No Winners in the Solar Trade War between China, the U.S. and EU

December 20, 2012 Posted by China Briefing Reading Time: 5 minutes

Opinion Commentary: Yao Lu

Dec. 20 – The U.S. International Trade Commission (USITC) issued a final ruling on November 7 stating that the U.S. solar industry was “materially hurt” by cheap crystalline silicon photovoltaic cells imported from China, thus allowing Washington to impose an anti-dumping duty ranging from 18.32 percent to 249.96 percent and an anti-countervailing duty from 14.78 percent to 15.97 percent on Chinese crystalline silicon photovoltaic cells and main components.

A day later, the European Commission launched an anti-countervailing investigation into the importation of Chinese solar products into the Euro zone. This is in addition to an excising anti-dumping investigation into Chinese solar panels which began in September.

These recent actions taken by the United States and the European Union have further strained their already complicated trade ties with China, and the Chinese government shows no sign of backing down from this solar dispute.

Two months after the EU initiated its anti-dumping investigation over Chinese solar products, China fired back by filing a complaint with the World Trade Organization against photovoltaic solar subsidies in the EU on November 5, accusing the union and its member states (Italy and Greece in particular) of giving added, and illegal, subsidies to photovoltaic solar projects that used equipment produced within the EU. China has also threatened to evaluate its earlier countervailing investigation into polysilicon imported from the United States.

Furthermore, at the end of November, China again stepped up the solar dispute by launching an anti-dumping and anti-countervailing investigation to determine whether retroactive duties should be levied on imported solar-grade polysilicon from the United States, European Union and South Korea.

No winner will emerge

Since each of the three economies are looking for ways to encourage the growth of their respective solar manufacturing industries, escalating tensions and accusations are nothing new. However, as history suggests, there are no clear-cut winners in a trade war.

While panel manufacturers in the United States have claimed the USITC ruling as a major victory, local equipment and service providers oppose it – as they have benefited handsomely from cheap solar panels imported from China. This latter group argues that the tariffs will actually harm the domestic market, making it more difficult for U.S. companies to do business both at home and abroad.

China’s exports of cheap solar panels have helped raise the attractiveness of solar energy among investors, spurring new investments into the industry. Benefiting from this trend, the U.S. solar market has been turned into a business worth some US$6 billion. More importantly, the solar industry involves much more than just solar panels. The supporting equipment such as steel structures and cables, and services such as installation and maintenance, comprise more than half of the solar value chain. So when the price of solar panels goes up, it not only pains the Chinese manufactures, but also the local businesses in the United States that provide the supporting equipment and services to the solar industry.

Furthermore, since such tariffs only apply to panels made from solar cells produced in China, Chinese companies can easily get around these regulations by assembling their panels from solar cells produced elsewhere, such as Vietnam or North Korea. Thus, the price of solar products imported from China will not be driven up significantly, and it is highly doubtful that U.S. manufactures will actually benefit from this ruling.

For the EU, probing into the export or “dumping” of solar products from China goes against its own interests as well. Without cheap Chinese solar products, the cost of solar installations will skyrocket and the solar power station operators will run at higher costs. The EU also puts thousands of jobs at stake through its attempt to protect a few manufacturers that represent only a small portion of the solar industry’s value chain.

It is estimated that the EU could create an extra 10,000 jobs in the middle of the supply chain if tariffs on Chinese solar products are introduced. However, as the EU exports raw materials and technology worth tens of billions of dollars to China, the reduced exports of equipment, silicon, and other raw materials (as well as the higher costs of building solar power stations) brought on by these trade barriers may result in the loss of as many as 300,000 jobs.

“If high tariffs are levied, like those in the U.S., we could see the global solar industry suffer a serious blow, and potentially be set back 10 to 15 years,” said Jodie Roussell, public-relations director for Trina Solar Europe. “Tens of thousands of jobs across Europe, and across the world, could be lost.”

China and the EU largely share common interests and cooperate broadly in trade. In 2011, the bilateral trade volume reached US$567.2 billion, twice the level of 10 years ago. Therefore, any restrictive move will not affect only one single industry, but the many related industries and the overall interests of both countries.

For China, with the recent moves taken by the European Union and the United States, the developing environment for its solar industry has become tougher and more complicated, as both regions are among the largest importers of China’s solar products. However, the external pressure may motivate Chinese solar product manufacturers to reshuffle the industry, forcing companies to develop other markets. Also, in the long-term, if the anti-dumping and anti-countervailing duties were to go through in the EU, it won’t necessarily represent a critical strike to China’s solar industry. Solar energy currently accounts for less than 0.1 percent of China’s power supply, so the country’s own domestic market, which is set to grow by 150 percent to 50,000 megawatts over the next 10 years, should be able to provide the necessary demand.

Possible cooperation

Currently, all three regions have targeted solar manufacturing as one of the “industries of the future” that will cultivate new job opportunities. As a result, their competitive policies have created a situation where there exists about 70 gigawatts worth of global production capacity, but only about 30 gigawatts worth of demand.

Disputes aside, there remains room for possible cooperation. For example, as the EU is entering an era of commercially viable solar power, cheap Chinese products could help reduce the costs of solar installations in the region and benefit those purchasing the electricity, thus pushing the EU to realize its renewable energy goals. For the United States, its solar industry as a whole will expand even more by importing China’s cheap solar panels, since the services attached to this booming industry – such as design, engineering, installation and maintenance – have and will greatly benefit the domestic market.

In short, a trade war will never solve the current problem, and may actually end up having a negative effect on all sides. One thing that remains clear is that these disputes involve massive trade volumes and numerous jobs right in the midst of a global economic slowdown. Surely it is wiser for China, the United States and the European Union to take a more long-term view, strengthen cooperation in the industry, and embrace international trade.

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