Courtesy of John Nyaradi.
China Tangled In Trade Disputes: Solar Panels & Rare Earth Minerals (Part 1)
By Ryan Landon Swanson
Note: This article is the first of a two-part series.
Anti-dumping and anti-subsidy cases filed against China (NYSEARCA:FXI) in the WTO are nothing new. In fact, they have almost become accepted as natural phenomena, the thorny consequences of China’s highly successful export-led growth model. However, two recent disputes—over China’s solar industry subsidies (NYSEARCA:CHIE) and its production quotas for rare earth elements (NYSEARCA:REMX), the metals necessary for high-tech products ranging from helicopter blades to wind turbines and solar panels—have strayed from traditional WTO-illegal subsidy disputes, but just the same have threatened global supply chains and undermined US and European manufacturers. How these two cases play out will hold significant implications for the future of renewable energy (NYSEARCA:GEX).
Both of these disputes are unique. In the solar (NYSEARCA:TAN) case, the US Department of Commerce has decided to bypass the WTO and take matters into its own hands, performing its own evaluation and response. And the rare earth dispute (NYSEARCA:REMX) actually concerns export restrictions, not dumping—the usual allegation against China. Furthermore, both cases reflect deeper trends and challenges in the global economy. In the midst of a stagnating global economy, China’s political decisions play a pivotal role in the growth of high-tech and clean energy industries. With the world currently dependent on China’s supply of rare earth metals—producing as much as 97 percent of global supply, according to some estimates—and with Chinese solar manufacturers fighting to increase their market share in scores of countries, many Western governments and firms are working to reverse the trajectory of a global economic system increasingly centered on China.
On March 20th, the US Department of Commerce made a long-awaited decision to impose tariffs on imported Chinese solar panels, attempting to level the playing field against China’s export subsidies. However, the tariff levels were much lower than the 20 – 30 percent industry insiders had expected and far lower than the rumors of a 100 percent tariff. For the manufacturers Trina and Suntech, the Department of Commerce applied 4.73 and 2.9 percent tariffs, respectively. For all other Chinese firms, a 3.59 percent tariff has been imposed.
The decision, however, is only the first of two steps, as on May 17th the Department of Commerce will decide whether to impose anti-dumping tariffs. According to Melanie Hart, a China energy policy analyst (NYSEARCA:CHIE) at the Center for American Progress, “in trade cases where subsidy and dumping petitions are filed in tandem, the dumping tariff is generally the higher import duty.” Thus, the modest tariffs applied this month may be significantly strengthened in May. The tariffs will affect a rapidly increasing amount of trade, as the US imported over $3 billion worth of Chinese solar panels in 2011, double the amount in 2010.
US solar manufacturers (NYSEARCA:TAN) have largely applauded the Department of Commerce because the decision supports the creation of a robust renewable energy manufacturing base in the US, something President Obama has also highly supported in his reelection campaign. However, many US manufacturers were also relieved to hear that the tariffs were so modest because high tariffs would result in fewer installations in the US—a significant piece of the solar industry. Moreover, high tariffs could provoke a retaliatory tariff by the Chinese on US exports of polysilicon, damaging the US industry further. For their part, Chinese firms have lobbied the Chinese Chamber of Commerce, which has defended them by alleging that the US Department of Commerce has ignored evidence and “that Chinese solar manufacturers have received far less government support than their U.S. competitors.” Thus far, it appears that the Chinese government response has had little effect.
If the US government is concerned about the growth of its solar industry, Melanie Hart believes that this back-and-forth arguing over the supply of solar panels, whether from China or the US, might be missing the point. She contends that “[w]hether the U.S. solar market continues to grow [. . .] may depend much more on demand-side policies than on access to cheap Chinese imports.” Hart notes that in 2010 the seven states with the strongest development policies accounted for 82 percent of new US solar installations. In a similar vein, Matthew Slaughter, a business professor at Dartmouth College, asks: if the goal is widespread adoption of clean energy sources, “why should I care if its produced in China, Germany, Spain, or the U.S.? You’re going to better off and wealthier if you specialize and don’t try to do everything yourself.” Hence, the debate continues over whether the US, often described as a technology (NYSEARCA:XLK) leader and post-industrial society, ought to protect its manufacturing base or specialize in technological innovation.
Note: This article is the first of a two-part series.
Ryan Landon Swanson is an associate writer for Wall Street Sector Selector. His chief research focus is on the political economy of China’s energy sector, but he also enjoys writing on the political economy of Latin America. He fluently speaks, reads, and writes Spanish and Mandarin Chinese. Ryan has substantial experience living, studying, and working in both China and Argentina. He earned a B.A. from the University of California, Berkeley in Interdisciplinary Studies with a focus on international relations and energy.
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