On December 20, 2011, Jigar Shah, President of the Coalition for Affordable Solar Energy (CASE) and founder of SunEdison, publicly asked Gordon Brinser, President of SolarWorld Industries Americas, to withdraw the petition made to the U.S. International Trade Commission/Department of Commerce (ITC/DOC) against Chinese solar imports.
In response, Gordon Brinser characterizes Jigar Shah's letter as "inappropriate bluster," adding that "Shah and these Chinese manufacturers are well aware that their illegal trade practices are harming the U.S. economy and causing thousands of good manufacturing jobs to be lost. [...C]ountries that break U.S. and international trade law should be held accountable. [... We are] confident that the Commerce Department and the U.S. International Trade Commission will rule in our favor and, therefore, have no intention of withdrawing our petition."
Educating Jigar Shah
We contend that Jigar Shah's arguments center only on the solar industry's downstream installation growth and the catalytic role of lower solar cell and module prices in making that a reality. Beyond that, he concentrates his arguments only on the negative effects of imposition of tariffs on Chinese solar PV product imports.
By focusing only on the positive effect of lower prices and the negative effect of tariffs, we believe Jigar Shah is being willfully blind and completely ignorant of the devastation and bankruptcies that have transpired in the global solar PV industry (U.S., Germany, India, and other places) because of the asymmetric competition and unfair trade practices that China has engendered.
China's emergence as the pivotal hub of global solar PV manufacturing industry, while lowering the prices of solar cells and modules to the exclusion of everything else, has led to imbalances that nobody is happy about. It all centers on mispricing capital, tolerating capital inefficiency of excess capacity, and operating by ambiguous rules of engagement that are hammered home with plentiful capital, cheap labor and lower taxes. The lower prices of solar cells and modules from China have so far served as a battering ram in destroying overseas solar PV manufacturing competition. If the unfair and irrational practices that led to lower prices continue unhindered, how long will it be before the downstream solar PV value chain is also fully debilitated?
China's state banks have set aside more than $43 billion in long-term solar funding via framework agreements that can be tapped by Chinese solar companies for downstream installation as well. Where will Jigar Shah go, and who will he complain to then?
Jigar Shah needs a compass on economics and trade. Here are five basic principles that can serve as a common-sense guide:
• Competition does not mean asymmetric warfare.
• Free trade does not mean trade that is free of rules.
• Globalization does not mean industry/sovereign nation enervation.
• Structural imbalances always collapse because they destroy capital efficiency.
• Predatory/subverted capitalism does not lead to capital formation, risk mitigation or price discovery.
Asking the U.S. government to investigate unfair competitive/trade practices is not calling for interference; rather, it is seeking a remedy against an unsustainable industry paradigm. Imposition of duties/tariffs may well come across as a tax in the near term, but trade-related acrimony between countries is largely a result of structural imbalances accumulated over time that need to be redressed. "Trade wars" rhetoric is primarily a negotiating tactic, more akin to putting talking points on record to effect positive change. We believe a better solution would be to drive domestic demand both in China and the U.S.
Instead of a full-scale trade war, we have previously suggested the enabling role of a sensible U.S. energy policy, and the positive steps that China can take in creating large-scale domestic demand.
It's true that lower prices benefit all rate payers -- but if that is all there is to an economic argument, then the U.S. and the rest of the world should give up all manufacturing to China and services to India. The underlying point is that these issues are complex and need a more refined and nuanced response from all parties concerned.
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Hari Chandra Polavarapu is the Managing Director of Solar/Cleantech Research at AURIGA USA LLC.