Snap Fact #210 - President Obama Moves to Level the Playing Field with China!

Post date: Jun 03, 2012 7:46:16 PM

Snap Fact #210

President Obama Moves to Level the Playing Field with China!

One of the persistent myths about President Obama is that he mollycoddles China. The President takes diplomacy as far as it can reasonably go and then he makes extra-diplomatic decisions to achieve America’s goals.

Diplomacy regarding China’s illegal subsidies of their solar component industry has not worked to date so the time has come for the President to switch to an activist strategy, and so he has as the headlines screamed on the last day of May.

Here is the current headline Published May 30, 2012, Associated Press:

US again imposes clean-energy tariffs on China 

President Obama began a process of hitting the Chinese with financial penalties for their one-sided trade dealings. For years now the Chinese government has been subsidizing certain industries competing for sales in the American market.

The process began in October of 2011 when a few American companies appealed to the U.S. Department of Commerce as well as the International Trade Commission. They claimed that the Chinese government was pouring billions of dollars into their solar supply companies to allow them to “dump” solar component product on the American market at untouchable price points.

The first bull out of the chute was a March decision by the Commerce Department to declare that China was illegally supporting certain solar suppliers. In response they slapped small tariffs on those companies. On May 17, 2012 the President called for more substantial tariffs on Chinese-made solar panels and cells.

Presently the U.S. Department of Commerce is seeking tariffs on Chinese solar products that range from 31% up to 250% for clean energy components, everything to huge 150’ steel towers to solar cells.

On May 30 Fox News and others reported an Associated Press story saying that “The Obama administration moved Wednesday to impose stiff new tariffs on wind-energy towers made in China, the latest strike in an escalating trade war over clean energy.” 

The Department of Commerce had determined, after due investigation, that the Chinese government has been subsidizing certain products being used in U.S. wind farms. These products are large steel towers that are being given a 14% - 26% advantage over their American competitors. The Department has recently ruled against two significant solar industry products in two weeks time.

The move unsurprisingly has drawn harsh criticism from China, but since the subsidies are illegal under international law the Chinese have little firm ground to stand on. However, they have steadfastly continued to pour government funds into these companies to allow them to come into the market at unmatchable levels. 

The situation is further complicated by several U.S. companies who oppose the high tariffs. They argue that the tariffs will increase the costs of solar energy products and thereby inhibit the growth of the solar energy industry. These companies claim that the bulk of the jobs in the industry come from non-manufacturing services such as sales and maintenance. 

As with so many issues facing the economy today, there are two sides to the story and every action causes a reaction. So even within the industry we have the manufacturing sector at odds with the support sector and both have legitimate arguments. 

The other complexity is the effect of these moves on delicate U.S./Chinese trade relations in the future. Could these first shots fired lead to a full scale trade war or will they lead to a more trusting mutually beneficial relationship between the two economic giants? 

In the end, the President has thrown down the gauntlet to the Chinese. They have until November to reform their ways or face effective tariffs that will level the playing field for their American competitors. President Barack Obama has said that China has "questionable competitive practices" on clean energy and that his administration has fought dumping activities and will continue to do so. “The administration will act to enforce trade laws where appropriate”, Obama said.

The Commerce Department is expected to make its final decision this fall and will begin collecting the tariffs if they and the International Trade Commission determines by November that the under-priced panels are injuring the solar industry.

How will the chess master play this difficult game now that the pieces are starting to move on the board? - Stay tuned.