Why US Export Controls on Clean Tech Would Backfire

In 2014 the US Department of Commerce published a report assessing the benefits of the International Traffic in Arms Regulation (ITAR), a set of unilateral export controls meant to protect the know-how of American aerospace companies. The conclusions of the study turned out to be surprising. Most US firms believed that ITAR had hurt them; 35% of companies even reported that they had lost contracts because of the regulations, which imposed complex licensing requirements for the export of US-made satellites to Europe. In countless interviews, American executives explained that the measures had only served to encourage the development of cutting-edge space technology outside the US, out of reach of Washington’s export controls. A respondent noted that without ITAR, “it is unlikely that the European space industry would have grown so significantly, so quickly.”

Hard data appeared to support the complaints of American businesses. The US share of the global space market stood at 75% in 1998, when Washington started to enforce the ITAR rules in a bid to cement the US leadership in the field. Within ten years, America’s global market share for space equipment, such as satellites and satellite parts, had dropped below 50%. Many small US businesses found themselves unable to survive and had to exit the market. As part of the survey, one firm bluntly reported that the regulations had been “very successful in creating a global network of companies making competing products while ensuring US companies cannot compete.” Three years after the publication of the report, Washington scrapped the aerospace sector from ITAR rules in an attempt to restore the competitiveness of the US space industry.

More than two decades later, US clean tech firms worry that history could repeat itself. In early 2023 the administration of Joe Biden, the US president, appeared on the verge of imposing ITAR-like measures on mainstream clean tech goods – solar panels, wind turbines and batteries for electric vehicles (EV). The fears of US clean tech firms were not unfounded. Export controls are a key tool for Washington to implement its China-focused de-risking strategy, which aims at ensuring that the US remains the world’s sole tech power and does not facilitate the advances of the People’s Liberation Army (PLA). These measures target technologies that have dual-use applications, such as semiconductors (used in modern defence gear, like missiles), artificial intelligence (which can power autonomous killing robots) and quantum technology (which can break encryption protocols, including military ones).

In the end the US decided not to impose controls on exports of clean tech goods; only the shipments of some clean tech materials, such as fiberglass for wind turbines, and of some equipment used to produce renewable energy gear require US export licenses. Instead of adopting export controls, the administration chose to target dealings where Chinese firms are suppliers of green energy goods – not buyers of American technology. Two measures highlight this strategy. In November 2022 Washington included advanced clean energy goods as an area for enhanced inbound foreign investment screening (through the Committee on Foreign Investment in the United States, CFIUS). In December 2023 Washington announced that electric vehicles that use a battery made with Chinese components or manufactured by a firm with ties to China would not be eligible for federal subsidies planned in the Inflation Reduction Act (IRA).

The reasons why the administration chose not to impose export controls on the clean tech sector remain unclear. One possible explanation is that green energy goods are not a good fit for America’s de-risking strategy. Clean tech products can certainly be weaponised; in February 2023 a Russian-sponsored cyberattack shut down nearly 6,000 wind turbines in Ukraine. In addition, China’s policy of military-civil fusion blurs the line between the civilian and defence sectors. However, clean tech hardly qualifies as dual-use equipment: solar panels and wind turbines are unlikely to ever help to kill anyone and they do not directly contribute to the development of the PLA. A second possibility is that Washington feared fuelling tensions with European allies at a time when transatlantic collaboration is critical, in particular on Russia sanctions. American controls on clean tech exports would be unilateral measures, given the lack of appetite for such a policy in the EU at this stage. As a result, such controls would undoubtedly reignite US-EU rows over American extra-territorial economic measures. A third option is that the US is keen to keep some powder dry in case US-China tensions escalate further, for instance over Taiwan. In such a case, it would make sense to spare clean tech from such controls for now in a bid to retain leverage over China.

Yet beyond these straightforward reasons there is also an inconvenient truth. US controls on clean tech exports to China would likely be ineffective: Beijing is the world leader for the production of green energy goods and Chinese firms already have ample access to clean technology. This sobering assessment illustrates the fact that unilateral export controls can only work for technologies where the US has a global edge, such as semiconductors. In addition to being ineffective, American controls on clean tech exports to China could well backfire: such measures might undermine the development of US clean tech firms designing the next generation of green energy goods (like advanced batteries, electricity storage or low-carbon hydrogen), weighing on American attempts to catch up with China in the clean tech sector. Such policies would also have negative ripple effects beyond US borders: they would strain relations with allies and fuel global resentment against western democracies by showing that the US is not shying away from weaponising access to goods that are crucial for the fight against climate change.