Why US Is Taking Heavy Hand with Chinese Solar Companies

Chinese solar exports have fallen under the shadow of a U.S. winter as never seen before. On the morning of October 11, just after 5 a.m. Beijing time, the U.S. Commerce Department issued a ruling determining that Chinese exports of crystalline silicon photovoltaic cells and components were being subsidized and dumped on the U.S. market, and that it would levy heavy anti-dumping and anti-subsidy tariffs on solar cells and panels imported from China. Chinese Ministry of Commerce spokesman Shen Danyang stated that China was extremely dissatisfied with the final ruling, and that the U.S. Commerce Department was adopting unfair tax measures which would harm both U.S. and Chinese exporters, as well as American consumers.

Imposing High Tariffs on Chinese Manufacturers

As early as October of last year, fast-growing Chinese solar enterprises had already fixed their gaze on foreign competitors. On October 19, seven U.S. solar manufacturers, represented by an Oregon-based subsidiary of Germany’s SolarWorld, filed a petition against the subsidization and dumping activities of 75 Chinese solar companies. The petition alleged that China’s government provided excessive subsidies for solar products, causing U.S. solar cell manufacturers to close operations. In May of 2012, the U.S. Commerce Department made a preliminary ruling, levying a 2.9 to 4.73 percent countervailing duty on Chinese solar products, as well as anti-dumping tariffs of at least 31.8 percent. This time, it has made its final ruling on the case.

The Commerce Department’s decision was to levy an 18.32 to 249.96 percent anti-dumping tariff and 14.78 to 15.97 percent countervailing duty on Chinese solar cells. The anti-dumping measure was not significantly altered from the preliminary ruling, but the countervailing duty saw a large increase, reaching 14.78 to 15.97 percent.

According to U.S. trade remedy procedures, apart from the Commerce Department, the U.S. International Trade Commission is required to make a final ruling. By our understanding, the U.S. International Trade Commission has very rarely overturned decisions on tariffs in the past. If the ruling passes, the U.S. will request that customs collect the high anti-dumping and anti-subsidy tariffs for all related Chinese solar products.

Containing China to Protect U.S. Companies

The U.S. deciding in the end to come down heavy-handed on Chinese companies is primarily an effort to protect and develop its own new energy industry. During an interview with Bai Ming, deputy director of the Department of International Market Research at the Ministry of Commerce’s Chinese Academy of International Trade and Economic Cooperation, he observed that after the global financial crisis, the U.S. began a process of reindustrialization in an effort to develop its real economy. Obama expressed a desire to make contributions to clean energy, among which they have placed particular importance on the solar industry. However, as U.S. solar companies’ production factor costs are high, while China’s manufacturers have a competitive advantage in economies of scale and low production costs, the U.S. firms are unable to compete. Meanwhile, oil prices have begun to fall from the last spike, the U.S. has once more developed a new source of energy which can replace oil on a large scale and solar energy usage is in constant flux as it runs counter to oil prices, causing difficulties for U.S. solar companies. The U.S. has shifted the blame for these problems onto Chinese solar manufacturers.

Shen Danyang argued that the U.S. increasing trade friction by sending protectionist signals to the entire world and obstructing the development of new energy runs counter to the rest of the globe’s united efforts to deal with the challenges of climate change and energy security, and also violates the G-20 pledge against adopting new protectionist policies. In reality, the U.S. and China closely cooperate in the field of clean energy; the two are already inextricably linked. Levying anti-dumping and anti-subsidy tariffs on Chinese solar products will also harm U.S. raw material and equipment exporters, as well as U.S. consumers.

Other experts have pointed out that there are political considerations behind these measures. The general election is around the corner; the U.S. government is instituting these measures to cater to the portion of voters who wish to contain China and thus win their votes.

Utilize Systematic Methods to Proactively Respond

Harming others is not beneficial to oneself; the U.S. anti-dumping and anti-subsidy policies towards China will have a negative impact on U.S. businesses. Kevin Lapidus, senior vice president of Sun Edison, North America’s largest solar energy services provider, said in a statement that the U.S. getting involved in a trade war with China over the solar energy industry does not agree with the interests of U.S. firms, particularly small and medium enterprises. He added that taxing Chinese-produced solar cells and panels will raise the costs of installing and utilizing solar energy, which will come as a heavy blow for many small and medium enterprises and possibly result in the loss of positions for employment.

As to the punitive measures, Bai Ming believes that China should establish a set of systematic methods for dealing with the U.S. For example, during negotiations, both the government and businesses should be represented to proactively respond to the allegations. The U.S. cannot be allowed to proceed freely with these measures, or Europe will follow suit. Aside from fighting the measures, China must also place checks on U.S. products entering the Chinese market in response and raise the cost of abuses in international trade. If China’s retaliatory actions this time have bite, Europe will be extremely cautious about imposing punitive duties on Chinese solar products.

Bai Ming also suggested that domestically, China should implement three changes and three improvements: The first change is that it must do away with the past reliance of its solar companies on exports, and instead invest and build plants overseas; second, it should not only export to the U.S. and Europe, but also to other countries with abundant solar resources; and third, China should change its reliance on foreign markets and instead develop its domestic market. At the same time, China must improve in several areas. First, it should purchase products related to these measures against China from other countries; second, it must move its solar industry more towards the high end; and third, it must use this opportunity to restructure the industry and eliminate spare production capacity on the low end.