Tariffs on Chinese solar makers and the impact of subsidies

Today’s New York Times article on the finalization of anti-dumping tariffs against Chinese solar cell makers makes an interesting point about the impact of subsidies. Kieth Bradsher writes:

 

To the dismay and even the anger of Chinese regulators, hundreds of solar panel manufacturers in their country have followed a common pattern of using lavish loans from state-owned banks to buy and install as much foreign-made factory equipment as possible while setting aside very little for research and development.

“They made quite a lot of money but did not invest,” Li Junfeng, a longtime director general for energy and climate policy at the National Development and Reform Commission, China’s top economic planning agency, said in an interview last month in Beijing.

 

China has built out an enormous amount of solar capacity that I believe will allow it to lock up the solar market now so that it can dominate it once panel prices stabilize and organic demand catches up. But one overlooked issue is that the massive subsidization of Chinese solar makers provided a disincentive to innovate and produce a more efficient panel because Chinese companies weren’t really competing on technological grounds, they were in a race to produce as many panels as cheap as possible.

Tech breakthroughs are tricky in sectors like solar where fundamental physics and material science roadblocks are in place. But it sure would have been nice if more of the $18 billion that Chinese solar makers got in government loans had gone into producing a more efficient solar panel.

Today in Cleantech

The reactions to the Commerce Department’s slapping of a 31 percent import tariff on major Chinese solar panel manufacturers ranged from Li Junfeung, a Chinese regulator, who called the decision “dangerous” and promised that Chinese companies would retaliate by calling for tariffs on polysilicon which comes from the U.S., to my colleague Ucilia Wang who argues that tariffs will have minimal impact on the ultimate solar market in the U.S., with the tariffs’ additional costs absorbed by the supply chain. The truth is somewhere in between with solar panel pricing rising pretty modestly in cost. The reality is that the solar cell and even cheap Chinese labor, are actually not that large a part of the input costs that go into producing a solar panel. What has given China such an advantage isn’t cheap labor, but massive credit and factories that can produce at scale. On the other side, China could take small retaliatory actions but it’s also not in their interest to spark a solar trade war. The U.S. market is a major solar market for Chinese makers and with consolidation and tough times ahead for the Chinese solar industry, it won’t want to increase raw material (polysilicon) costs either.

Today in Cleantech

Well, the preliminary verdict is in from the Commerce Department in the trade case against Chinese solar manufacturers and they’ll face a very small tariff, ranging from 2.9 to 4.73 percent. It would seem that in an election year, the Obama administration would rather not face an all out trade war with China, though we may still see higher tariffs against China if the Commerce Department finds that Chinese companies are dumping panels sold below manufacturing cost on the U.S. market (today’s ruling centered around the claim that China was providing export subsidies to Chinese companies). Today’s winners are domestic solar installers, who had feared having to pay much higher prices for solar panels. A government commentary from China’s Xinhua News Agency described the ruling as having “some degree of rationality,” which sounds like diplospeak for, “a tiny tariff is just fine so that trade can continue fairly unchanged and the Commerce Department can look like it did something.”