). Can these measures be ratcheted up and coordinated? Maybe. But past usage was already pretty strong.
What I might suggest, instead of an emphasis on punishing others with tariffs, is a more positive approach, perhaps along the lines of the new Agreement on Climate Change, Trade and Sustainability (ACCTS). Deese talks about reimagining trade rules so as to promote the clean energy transition. That, I would say, is what the ACCTS negotiators have done, and it would be interesting to see Harris's reaction to some of the ideas in there.
