U.S.-China Solar Trade Competition: 5 Myths And Realities

Myth

U.S-China trade tensions are bigger than solar so they shouldn’t be fought in the solar domain

Reality

The best approach to trade enforcement is a fact-based approach—we should address alleged rule violations where they occur

There are those who think the SolarWorld case, and the solar industry in general, is not the right place to have larger discussions about the U.S.-China trade relationship. Scaling up renewable energy is a strong public good, the argument goes, so we should not undermine that objective by bringing trade claims when Chinese subsidies are actually helping U.S. installers do more to promote solar energy in this country.

But the only honest way to address trade issues with China is on a case-by-case basis, as objectively as possible. That is exactly what the domestic trade resolution procedures at the U.S. Department of Commerce and the international procedures at the World Trade Organization are designed to do. Those institutions take trade complaints out of the hands of politicians—who almost always have political incentives to overreact or underreact to trade accusations against China regardless of the facts—and put them into the hands of independent arbiters.

Solar Panels

image via Shutterstock

At present, a large portion of the trade allegations levied against China are in the clean energy sphere. The reason is clear: Chinese leadership decided that clean energy is their country’s “historic opportunity” to finally surpass the United States in a major technology sector. Chinese government institutions at all levels—national, provincial, and local—are directing massive subsidies to green energy companies in direct support of that goal. When U.S. clean energy companies face stiff competition from Chinese rivals and the latter appear to be benefitting from such generous government support, that can easily trigger suspicion and trade complaints on the U.S. side, particularly when low Chinese prices are driving U.S. companies out of the market.

How much China is providing to its clean energy sectors in subsidies, and whether the subsidies are illegal under our trade agreements with China, can be difficult to ascertain. Many of China’s green energy development policies are not transparent. As is the pattern with most Chinese laws and regulations, those policies give subnational provincial government agencies wide discretion to support local companies as they see fit, and subnational agencies generally do not share the details with foreign observers. When China joined the World Trade Organization in 2001 Chinese leaders promised to submit subsidy reports on those subnational programs every two years but they have never done so. That is a clear violation of China’s WTO commitments. Overall, due to these transparency problems, it can be hard to determine just how much support a particular Chinese company is getting and whether that support violates trade rules.

The U.S. Commerce Department’s countervailing duty and antidumping procedures are designed to investigate these problems on a fact-based, case-by-case basis. Commerce Department investigators view the evidence and if they find wrongdoing, levy tariffs accordingly. The alternative to this fact-based approach would be to put trade issues in the hands of elected politicians who would immediately involve companies and other groups that contribute to their political campaigns—contributors who are likely to reward general China-bashing. With politicians at the helm, tariff decisions would be much more erratic, thus contributing to market uncertainty (since investors would have no idea what to expect in these disputes) and give lobbyists (including Chinese-funded lobbyists) more influence over these decisions.

Myth

The U.S. solar market would be much better off if SolarWorld would drop the petition and allow the U.S. government to negotiate a private solution with China

Reality

If U.S. companies drop trade petitions in response to China’s real or implied threats then capitulation wins out over negotiation—and capitulation is a losing game

The Coalition for Affordable Solar Energy, or CASE, the group of companies who strongly oppose levying tariffs on Chinese solar panels, has repeatedly called on SolarWorld to drop these trade petitions. CASE would prefer to take dispute resolution away from the Commerce Department, and instead have the Obama administration step in to negotiate a mutually agreeable settlement with China. They make a strong case that the Obama administration would be more likely to take the general public interest in getting solar installations to scale, and the potential negative impact of tariffs on those installations, into account and would balance those interests against the impact of Chinese subsidies on the U.S. solar manufacturing sector.

As a result of this proposed balancing exercise, CASE expects that a bilateral negotiation would result in much lower tariffs (compared to what the U.S. Department Commerce might impose) or a price floor, possibly in exchange for Chinese promises to reduce or eliminate the contested subsidies. But such a balanced outcome is highly unlikely, either in the case of the solar industry or in the many other cases in which U.S. companies face unfair Chinese trade competition.

