Trade War Looming as China Rebukes U.S. Support for Solar

China's Solar Manufacturing
A Tainergy Tech Co. employee displays a solar panel at the company's plant in Chungli, Taiwan, in 2010. China alleges free-trade rules are being violated by some US states. Photographer: Maurice Tsai/Bloomberg

China’s allegation that renewable-energy subsidies in five U.S. states violate free-trade rules ratchets up a potentially costly trade war between the world’s two largest economies.

“It’s a long, slow escalation of trade and currency wars as we race to the bottom,” said Theodore O’Neill, an analyst with Wunderlich Securities Inc. of New York.

Programs supporting renewable power, including wind and solar, in Washington state, New Jersey, Massachusetts, Ohio and California, violate World Trade Organization policies and trade treaties, according to a preliminary finding of an investigation posted yesterday on the website of China’s Ministry of Commerce. China filed a complaint today at the WTO over U.S. procedures for calculating anti-subsidy duties on imports.

Those announcements followed a preliminary decision by the U.S. Commerce Department last week to impose tariffs of as much as 250 percent on imports of Chinese solar cells. The agency said the units were being sold for less than the cost of production in an attempt to drive out domestic competition.

Both countries have identified renewable energy as a strategically important industry that could provide both jobs and clean power. As a candidate, President Barack Obama campaigned in support of a “green” economy that would replace jobs lost in declining sectors.

Chinese Complaints

At least four U.S. solar manufacturers filed for bankruptcy in the past year even as federal subsidies helped build a $8.4 billion U.S. solar market.

“China has been engaged in a trade war against the U.S. interests for a number of years and only now are we calling them to the carpet for their illegal and predatory trade practices,” said Mike Wessel, a member of the U.S.-China Economic and Security Review Commission that reports to Congress.

Chinese solar companies criticized Commerce’s preliminary decision May 18 that they improperly benefit from government subsidies and sell solar cells below cost. High tariffs may raise costs, slowing demand for polysilicon that’s used to make solar panels, hurting U.S. companies that reported $2.6 billion in exports in 2011, including about $700 million to China, according to a Bloomberg Government report released last week.

‘Prohibited Subsidies’

China initiated the investigation into U.S. subsidies in November, a month after seven U.S. solar manufacturers filed their complaint with the U.S. International Trade Commission and Commerce. In announcing the preliminary findings yesterday, the Chinese Ministry of Commerce said some U.S. actions “constitute prohibited subsidies.”

During the U.S. investigation into whether Chinese companies received illegal government aid, the U.S. acted “inconsistently with WTO rules and rulings in many aspects,” China’s mission to the WTO in Geneva said today in an e-mailed statement. The U.S. “repeated its wrongful practice” during its recent anti-subsidy investigation on Chinese solar cells.

China’s official Xinhua News Agency reported yesterday that 14 of China’s solar-panel companies have formed an alliance in response to the trade issues with the U.S.

Nkenge Harmon, a spokeswoman for the U.S. Trade Representative’s office, defended the U.S. procedures for so-called countervailing duties today, and said the government is committed to defending those remedies.

‘Strongly Supports’

“The Obama administration strongly supports the trade remedy laws, and was the first administration ever to apply” a China-specific safeguard on imports from that nation, she said in an e-mail.

The U.S. is also jousting with China over access for products including steel pipes, poultry, tires and music. Along with the European Union and Japan, the U.S. filed a complaint in March with the World Trade Organization challenging the Asian nation’s export limits on rare-earth minerals.

“China’s recent investigation of U.S. practices demonstrates the dangers of imposing unilateral trade barriers and how political tension can quickly lead to a full blown trade war,” Jigar Shah, president of the Coalition for Affordable Solar Energy, which opposes the U.S. tariffs, said in an e-mail.

Additionally, the Commerce Department is scheduled to announce on May 30 how much in tariffs Chinese companies should pay over allegations their wind-tower exports receive unfair government subsidies. The U.S. imports $103.6 million in wind tower parts annually from China, according to papers filed with the International Trade Commission.

‘Slap Back’

As U.S. politicians complain of the trade deficit with China, the country may take further actions in an effort to narrow the gap before the November election, said Robert Kapp, 1994-2004 president of the U.S.-China Business Council. That will result in China “looking for opportunities to slap back,” he said.

All countries offer subsidies to certain industries, Hari Chandra Polavarapu, an analyst at Auriga USA LLC in New York, said in a telephone interview.

“The absurdity is the scope and depth of the subsidies in China,” Polavarapu said. “You’re competing against a sovereign when you’re talking about the Chinese solar industry. It’s economic warfare.”

The U.S. unit of SolarWorld AG, which brought the complaint, said it was responding to thousands of job losses due to Chinese trade practices. The company shouldn’t be blamed for any trade war, SolarWorld said in a statement.

“China’s tactic of retaliation rather than following the rule of law is extremely disturbing and is yet another example of the Chinese inappropriately attempting to influence U.S. investigations,” Timothy Brightbill, an attorney for SolarWorld said in an e-mailed statement.

The Commerce Department is scheduled to make its final determination on the solar tariffs in early October. With the election weeks later, the U.S. and China may continue to antagonize each other, said Kelly Dougherty, an analyst with New York-based Macquarie Capital USA Inc.

“The louder the U.S. or SolarWorld is, the louder China is going to be,” she said.

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