A Trade War Over Cheap Chinese Solar Panels: Protecting American Ingenuity or Needlessly Raising Prices?

By Nick Lawton, Staff Attorney

On December 31, 2014, the U.S. Department of Commerce issued a preliminary finding that some Chinese solar panel manufacturers would become eligible for a reduction in trade tariffs. This finding is the latest volley in a trade war between the American and Chinese solar industries that began in 2011. SolarWorld Americas, the largest U.S. solar panel manufacturer, filed a trade case with the U.S. International Trade Administration, alleging that Chinese subsidies of solar panels were giving imported solar panels an unfair advantage and threatening the viability of the U.S. solar industry. SolarWorld won that round of the trade dispute. In May 2012, the Commerce Department initially imposed “anti-dumping” tariffs on imported Chinese solar panels. These “anti-dumping” tariffs aimed to offset the effect of Chinese subsidies that allowed the sale of Chinese solar panels in the United States at prices below actual manufacturing costs.

The next round of the dispute involved international industrial espionage, which led to the indictment of five Chinese military hackers and ignited a diplomatic conflict between the United States and China. According to the U.S. Department of Justice, at “about the same time” the Commerce Department imposed anti-dumping tariffs, a Chinese hacker stole “thousands of files” from SolarWorld, including confidential technical information and privileged attorney-client communications about the ongoing trade litigation. A spokesperson for the Chinese Foreign Ministry argued that the charges were “purely ungrounded and absurd” and based on “fabricated facts.” Additionally, the Washington Post reports that China noted similar NSA spying on Chinese companies, as revealed by leaks from Edward Snowden.

It is difficult to quantify the impacts of either espionage or allegedly unfair subsidies. A spokesperson for SolarWorld stated in May 2014 that there were “too many unknowables” preventing an exact estimate of the company’s financial losses from espionage. The New York Times quoted the president of a security technology and services company as stating that the value to Chinese companies “from these thefts of intellectual property is in the billions of dollars.”

As for the anti-dumping tariffs, the Commerce Department has attempted to impose different tariff rates on different manufacturers’ products to account for their actual behavior. Those tariff rates ranged as high as 165%, but the Commerce Department has lowered tariff rates for different manufacturers several times. For example, in July 2014, the tariff rate for Motech Industries was 44.18%, but the Commerce Department lowered that rate to 20.86% a month later. The latest reduction in tariff rates reflects a finding that actual solar panel “dumping,” or sale at prices below manufacturing costs, occurred at significantly lower rates than the Commerce Department had initially thought. The Commerce Department recommended lowering the tariff rate from 31% to roughly 18%. The President of SolarWorld, Mukesh Dulani, argues that the Commerce Department erred by failing to account for the behavior of the largest Chinese solar manufacturers. As a result, he argues that the proposed tariff rates “do not reflect the actual amount of dumping by Chinese producers.”

The trade dispute and its consequent tariffs have divided renewable energy advocates in the United States. Critics of the tariffs claim that they will result in higher prices for solar power, which runs counter to the U.S. goal of cost-competitive solar power and deters solar installations. Jigar Shah, president of the Coalition for Affordable Solar Energy, argues that the tariffs are “unproductive” and “will undercut the growth of American solar jobs and hurt our domestic solar industry.” The Solar Energy Industries Association (SEIA) contends that “the worsening solar dispute … threatens the future progress of solar energy in America.” SEIA’s opposition to the trade dispute led PetersenDean, a roofing and solar power company, to call for the resignation of SEIA’s president and entire board. Meanwhile, U.S. officials seem to side with SolarWorld. For example, U.S. Representative Rock Nolan (D.-MN) has stated that “the U.S. solar manufacturing industry has been devastated by China’s buildup of massive amounts of state-sponsored solar activity.” Senator Ron Wyden (D.-OR) has backed SolarWorld’s trade case since 2013 and testified in support of tariffs in December 2014. SolarWorld has won nine out of ten trade cases in this ongoing dispute.

The trade dispute over solar panels is almost certain to continue as both the United States and China seek to expand their solar industries. Both nations offer significant subsidies for solar power, including significant tax credits and grants for technological research and development. China has recently become one of the largest consumers of solar power and hosts many of the largest manufacturers of solar panels. The United States, meanwhile, is poised to become the world’s largest solar market, according to Jigar Shah. Because solar panels and other electrical components of solar arrays are globally traded commodities, the pace of the solar industry’s growth is likely to be influenced by ongoing trade disputes.