Not too big.  Not too small.  It was just right!

That seems to be the key takeaway from the decision by the US Government to impose import duties on China solar panels ranging from 2.9 percent to 4.73 percent to match the level of government subsidies received by the Chinese manufacturers.  The US International Trade Commission issued a preliminary ruling in December that the US PV manufacturing industry had been harmed by Chinese subsidy practices, but the decision issued March 20th quantified the penalties to be paid for such harm.  Since all sides appear to be claiming victory in the dispute the result may be less than meets the eye.

The official Xinhua news agency called the US duties lighter than expected.  Press reports said China was prepared for duties of up to 10 percent but it still warned the US against protectionism. Perhaps, in relief, share prices of China’s panel makers traded higher March 20th on the news of the relatively modest tariffs to be imposed.  Yingli Green Energy Holding Co. rose 50 cents, or 13.1 percent, to $4.31 in afternoon trading. Suntech Power Holdings Co. rose 45 cents, or 14.4 percent, to $3.58, Trina Solar Limited, gained 72 cents, or 9.3 percent, at $8.49. JA Solar Holdings, Co. rose 8 cents, or 4.1

This is a ‘preliminary’ decision meaning the US Department of Commerce is putting it out there to test the water before it makes a final decision.  In addition, there is a separate complaint over dumping solar panels on the US market still to be decided that might result in higher tariffs.

“Today’s decision by the Commerce Department is a signal that China’s unfair trade practices in the solar energy industry may soon be remedied, giving American producers a more level playing field on which to compete. As the administration continues its investigation into exposing China’s subsidies, and especially into the question of dumping, I anticipate that the tariff margins will significantly swell.” —Sen. Ron Wyden, D-Oregon

China’s official reaction to news of the tariff increases was also restrained according to a statement by a Chinese foreign ministry spokesman:

“It is normal for the two sides to have friction and differences of views. We should not allow such friction to impair the sound development of Sino-US economic relations.”

In 2011 China’s imports of solar panels and related equipment to the US totaled $3.1 billion. The US has complained that China has engaged in ‘questionable business practices’ by spending about $30 billion to subsidize its manufacturers for 2011 mostly for export since supply has grown well beyond China’s domestic demand to absorb it.  Those exports to US markets set up tensions as US manufacturers complained that they were being forced into a ‘catch a falling knife’ market environment for solar PV panels as prices fell leaving domestic US producers stuck with higher cost inventory.

There is a still pending separate complaint by a group of US producers alleging that China dumped PV panels on US markets.  A preliminary decision on that complaint is expected in May but final decisions on these complaints and the countervailing tariffs and anti-dumping tariffs may not happen until after the November 2012 US elections.

So what?

So all sides are conflicted about the issues at stake in these complaints.  China clearly sees the US as an important market for its solar panel exports and is using its pricing power to grow market share to fuel its exports and prop up its economic growth as China’s economy slows down.   The Obama Administration clearly wants to see renewable energy market share grow in the US and if that forces some US manufacturers to catch falling knives to achieve the policy objective so be it seems to be the view.  But this is still an election year and the Administration has labor union allies worried that green jobs are being suctioned up by China and the promise of membership growth is illusive.  So we dance around the issues with these preliminary rulings to test the reaction and allow time to let the parties adjust and reflect on how far they want to push this trade dispute.  The answer appears obvious by the modest tariff levels recommended—-not too big, not too small, but just right.

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