Tariffs Well-Justified in Fighting Green Mercantilism

In May, the Department of Commerce moved to impose “anti-dumping” tariffs on heavily subsidized Chinese solar PV manufacturers. Now comes the news that the Department has reached a similar decision on Chinese wind-energy tower manufacturers and a group of 20 or so European solar panel manufacturers has filed a formal complaint with the European Commission, the European Union’s lead trade body, accusing Chinese solar manufacturers of dumping their products in the EU at prices below cost as well. The group, led by Germany-based SolarWorld (the same company that spearheaded the anti-dumping trade claim against China in the U.S.), is seeking retaliatory tariffs as a result. These developments have sparked concerns over a potential trade war between the U.S. and Europe and China. But tariffs are well-justified in fighting green mercantilism and, by encouraging innovation, could be greatly beneficial to the clean energy industry in the long-term.

The Wall Street Journal notes that the “vast majority” of the jobs in the American solar industry are in “sales, marketing, design, installation, engineering construction and maintenance of solar projects,” jobs which benefit from cheap Chinese solar panels. As such, many solar developers and installers – and even some manufacturers – came together to form the Coalition for Affordable Solar Energy (CASE), a trade group that has been very outspoken in its opposition to solar tariffs. In fact, CASE’s press release in response to the submission of the EU trade complaint likened SolarWorld to “a crazed agent provocateur” and accused the company of “a desperate effort to avoid competition in the marketplace.”

But the situation is far more nuanced than CASE might indicate. “Competition is a good thing,” Claudia Kemfert of the German Institute for Economic Research observes, “but it has to be fair, which is not how things are right now.” In fact, ITIF has covered the issue of China’s green mercantilist policies extensively, noting in a previous blog post that the country “employs nearly all types of mercantilist policies to artificially drive down the price of clean energy technologies” and devoting entire reports, Green Mercantilism: Threat to the Clean Energy Economyand Enough is Enough: Confronting Chinese Innovation Mercantilismto the subject. It was also recently noted on the blog that a Chinese city has taken the troubling, unprecedented step of helping pay off the debt of a local solar wafer manufacturer.

Tariffs can thus not only level the playing field so U.S. and European clean energy companies can compete fairly, but also discourage countries from employing poor trade practices in the first place. More importantly, they can “increase the incentive for emerging [clean energy] technologies, new ideas, and more innovative firms to remain or enter the market,” a previous ITIF blog post states, which is essential if clean energy is to become cost competitive with fossil fuels. The previous blog post summarizes the challenge well in regard to the solar market, but the argument is applicable to clean energy in general and bears repeating here:

We need solar to be cheaper than fossil fuels so it can be globally deployed to reduce carbon emissions to near-zero by mid-century. How far can government subsidies – Chinese or otherwise – of first-generation solar PV take us to that goal? It simply can’t. If we allow Chinese green mercantilism to decimate the U.S. solar manufacturing industry, we would be left with a few firms producing potentially subpar technology when what in fact need are second, third, and fourth generation designs to meet our climate goals. China’s ability to rapidly take a technology to scale is still important and could be helpful to accelerate new technology market deployment, but only if it doesn’t stifle global clean energy innovation.

The choice is twofold: we can allow China to play by different rules to benefit from artificially lower priced solar PV in the short-term, but less innovation over time or we can level the playing field and allow technological progress and innovation to lower costs and grow the industry. Choosing the former may be great in the short-term, but puts the industry at a disadvantage in the long-term. Instead, if we’re serious about addressing climate change and growing a robust industry that continues innovating and producing jobs…the latter choice is the right one.

Above: Flags in front of the European Commission building in Brussels.