The Fight Against Chinese Green Mercantilism Continues

Last month, the United States International Trade Commission voted to uphold tariffs on solar panels imported from China. The Commerce Department had imposed the tariffs earlier this year in response to China’s heavy subsidization of domestic solar PV manufacturers. However, while the move is welcome, it is important to recognize that is not a magic fix and the fight against Chinese green mercantilism continues.

To be sure, the tariffs are well-justified, as they can simultaneously help level the playing field, discourage China from employing unfair trade practices, and encourage clean energy innovation. But they may be too little, too late. Since the tariffs apply solely to panels made of Chinese-produced solar cells, Chinese companies can avoid them by assembling panels with cells produced elsewhere. ITIF Senior Analyst Matthew Stepp details the result at Forbes:

By shifting its way through loopholes in the tariff ruling, China is rerouting its manufacturing destinations to skirt penalties. In June, Taiwanese solar imports increased 326 percent compared to last year due to China rerouting its solar exports. No doubt, China’s green mercantilist policies are costing them dearly: for every $3 dollars in sales, Chinese solar companies are losing a $1 on average. But China’s green mercantilism strategy is to run out the clock. It took America years to even act and as a result, America’s solar manufactures may not be able to survive much longer without additional action.

Indeed, tariffs or no, damage has already been done from China flooding the global market with artificially cheap panels. “About a dozen panel makers in the United States have gone bankrupt or closed factories since the start of last year,” The New York Times notes. In one telling example, promising start-up Twin Creeks Technologies recently sold its core intellectual property, assets and equipment in a “firesale” to GT Advanced Technologies. Twin Creeks had developed innovative factory equipment that could slice extremely thin silicon wafers, which could potentially reduce the capital equipment-cost of making solar panels by as much as 50 percent. Nevertheless, despite the breakthrough nature of its technology, the company simply could not stay afloat. As Greentech Media observes, “today’s over-capacity solar industry is not hungry for innovation or capital expense – and Twin Creeks was heavy on both.” Sadly, while GT is aiming for commercialization of the acquired technology in late 2014, solar wafer-manufacturing is only one of several industrial applications that the company is considering.

Nor has China itself emerged unscathed. The country employs a host of mercantilist policies, not just solar subsidies – as one ITIF blog post put it,“China wants to become global leaders in exporting today’s clean energy technologies by any means necessary.” But their actions have backfired. The New York Times reported last month: “China’s strategy is in disarray. Though worldwide demand for solar panels and wind turbines has grown rapidly over the last five years, China’s manufacturing capacity has soared even faster, creating enormous oversupply and a ferocious price war. The result is a looming financial disaster.” Yet China does not seem to be backing down on green mercantilism. If anything, the country appears to be doubling down on such policies – just last month, LDK Solar, the world’s second-largest solar wafer maker, became a state-owned enterprise after a string of unsavory government actions failed to shore it up.

So what can be done to further combat and discourage Chinese green mercantilism? One ITIF report, Enough is Enough: Confronting Chinese Innovation Mercantilism,lays out five aggressive options, ranging from the already ongoing-retaliatory trade action to building counterbalancing global free-trade coalitions. But the best remedy for less green mercantilism may be more innovation, which is why another ITIF report, Green Mercantilism: Threat to the Clean Economy,proposes a more “carrot-like” option: allowing nations to meet global greenhouse gas reduction obligations by committing to clean energy RD&D investment targets, thus providing an incentive for innovation-focused policies.

China may end up ceasing its mercantilist policies on its own accord; after all, green mercantilism is simply not a long-term sustainable clean energy strategy. But only robust global clean energy innovation can ensure industry growth and the development of much-needed breakthrough technologies – and China hampers that effort every day that it continues unabated on its current path.