China-U.S. Trade Tensions Rise as Renewable Energy Sags

When solar-panel maker Solyndra LLC collapsed in September after winning a $535 million U.S. loan guarantee, President Barack Obama’s administration blamed China’s even bigger aid for its renewable-energy industry.

The China Development Bank Corp. in 2010 provided Solyndra’s Chinese competitors more than $30 billion in credit, dwarfing U.S. support for solar manufacturers as the price of polysilicon, the main material in solar cells, plummeted, Jonathan Silver, the Energy Department’s loan-guarantee chief at the time, told a House committee.

China and the U.S. combined have supported their solar- and wind-manufacturing sectors with about $50 billion during the past two years. That government support is heightening trade tensions as both nations seek to protect manufacturing amid sluggish demand and falling prices.

The Obama administration last month imposed import duties on solar- and wind-energy products from China, while the Chinese responded with a World Trade Organization complaint and accused the U.S. of “abuse of trade remedy.” Solar cells accounted for about 0.7 percent of the $399.3 billion in U.S. imports from China last year, according to the Commerce Department.

Renewable energy is “far more subsidized than your average technology industry” or other forms of energy including fossil fuels, Aaron Chew, an analyst with Maxim Group LLC in New York, said in a telephone interview. “So it’s naturally going to rank the highest among the sectors that could become trade-war types of issues.”

When solar-panel maker Solyndra collapsed in September after winning a $535 million U.S. loan guarantee, President Barack Obama’s administration blamed China’s even bigger aid for its renewable-energy industry. Photo: Peter Parks/AFP via Getty Images Close

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When solar-panel maker Solyndra collapsed in September after winning a $535 million U.S. loan guarantee, President Barack Obama’s administration blamed China’s even bigger aid for its renewable-energy industry. Photo: Peter Parks/AFP via Getty Images

Campaign Rhetoric

The rhetoric in the U.S. has intensified as elections loom in November.

“We’ve brought trade cases against China at nearly twice the rate of the previous administration,” Obama said May 30, echoing comments from his State of the Union address. During the January speech before Congress, he also announced the creation of a Trade Enforcement Unit to investigate “unfair trading practices in countries like China.”

Republican presidential candidate Mitt Romney has called China’s leaders “cheaters,” and he has pledged to label the country a “currency manipulator” on his first day in office, if elected.

The Senate Energy and Natural Resources Committee on June 14 will hold a hearing on “China and Clean Energy” to explore ways to promote U.S. competitiveness.

Trade Deficit

The U.S. ran a $295.5 billion trade deficit with China in 2011, 46 percent higher than in 2005, according to the Commerce Department.

Past trade disputes between the world’s two largest economies have centered around steel, aluminum and tires, often with accusations that the goods are being sold at below-market rates with government help. The skirmishes over wind towers and solar panels are the first involving renewable energy.

The Obama administration has guaranteed $34.7 billion in funding for 33 nuclear, renewable and automotive projects -- including conditional approvals -- since 2009. About $14.9 billion was devoted to solar and wind initiatives, primarily generation as opposed to manufacturing, through the Energy Department’s loan-guarantee program. Republicans have questioned the government’s support, particularly after Solyndra’s bankruptcy.

The China Development Bank since 2010 has made available $47.3 billion to support the country’s wind and solar manufacturers, though this credit line has not been fully tapped, according to a Bloomberg New Energy Finance study in October. Clean energy at the end of 2010 accounted for about 42 percent of the state-owned bank’s $77.6 billion in loans for environmental protection, energy savings and emissions reductions, it said.

‘Piker’ Solyndra

“Looking at how much access Chinese solar manufacturers have, it makes Solyndra look like a piker,” Pavel Molchanov, an energy analyst with Raymond James & Associates Inc. in Houston said in a phone interview.

The Chinese “are prepared to pour resources into a sector,” William Reinsch, president of the National Foreign Trade Council, a Washington-based business group, said in a phone interview. “We historically have had big arguments about that.”

China’s solar firms are facing losses as European nations cut energy subsidies and the U.S. levies tariffs on imports. Prices for polysilicon have also plummeted, dropping 58 percent within the last year and 94 percent since 2008.

Suntech Power Holdings Co. of Jiangsu, China, the world’s largest solar-panel producer, hasn’t been profitable in more than a year. Trina Solar Ltd. (TSL) of Changzhou hasn’t been profitable since mid-2011.

Duties Imposed

The U.S. Commerce Department, in preliminary findings announced May 17, said the companies must pay anti-dumping duties of 31 percent, on top of 4.73 percent tariffs previously imposed, when selling their products in the U.S. market. Other unnamed Chinese producers were hit with duties of 250 percent after the U.S. unit of SolarWorld AG (SWV) filed a complaint in October.

“The Commerce Department made a decision that they want to support the manufacturing side of the value chain, but the consequence of its action is that solar will be more expensive for the end-user,” Molchanov said. “It’s a political judgment on what side of the value chain the U.S. government wants to support.”

WTO Complaint

China, in its May 25 complaint with the World Trade Organization, said U.S. anti-subsidy measures in 22 categories, including solar panels, undercut $7.3 billion worth of Chinese goods. It also alleges that renewable-energy subsidies in California, Massachusetts, New Jersey, Ohio and Washington state violate global trade rules.

The U.S. “has continued to follow the wrong path in the recent investigations against solar cells from China,” the Ministry of Commerce said in its May 29 statement.

The Chinese “always retaliate, and they’ve been blunt about that,” said Reinsch. The Obama administration is “very much in the mode of, ‘We need to enforce our rights, we need to enforce our trade law,’” he said.

On May 30, the Commerce Department set anti-subsidy duties of 13.74 percent to 26 percent on imports of Chinese- manufactured wind towers, affirming a December complaint filed with the Obama administration by a group of U.S. competitors including Broadwind Energy Inc. (BWEN) of Naperville, Illinois.

Difficult Years

“Two difficult years lie ahead for the global wind industry” due to policy changes and uncertainty about economic growth, according to a May 23 study by Bloomberg New Energy Finance. Sluggish demand worldwide may stunt orders and installations in both the U.S. and China, it said. In the U.S., wind-energy manufacturers also may lose access to a production tax credit that expires at the end of the year.

The renewable-duties announced by the Commerce Department “cut against the announced policies of encouraging renewable energy,” Gary Clyde Hufbauer, a senior fellow at the Peterson Institute for International Economics, said in a phone interview. Duties levied on Chinese imports of both wind- and solar-energy products raise costs for downstream industries, and, ultimately, for consumers, he said.

The impact on consumers may be minimal. Suntech won’t have to pay anti-dumping tariffs because because it has a global network and can make solar-panels with products from other nations, Shi Zhengrong, the company’s chief executive officer said May 23.

“There are violations of trade law in every industry, every market, every day,” said Chew, the analyst with Maxim Group. “It’s just a question of whether it’s big enough to be worth pursuing.”

To contact the reporters on this story: Brian Wingfield in Washington at bwingfield3@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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