There is certainly nothing wrong with negotiation, of course. In general, the more the United States and China engage on trade issues and share their concerns, the better. What CASE is calling for, however, is capitulation, not negotiation.

One of the biggest barriers to a balanced U.S.-China trade relationship is that so many U.S. companies avoid filing trade petitions due to fears that China will retaliate against them. Many U.S. companies strongly suspect—based on their conversations in China—Chinese officials and enterprises would respond to formal filings with punitive market-access reductions. That risk is too great for companies depending on the China market to keep their businesses afloat, so many U.S. companies keep quiet and put up with short-term problems to protect their longer-term relationship with Beijing.

The end result is that the United States winds up tacitly accommodating a wide range of trade violations, eroding our economic competitiveness.

U.S. companies already face enough political pressure from Beijing to avoid and drop these trade complaints. We do not want them to face the same pressures here at home. Just as we should protect the rights of individual citizens to use the judicial system to file legal complaints, we should also protect and support the rights of individual companies to use our trade institutions to file trade complaints, even if other sectors of the industry find those complaints inconvenient.

It is also important to note that in private conversations with this column’s authors, at least some of the companies lobbying for a negotiated settlement in the SolarWorld case claim that Chinese officials and their Chinese customers are leaning heavily on them to do so by, for instance, threatening to reduce market access for companies who are not visibly and loudly opposing the SolarWorld trade petitions in Washington. Based on those conversations it appears the Chinese government is using U.S. companies as levers to influence Washington’s willingness to take enforcement action, and that is a disturbing trend. The best way to avoid that problem is to keep these decisions where they are now—in the hands of independent investigators at the Department of Commerce, where trade investigations are largely isolated from political pressure and less susceptible to Chinese interference.

The bottom line is that a true negotiated agreement with China, if China is indeed violating its trade obligations, would result in the United States extracting some array of promises or concessions from China—ideally promises to remove the policies that caused the trade frictions in the first place. If that is our end goal, then we should let the Commerce Department process play out first. If that process results in very low tariffs, then we can assume that China’s behavior does not warrant high-level political negotiations. But if the tariffs are significant, then we have a clear signal that there is something to negotiate about—and we will subsequently be at a good starting point for negotiations, because the Chinese government will be keen to find a solution less onerous than the high-tariff status quo.

The Chinese government will certainly do everything in its power to strengthen its negotiating leverage in bilateral trade disputes. We should do the same.

The Center for American Progress is an independent nonpartisan educational institute dedicated to improving the lives of Americans through progressive ideas and action. Building on the achievements of progressive pioneers such as Teddy Roosevelt and Martin Luther King, our work addresses 21st-century challenges such as energy, national security, economic growth and opportunity, immigration, education, and health care. We develop new policy ideas, critique the policy that stems from conservative values, challenge the media to cover the issues that truly matter, and shape the national debate.

2 Comments

  • Reply May 22, 2012

    Eren Long

    Thank you Melanie and Kate!  Finally a published article that outlines in detail how China solar product production and export has created a chain effect throughout the solar industry.  The true issues are that China is violating anti-dumping laws and that Chinese manufacturers of solar products are receiving subsidies to remain poised as the number one leader in solar product manufacturing and export.  To quote what you said:  “RealityInnovation and demand-side policy, not cheap imports, are the real keys for solid and sustainable solar growth in the United States”…..is absolutely on point!  I do hope that the U.S. does the right thing and in turn the U.S. manufacturers invest in R&D to produce quality, competitive priced solar goods.  Yes!  Let’s keep the revenue here.

    Eren
    http://solaruniversecalifornia.com/

  • Reply June 7, 2012

    Miguel Coradin

    How to get panels in Dominican Republic with those prices???
    Our lives are getting to expensives talking about energy..
    Please give us a responsable response!!!!!!
    Miguel Coradin    
    sanjoseobrero128@hotmail:disqus .com

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