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    Global Macro Research: The rise of green protectionism

    Global Macro Research: The rise of green protectionism

    4 October 2023 Global macro

    Executive summary: It's not easy being green

    Green protectionism refers to government policies explicitly designed to do two things at once: expedite decarbonization efforts while incentivizing domestic manufacturing.

    • Green protectionism is emerging from three intersecting trends: climate change, geopolitical rivalry, and the revival of industrial policy
    • We believe this trend will be a major factor in geopolitical dynamics going forward
    • Fiscal costs associated with this trend will likely lead to more debt accumulation, at a time when many countries are already grappling with debt sustainability issues

     

    The rise of green protectionism

    The US is spearheading green protectionism

    Before 2001, the US was the undisputed leader of global trade, with greater than 80% of countries globally trading more with the US than with China. However, China’s accession to the WTO in 2001 was a major turning point, and by 2022, only 28% of countries traded with the US more than with China.

    Although the US spearheaded globalization and free trade, the soaring US-China trade gap has become an increasingly contentious political issue, culminating in the Trump administration’s trade war with China, and now the Biden administration’s export controls and investment flow restrictions.

    Today, the Biden administration is wrapping protectionism with climate-focused spending. To date it has passed $1trn worth of fiscal stimulus policies, including the Inflation Reduction Act (IRA), the CHIPS and Science Act and the Bipartisan Infrastructure Law (Figure 1). All are designed to boost domestic investment and manufacturing and bolster national security.

    Figure 1: President Biden's trillion-dollar fiscal stimulus by sector (enacted spending in $bn)

    President Biden's trillion-dollar fiscal stimulus by sector

    Source: "See Everything the House Wanted, and Everything It Got," The New York Times, October 20, 2022, Insight Investment

    We believe this has the potential to usher in a new CAPEX Supercycle in the US.

    Figure 2: Is this is the beginning of a new capex supercycle (new investments in $bn)?

    Is this is the beginning of a new capex supercycle

    Source: The White House, as of July 5, 2023

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