Chinese Solar Goods Escape Bigger Tariffs in Trade Dispute

President Barack Obama today will visit one of the biggest U.S. solar projects, a day after imposing duties on Chinese imports that analysts said were too low to curb record installations.

The Commerce Department yesterday set duties of as much as 4.73 percent on solar products from China, backing a complaint from U.S. solar makers who said their rivals were receiving improper government subsidies.

Obama, criticized by Republicans for backing solar manufacturer Solyndra LLC before it went bankrupt, is scheduled to visit a solar facility today in Boulder City, Nevada, where he will highlight the administration’s efforts to promote renewable energy.

The Commerce Department’s preliminary decision to impose duties of less than 5 percent on $3.1 billion a year of imports was claimed as a victory by both supporters and opponents of the action. Shares of the affected importers rallied on the news.

“This is a clear statement going forward, there was not free trade happening,” said Gordon Brinser, the president of the U.S. unit of SolarWorld AG (SWV) of Bonn, which brought the complaint. “We support free trade without government intervention, and clearly there has been illegal Chinese government interference.”

The U.S. will decide in May whether to assign additional duties after SolarWorld AG claimed the Chinese firms sell solar panels under market value in an effort to drive out competition. Photo: Jochen Eckel/Bloomberg Close

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The U.S. will decide in May whether to assign additional duties after SolarWorld AG claimed the Chinese firms sell solar panels under market value in an effort to drive out competition. Photo: Jochen Eckel/Bloomberg

Opponents of the tariffs, such as the Washington-based Coalition for Affordable Solar Energy, which includes Westinghouse Solar Inc. (WEST) and more than 100 other solar companies, said they would increase prices and cost U.S. jobs.

‘Victory’ for Industry

“This is a victory for the solar industry,” said Jigar Shah, president of the coalition. “The government of China was found innocent of all charges, that’s what low tariffs mean.”

The Obama administration’s action increases trade frictions between the world’s two biggest economies. The U.S., along with the European Union and Japan, filed a complaint last week with the World Trade Organization challenging China’s export limits on rare-earth minerals.

Yesterday’s decision represents a determination that China was providing improper subsidies to its producers. The Commerce Department tentatively concluded that the subsidies ranged from 2.9 percent to 4.73 percent. Duties in those amounts, which vary by producer, will be collected by U.S. officials. A final determination is scheduled for June.

Outside Factors

The department may have been concerned that stiffer tariffs would result in higher prices and slow the solar-energy industry, said Kelly Dougherty, an analyst with New York-based Macquarie Capital USA Inc.

“If they were to slap double-digit tariffs, the Chinese companies, who have razor-thin margins, would have to pass them down to customer, and that would hurt demand,” Dougherty said. The lower duties facing the companies, including Suntech Power Holdings Co. (STP) and Trina Solar Ltd. (TSL), can be more easily absorbed, she said.

Yesterday’s decision focused on China’s subsidies to its domestic producers. The U.S. will decide in May whether to assign duties based on additional SolarWorld allegations that the Chinese firms sell solar panels under market value to drive out competition. SolarWorld has asked for 100 percent tariffs to counter the alleged dumping.

Shares of Chinese solar companies rose in New York trading, with Suntech, Trina and Yingli Green Energy Holdings each up more than 10 percent. Some expected the duties to be as high as 10 percent, Dougherty said.

Market Reaction

The stocks may have overreacted on the lower-than-expected tariffs, said Aaron Chew, an analyst at Maxim Group LLC, an investment bank.

“The anti-dumping tariff could be much larger. The real story is what happens May 16,” he said. “That one cannot be extended.”

The trade deficit with China widened to $295 billion last year and U.S. leaders have called for a harder line on the Asian nation to drive down the 8.3 percent U.S. unemployment rate.

“Right now U.S. manufacturers are being hammered by Chinese imports that appear to be subsidized by the government and dumped on the U.S. market,” Senator Ron Wyden, an Oregon Democrat, said in a statement. “For domestic producers to compete, they need only a level playing field free from the unfair trade practices that are routinely employed by China.”

The size of the tariffs imposed yesterday probably won’t affect prices significantly, said Paula Stern, a former commissioner with the International Trade Commission.

“With so many other moving parts, including distributors in South Korea and Taiwan, I don’t think it will have a very large market impact,” Stern said in an interview yesterday at a Bloomberg New Energy Finance conference in New York. “It could get wiped out in an exchange-rate shift.”

Trade Talks

The decision may have a bigger impact on trade talks between the countries than on the renewable-energy industry, though it may prod Chinese manufacturers to make more of their solar products abroad, said Anthony Kim, solar analyst with Bloomberg New Energy Finance.

“The tariff won’t have an effect on Chinese-sourced modules” which are 10 percent cheaper than similar products made elsewhere, Kim said at the conference. “At this point, that tariff is more symbolic of the fight against Chinese imports.”

Using diplomatic channels, such as the WTO and the Commerce Department, reduces the chances of starting a full-scale trade war, said Meredith Broadbent, a senior adviser at the Center for Strategic and International Studies.

“China has had more government involvement in their economy, though you don’t see the U.S. reverting to protectionist measures,” said Broadbent. “That’s how you avoid a trade war -- use WTO rules to negotiate a solution to various areas of friction.”

ITC Ruling

The quasi-judicial U.S. International Trade Commission unanimously agreed in December that domestic producers have been hurt by Chinese imports of solar panels that turn sunlight into electricity. The probe was then turned over to the Commerce Department to determine the punishment.

Representatives of Chinese companies told the commission Nov. 8 that tariffs sought by U.S. competitors would make it more difficult to expand the use of renewable energy. China and the U.S. are among nations encouraging the use of alternative- energy sources, driving costs down across the board, so it would be unfair to penalize China, they told the panel.

“This could have been a lot worse,” said Chew, from Maxim Group. “The tariffs were totally expected, but this is at levels that are much lower than expected.”

To contact the reporters on this story: William McQuillen in Washington at bmcquillen@bloomberg.net; Justin Doom in New York at jdoom1@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net; Will Wade at wwade4@bloomberg.net

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