The Political Logic of Reshoring in Low Carbon Technologies: Economic Interdependence and Green Industrial Policy



Andreas Goldthau, Llewelyn Hughes, & Jonas Nahm | Social Science Research Network

A core feature of the global economy over the last three decades has been the rise of offshoring and an increased use of outsourcing (Baldwin and Clark 2000). Offshoring—through which companies relocate stages of the supply chain to third-party countries—has been enabled by the rise of contract manufacturing, which itself is made possible by the digitalization of key stages of the production process. The same underlying processes have also enabled the increased use of outsourcing. Outsourcing generally describes the process in which stages of the supply chain that were previously incorporated within a single company structure are contracted outside the firm to third-party suppliers. Together, offshoring and outsourcing have come to be known as core features of globalization, and have led to the emergence of a complex web of global supply chains for many different products.

An important question arising in this context is what the implications of reshoring might be for the relative competitiveness of low carbon technology solutions to climate change and industrial upgrading. Although in some markets key technologies such as solar photovoltaics are competing on a non-subsidized basis with traditional fossil fuels, many markets remain policy driven. Data from REN21 (2020), for example, shows that subsidies such as feeding tariffs continue to be used in a large number of jurisdictions to support the deployment of renewable energy technologies. If locational choices—and choices about whether to return productive activities inside the firm, or to continue outsourcing to third-party providers—are determined by cost, then reshoring may lead to an increase in costs that could slow the deployment of low carbon technologies. The extent to which reshoring is occurring in low carbon sectors, therefore, is of immediate relevance to the global low carbon energy transition. It also affects whether supply chains in low carbon tech may continue to deliver economies of scale, high innovation rates, and steep cost declines for globally beneficial outcomes.

In this paper we focus on public policies aimed at altering clean technology supply chains and the extent to which these policies may impact the low carbon transition and upgrading . The first part of the paper provides the conceptual underpinning of the study. The second part of the paper examines the frequency with which reshoring initiatives are being implemented by governments in countries that are central to the global energy transition—China, the European Union, Japan, and the United States. We then examine key low carbon technologies and consider the extent to which they are vulnerable to reshoring activities. Whilst global supply chains govern the production of many key technologies of importance to climate change, the structure and complexity of these supply chains differ by technology. By extension, the vulnerability of global supply chains to efforts by national governments to encourage reshoring are different, depending on technology and associated supply chain characteristics. We examine the global organization of production for solar photovoltaic modules, wind turbines, and batteries to assess the relative vulnerability to reshoring activities. A final section concludes that any policies facilitating cost reduction in low carbon technologies is desirable from a climate perspective, even if bordering at reshoring. Such measures ideally yield both cost reduction in LTCs and domestic economic benefits. However, they can easily tilt towards less collectively beneficial outcomes. Given China’s central role in some clean tech supply chains, it is most exposed to such a scenario. We conclude with policy recommendations.


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