Trade War between U.S. and China over Solar?

A trade war is brewing over renewable energy imports between the U.S. and China. Last October, several U.S. solar firms filed a federal trade complaint against Chinese companies for “dumping” solar products on global markets to artificially lower prices with a glut of supply. The complaint also alleged that China unfairly subsidized its industries with land grants, contract awards, trade barriers, financing breaks and supply chain subsidies.

Last week, the U.S. Commerce Department sided with the solar companies and ruled that Chinese solar product imports were being sold below the cost of production and imposed tariffs of 31 percent to 250 percent on the imported products. In response, China lodged a complaint at the World Trade Organization over the decision and its Ministry of Commerce ruled yesterday that renewable energy subsidies in five U.S. states violate free trade rules. As one analyst stated, while every country provides subsidies to certain industries, “The absurdity is the scope and depth of the subsidies in China. . . You’re competing against a sovereign when you’re talking about the Chinese solar industry. It’s economic warfare.”

The problem with China’s solar industry is not that there is strong government support. Indeed, we have argued again and again that the U.S. needs to significantly increase its support for the solar industry and renewable energy, in general. The problem is that the level of support the Chinese government is providing distorts the market by making the price of its products artificially low. The danger is that the low cost drives competitors out of business and Chinese products will reach complete market domination. At which point, China will have complete control over price and the cost of solar products could skyrocket overnight.

In some respects, conservatives should be at the front line of this trade fight. Unlike other red herrings, like Solyndra, the China example is a clear case of what happens when too much government intervention distorts market conditions. Yet, people like Representative Cliff Stearns have thrown in the towel and declared, “We can’t compete with China to make solar panels and wind turbines.” The irony, of course, is that Stearns’ home state is the second largest producer of solar energy in the country.

So, what will come of this trade war? Imposing tariffs on imported solar products only works if domestic solar production is able to meet demand, otherwise solar becomes prohibitively expensive, which doesn’t help anyone. The solar industry is showing strong growth, but the uncertainty of future tax credits and government support leaves the future growth of the industry in question. The only way we can compete with China is to stop politicking and start supporting industry growth through renewable energy targets, which create steady demand, and continued government support through policies like feed in tariffs.

Fighting this battle through a trade war is to no one’s benefit.