Greener, More Secure Supply Chains Won't Come Cheap
China looks to be the biggest loser from green protectionism, but the U.S. and Europe will bear costs as well.
As 2023 dawns, the supply-chain snarls that characterized much of 2021 and 2022 are clearly untangling. But the new year brings new challenges: the rise of “green protectionism” and an accelerated effort by multinationals to diversify away from China.
These two interrelated trends both promise substantial long-term benefits—namely a more livable planet and a more resilient global supply chain—but will probably entail significant costs for companies and consumers in the meantime.
The biggest obvious loser from both trends is China. It currently sits at the center of global supply chains, which gives it significant geopolitical leverage, and is also the world’s largest energy user. The European Union’s pending carbon border adjustment mechanism, essentially a levy on energy-intensive imports such as steel from countries with lower carbon taxes than Europe, threatens U.S. exports to Europe too. But China will be among the hardest hit because of the way the tax is structured. The currently mooted version of the CBAM would tax some “indirect emissions.” That will likely include carbon emissions from the electricity generated to run factories, and not just direct emissions from steel blast furnaces.