Trade war salvos

It appears that we just witnessed the follow-up salvos in what might turn out to be a full-scale trade war between China and the West. Unfortunately, the product at the centre of the fracas is the solar panel, which has the potential to assist in the most crucial global challenge of the century – global warming and climate change.
Last October, following up on preliminary penalties set earlier in the year, the U.S. Commerce Department set anti-dumping duties ranging from 18.32 per cent to 249.96 per cent on solar energy cells imported from China.
“Dumping” is the term applied to products exported below their production cost and is prohibited by World Trade Organisation (WTO) rules. Maybe the move was prompted by the then looming presidential election in which Barack Obama was criticised by his Republican rival for being “soft” on China. But the tariffs are still in place and are sure to come up when the Chinese President Xi Jinping meets President Obama this Friday.
One of the companies that had filed the anti-dumping charge was German and was also part of a parallel case filed with the European Union (EU) Trade Commission. This Tuesday, the commission imposed preliminary tariffs of 11.8 per cent on solar panels produced in China, with the promise of final tariffs of 47 per cent to be applied in two months, unless remedial action is taken.
Over € 20 billion of business is involved. Without mentioning the action on its solar panels, within hours, China announced an anti-dumping and anti-subsidy investigation of wines imported from the EU. The investigation could lead to the imposition of steep tariffs by China on these wines.
With its growing millions of wealthy citizens, the demand for European wine has grown exponentially in China and to meet the demand, large investments have been made, especially in the French wine industry. The charge of dumping is one that has been raised very frequently in Europe and the U.S. by local manufacturers against the cheap Chinese imports flooding their markets. At the same time there are powerful forces, including the leaders of Germany and 16 other members of the EU, that have warned against taking precipitate action. The EU Trade Commission, however, felt otherwise.
Ironically, it was hoped that Obama might have now removed the U.S. tariffs on the Chinese solar panels and play a role in averting the very actions that the EU and China have now taken. China and the U.S. have been sparring on their responsibilities to reduce global warming and solar panels, which are totally “green”, have been playing a major role in reducing greenhouse gases.
The problem was that solar energy had traditionally been more expensive to use than carbon-intensive coal or oil. But in recent years solar power has become much cheaper through a host of factors, including Chinese competition. Energy experts predict that its cost could match that of conventional fuels in the next few years in some areas.
Solar cell prices have been falling, from US$76 per watt in 1977 to about US$ 10 in 1987 and only 74 U.S. cents in 2013. Between 2006 and 2011, Chinese cell prices dropped 80 per cent from US$ 4.50 per watt to 90 U.S. cents per watt. The use of solar energy shot up as the cost went down. Global installed capacity jumped by 28.4GW in 2012 to 89.5GW. The 100GW milestone will be crossed sometime this year.
The truth of the matter is that China subsidises and promotes its solar industry. But the U.S. and Europe also provide massive subsidies and supports – including loan guarantees, research grants and tax deductions such as investment tax credits and accelerated value depreciation. We do not have to mention the subsidies that the U. S. and EU have in their agriculture sectors.
We hope that the issue will be resolved between Presidents Obama and Xi Jinping. It is the grass that suffers when the elephants even make love.