The Rise of Clean Tech Supply Chains: How ESG Is Reshaping US-China Trade Relations

As environmental, social, and governance (ESG) factors take center stage in global policy and investment decisions, the dynamics of US-China trade are undergoing significant changes. Nowhere is this shift more evident than in the supply chains for clean technologies such as electric vehicles (EVs), solar panels, and rare earth elements. With growing pressure to meet sustainability goals and reduce geopolitical risks, both the United States and China are recalibrating their positions in the global clean tech economy.

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The United States has accelerated efforts to build a domestic clean tech manufacturing base, driven in part by the Inflation Reduction Act (IRA) and other federal initiatives aimed at promoting green energy and reducing carbon emissions. These policies offer subsidies and tax incentives to encourage domestic production of EV batteries, solar modules, and the processing of critical minerals such as lithium, cobalt, and rare earth elements. The goal is to reduce dependence on China, which currently dominates the global supply chain in these sectors.

China remains a global leader in clean tech manufacturing, particularly in the production of solar panels and EV components. Chinese companies control more than 80% of global solar photovoltaic (PV) supply chains, from polysilicon processing to module assembly. Similarly, Chinese firms are major suppliers of battery-grade materials, battery cells, and finished EVs. China’s dominance in rare earth mining and processing also gives it a strategic advantage in supplying critical inputs for a wide range of clean energy technologies.

However, US policymakers are increasingly wary of relying on a single source for strategic materials and components, particularly in light of recent geopolitical tensions and trade restrictions. As a result, Washington has introduced policies to restrict imports of Chinese clean tech products and to support alternative supply chains with allied nations. This includes sourcing rare earth elements from countries like Australia and Canada, and partnering with South Korea and Japan for battery technology and manufacturing.

In response, China has tightened export controls on certain rare earths and other critical materials, citing national security concerns. These measures have raised concerns among US companies that depend on Chinese inputs, especially in the early stages of manufacturing. At the same time, Chinese firms are exploring opportunities to set up manufacturing operations in Southeast Asia, Mexico, and Eastern Europe to maintain access to Western markets and circumvent trade barriers.

The EV sector is particularly illustrative of these shifting dynamics. US automakers are investing heavily in domestic battery production and are forming joint ventures with non-Chinese companies to develop supply chains independent of China. Meanwhile, Chinese EV manufacturers are expanding into overseas markets, including Europe and Latin America, even as they face growing scrutiny from regulators over subsidies and market practices.

Solar energy is another key battleground. While US firms aim to reshore solar manufacturing, they face challenges in scaling up quickly and competitively. The current cost advantage of Chinese-made solar panels continues to dominate global trade, though tariffs and trade barriers have slowed imports into the US. To bridge this gap, the US government is investing in research and development and providing funding for new solar manufacturing facilities.

Despite the tensions, there is still interdependence between the US and China in clean tech. Many American companies continue to rely on Chinese suppliers for components or materials, and vice versa. However, the long-term trend points toward diversification and regionalization of supply chains to align with ESG goals and national security priorities.

Conclusion

The rise of clean technology and the growing influence of ESG policies are transforming the structure of global supply chains, particularly between the US and China. While both countries remain central to the clean energy transition, strategic realignments and trade policies are reshaping the flow of materials and components. With clean tech now seen as a pillar of economic and national security, the evolution of US-China trade relations will play a decisive role in shaping the future of global energy markets.