Spiraling Energy Prices In The West Benefitting Chinese Factories

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We are literally days away from seeing the Carbon Border Adjustment Mechanism (CBAM) go live across the EU. This is seen by the EU as a form of levelling mechanism to protect local industry from similar cheaper imports. The carbon embedded in all manufactured products will have a cost per kilogram and thus will increase the cost of that product taking into account carbon used to manufacture and transport that product. The only problem with this is China is turning green at a faster rate that the rest of the world and what was once thought to be a game leveler for EU production will not be the case within a few years from now.

Background

Over the last 40 years the Chinese through a targeted well planned strategy decimated the manufacturers based in Europe and the US. The Chinese government subsidized all exports so much so that Chinese factories could sell their products at cost and still make a profit. The profit they made was in the size of the foreign currency the export was worth and why western manufacturing could not compete. The same strategy that is being used by Chinese car manufacturers today with the Chinese government paying a percentage on the dollar export value.

Just think what a different world we would see today if tariffs were used to protect local industries like what is being implemented now. CBAM is nothing more than a tariff initiative under the guise of going green that will help boost tax revenues for the EU. Will this impact the Chinese and Indian factories or will it turn into a different type of trade game that can be manipulated by the Chinese government?

When we look at the cost of energy in Europe you do wonder how any manufacturer can be competitive when facing their competitors in the East. On average the EU industrial price per kw/h is 2-4 times higher than the US and China who average between €0.075 US and €0.045 per kw/h in China. We are under the impression having cleaner energy is costing more and why the prices are higher and will be higher in the future. The Chinese are not having these price problems and will be close to 50% renewables within the next 12 months.

If an item costs half the price or less to manufacture then adding a 12-20% tax is still not offering enough in the form of protection. This as it stands would only be seen as a tax grab which no doubt the consumers will be paying the difference.

The other day Ursula von der Leyen who is the unelected leader of the EU announced they would be stopping Russian LNG imports by 2026 and Russian gas imports by September 2027. One has to ask what then when it comes to energy prices and how much will they rise?

If we look back at what the prices of electricity did between 2010 and 2020 first and then from 2020 -2025 you will notice a big difference.

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When you star looking at the 2020 prices compared to June 2025 the differences are alarming. Netherlands jumps out at over a 70% increase in the last 5 years, France 40%, Germany only 27%, Sweden 40% are the noticeable with most other countries lucky to increase by only 10 and 20%.

What the Chinese are doing is the exact opposite as they are expanding their power stations but at the same time are expanding at a far faster rate the renewable energies. China has roughly 40% of it's total power generation provided by renewables and is 6 years ahead of it's 2030 target. Very shortly China will have products with very little carbon embedded and then what happens to CBAM and the West manufacturing? The West is not turning greener yet the Chinese are at a faster rate even though they are the biggest carbon provider currently.

Posted Using INLEO