How We Gain From China's Advances

I have always had a lot of time for Matt Kahn (UCLA) on his environmental blog and his New York Times piece makes a lot of sense.

As someone who works in trade and IO it is good to see Ricardo and spillovers making an appearance. Kahn is absolutely correct in this small piece.

I will be back as a blogger now after a period of laziness (and too much work).

How We Gain From China's Advances

Updated January 18, 2011, 08:14 PM

Matthew E. Kahn is a professor of economics at U.C.L.A.’s Institute of the Environment and Sustainability. He is the author of "Climatopolis: How Our Cities Will Thrive in the Hotter World."

Last September, the Times published an article sketching out the details of how China plays “dirty” in green tech as it offers cheap land and cheap loans to its nascent renewable energy sector. But new ideas are public goods that spread across continents.

Facebook started with the simple idea of connecting individuals, but now businesses use the Facebook platform to spread “buzz” and word of mouth about their products. In a similar spirit, China’s investments offer spillover benefits to the rest of the world.

The United States will gain from the green tech push taking place in China. Because of specialization and learning-by-doing, the cost of producing solar panels and wind turbines will decline. This is very good news for all sorts of firms ranging from Wal-Mart to Google to the defense department. Each of these “non-green” entities will be increasingly likely to be able to “go off the grid” thanks in large part to China’s investments. In this sense, the United States will experience a “greening” of our industries because we are a net importer of China's renewables technology exports.

In 2011, our green tech comparative advantage rests with our leading universities. The nerds at our universities know that if they discover a game-changing breakthrough their idea can be mass produced in China. China knows that U.S universities are likely to continue to come up with great ideas and thus it makes sense to have the nimble factories and workers ready to go.

How does the American middle class gain from this trend, even if the clean energy equipment isn’t manufactured here? One perhaps unsatisfying answer is, air quality will improve and greenhouse gas emissions will decline.

I realize that such long-term benefits do not equal a job right now. But, consider a real world example from U.C.L.A. Just the other day, I was talking to my colleague Michael Jura about the possibility of the university installing solar panels on the graduate housing complexes, but high capital investment costs are blocking this move. When China makes green tech progress, this cost will fall and U.C.L.A. will be able to go forward on this project.

This will create “green jobs” for installation and maintenance workers and the campus’s carbon footprint will fall. David Ricardo would smile as the gains to international trade will be reaffirmed again.