On Friday, the US International Trade Commission said it had determined that there was a reasonable indication that US industry was being materially injured by imports of solar cells from Cambodia, Malaysia, Thailand and Vietnam that were being sold in the US at less than fair value and which were subsidised by the governments of those countries.
The commission launched an anti-dumping and anti-subsidy investigation into solar cell imports from those countries last month.
China produces more than 80 per cent of the world’s solar panels.Credit: Bloomberg
It said the preliminary investigations had provided substantial and detailed evidence that the four countries were engaged in illegal dumping (selling below cost) and subsidisation of solar cells and modules, harming US companies and workers and creating tremendous volatility and cost uncertainty in the US market.
“Because of the unfair trade practices of these largely Chinese-owned and headquartered companies, billions of dollars of unfairly priced solar products have crushed the US market, causing prices in the US to fall by more than 50 per cent in the last year,” it said.
The US Department of Commerce is conducting its own anti-dumping and countervailing duty investigation of the imports, with a preliminary determination on a countervailing duty – the duty that would offset the impact of any subsidies – due on July 18 and a preliminary determination on anti-dumping duties due by October 1.
It is almost inevitable that the administration will impose those duties and close the loophole that the mainly Chinese companies have been exploiting to get around the tariff wall. If their workaround is blocked, they’ll either have to shut down production or find other markets.
With the European Union conducting its own investigation of solar imports, China might also find that market, if not closed to it, more competitive and less profitable if European manufacturers are protected by duties on imported products.
The Middle East, Latin America and other developing economies would probably be targeted, albeit they aren’t markets as large and attractive as the US or Europe.
Thanks to the Inflation Reduction Act, a domestic solar industry is re-emerging in the US.
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The Biden administration claims that more than $US17 billion has been invested in the solar supply chain, with solar module manufacturing growing from 7 gigawatts of manufacturing capacity before the legislation to more than 125 gigawatts. Solar installations have doubled during Biden’s term, with a 50 per cent increase in installations last year relative to 2022.
Whether it’s Biden or Trump in office, the US will do whatever it can to protect the investment in domestic manufacturing that the combination of tariffs and subsidies is producing.
The backdoor entry to the US market exploited by the solar panel manufacturers in South-East Asia may, therefore, not be the only one closed.
Beyond South-East Asia, Chinese companies are known to be looking at Mexico and South American countries as potential manufacturing bases for products otherwise shut out of the US market by the tariff wall. Mexico has overtaken China as the biggest source of imports to the US since Trump’s tariff wall went up.
China’s electric vehicle makers, who haven’t been able to establish a foothold in the US market, have been particularly interested in Mexico because of its free trade agreement with the US and Canada. China’s biggest carmaker, BYD, has been searching for a location for a plant in Mexico from which it can access the US market.
Whether it’s Biden or Trump in office, the US will do whatever it can to protect the investment in domestic manufacturing that tariffs and subsidies are producing.
The US authorities have been trying to pressure the Mexican government not to offer any incentives to Chinese auto companies and Katherine Tai has said the administration is concerned about China’s relationship with Mexico and has foreshadowed action to head off any tariff evasion.
Should Donald Trump regain the presidency, of course, the tariff wall’s height and breadth will increase significantly and Mexico, and any other country being used by China as a way station for its exports, would be targeted with punitive measures.
Even without Trump, the bipartisan consensus on America’s response to China’s trade policies makes it almost certain that China’s indirect access to the US market for products deemed economically strategic will be closed to protect US manufacturers.
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Protectionism might be paid for by US companies and consumers and taxpayers in the form of lower profits, higher prices and expensive subsidies, and it might be increasing geopolitical tensions and distorting global trade flows.
Having gone down that path over the past six years, however, the US has little choice but to double down on its response to what would otherwise be a flood of cheap Chinese imports that would again decimate America’s domestic industries, regardless of whether they are subsidised or not.
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