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Jul 21, 2017

Trump and Trade - The Impact of Chinese Solar Equipment on the U.S. Market

By Sam Billard

I read with interest that Suniva, a U.S. solar equipment maker, has filed a case with the U.S. International Trade Commission, alleging that Chinese solar equipment is being dumped on the U.S. market and asking for steep tariffs and minimum price guarantees to stop that practice.

Suniva declared bankruptcy in April 2017. Now in Chapter 11 protection, Suniva has instituted this claim under the United States’ Trade Act of 1974. That statute allows the President to implement tariffs, minimum prices or quotas if “serious injury” from “dumping” of foreign products is proven. This remedy was last invoked in 2002 when the U.S. steel industry received three years of tariff protection on steel products from certain countries. That action does not appear to have been successful in saving U.S. steel manufacturers, although it may have eased the industry’s decline.

Suniva is requesting a four-year reducing tariff schedule that would effectively double the cost of solar panels in the United States in the first year.

The argument from those against the action is that there are many tens of thousands of people engaged in the business of installing solar panels for both household and industrial use, while there are only a few thousand actually engaged in the manufacture of those solar panels. Significantly higher prices for solar panels would have a negative effect on many more Americans than it would benefit.

Suniva, on the other hand, says that they cannot compete with foreign product that is unfairly being sold in the United States at less than the cost of production. Industry support is lukewarm with a lot of talk about the value chain. Usually references to the value chain mean that the industry relies on a certain amount of foreign input to deliver its products to Americans at the price it does.

Building a trade wall might have the effect of enticing global solar manufacturers to move some production to the United States. However, these tariffs would only last for 4 years, which would not seem to be enough time to entice many businesses to move capacity. The tariffs might also raise world prices if, in the long term, taking U.S. consumption out of the pricing equation means that economies of scale are lost so production costs increase. That too seems unlikely. The short-term effect would very likely be the reverse.

With Mr. Trump having the ability to decide the issue, it seems likely, based on his speeches and tweets, that he will elect to help Suniva and, by inference, other solar manufacturers. This would be a victory for American manufacturing jobs and a blow to China, the poster child for the anti-free trade movement.

It turns out, however, that Suniva’s largest shareholder is a Chinese company. There is some irony in this as well as a lesson. Trade is about money. Partisans invoke nationalism and other factors to bolster arguments, but what it always comes down to is balancing the interests of competing industries and consumers domestically and other international concerns on a global stage. Sometimes internal and external interests run together, but not always.

Mr. Trump has been far less vocal on China lately, almost certainly because North Korea seems to be intent on ramping up its belligerent tone along with its nuclear capability. If this is to be resolved peacefully, China will need to be involved. So far the President’s speeches and tweets on China have been uncharacteristically measured and even thoughtful. He has not been able to stick to the message on other things, but perhaps he can on this one where “going nuclear” means just that.

What does Mr. Trump do if he has to think of many conflicting matters involving China, such as disrupting an important Chinese industry on the one hand and reigning in North Korea on the other? When he is trying to make a deal, what is his bargain? Who is the bad guy in this scenario: U.S. manufacturers of solar panels or U.S. consumers of solar panels? China or North Korea?

Looks like a tough one to me.

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