Will the U.S’s solar panel tariff wall on China cause a trade war?

Are Cheap Solar Panels Going To Start A Trade War?

It may be a little while before the dust settles on the U.S. Department of Commerce’s decision to slap a massive 31 percent tariff on China’s top makers of solar panels (more for those about to enter the market) but already big questions are being asked. One of these is: who are the real winners and losers?

On the surface the decision to punish Chinese solar panel firms for their perceived “dumping” of solar products makes them the losers and U.S. solar firms the undoubted victors. Indeed it was the U.S. solar companies, struggling against the onslaught of cheap Chinese solar panels, who asked the government to act against  cheap Chinese solar products (nothing like free enterprise I always say!).

But winners? Scratch the surface and you’ll find that this may not necessarily be the case.

The most important part of the equation — the U.S. solar customers — will now find that access to cheap yet effective solar panels is more limited. In some instances this may be the factor that pushes the price of a moderate solar system for the average homeowner beyond affordability. Rather than being forced to buy more expensive American solar panels, the consumer may decide that solar is just too expensive and revert to other forms of energy.

Everyone loses in this scenario (except for delighted fossil fuel companies presumably…).

But what of China’s reaction? China is now a real player in the world economy, has led the way in solar energy production in the region and must be mystified at why the land of the free market is slapping penalties on its companies for following market rules. (This usually consists of  grabbing all the government subsidies you can, then telling the government to stop interfering with private enterprise). The perceived issue is unfair government support of the Chinese companies allowing them to export their solar panels at a lower rate. However (unless I’m missing something) isn’t the disruption of the so-called level playing field the fault of both sides, with the U.S. government offering loan guarantees and other support for U.S. solar companies? Think Solyndra here.

However according to the Financial Times the country is finding ways to get around the provisions of the tariff protection. One way is for the main solar companies affected: Suntech Power, Trina Solar and Yingli Green Energy, to source their raw materials from countries such as South Korea and Taiwan.

China’s government has attacked the decision to boost tariffs calling it “unfair”, pointing out that it may cause damage to the promotion of renewable energy. Though no mention of a damaging trade war has come from Beijing, one of the chief concerns must be that the Chinese government may use the incident to ignite tit-for-tat trade sanctions against U.S. companies. Should this occur the ramifications could extend well beyond the renewable energy sector.

The episode has further eroded relations between the two superpowers coming in the wake of the arrival of blind Chinese dissident Cheng Guangcheng in the United States to start a new life with his family. Whatever the political fallout though, what remains to be seen though is how much damage the tariff wall decision will do to the region’s solar industry.