The massively punitive tariffs on solar cells, and by extension modules, that were put in place last week have caused mixed results for those in the solar industry. (For details of the ruling, click here.) SolarWorld and the six nameless, faceless companies that complained about China's subsidies and dumping of solar products in the U.S. are probably ecstatic. I have pointed out that SunPower, a stock I own, is probably one of the winners and there are likely others.
But when we take a step back, it's hard to see this tariff as a win for the solar industry as a whole in the U.S.
Trade wars hurt everyone
The latest development in this saga is a Chinese Commerce Ministry ruling that U.S. government support for six renewable energy projects violated WTO subsidy regulations. This is in retaliation for our investigation and tariffs. No word yet if China will impose tariffs or take any other punitive measures.
What is clear is that rhetoric is heating up on both sides as the U.S. and China fight for their place atop this emerging global industry. If it escalates further, there won't be any winners as U.S. solar installations will become more expensive and China will lose a great demand source for their products. It is time for cooler heads to prevail.
Last night the president and CEO of the Solar Energy Industries Association, a trade association that educates and advocates for the solar industry on behalf of 1,100 member companies, called for a truce when it released a statement that read in part:
The escalating trade conflict in the global solar industry will ultimately hurt the entire market at a time when solar energy is on the cusp of widespread adoption.
Today's ruling is yet another example of the need for dialogue. While trade remedy proceedings, such as those being pursued by both the U.S. and Chinese governments, are legitimate, essential principles of a rules-based global trading system, so too are collaboration and negotiation.
Now is the time for the U.S. and China to come together in a collaborative dialogue -- not through the lens of any one particular trade dispute but in a broader context. As stated previously, disputes within one segment of the industry affect the entire solar supply chain -- and these broad implications must be recognized. Today's decision by the Chinese government underscores this point. We, therefore, repeat our call for the U.S. and Chinese governments to immediately work together toward a mutually satisfactory resolution of the growing trade conflict within the solar industry.
Well said, in my Foolish opinion.
The U.S. is misguided
What is most disturbing to me, both as an investor and an American, is that when you look at the underlying businesses, solid U.S. companies are winning the battle against subsidized manufacturers both here and abroad (even if they do manufacture in Asia). First Solar (Nasdaq: FSLR ) and SunPower have higher margins than any of the major public solar manufacturers, and these companies are only getting stronger because they have differentiated products.
European companies are going bankrupt almost daily, Chinese manufacturers are forced to sell below cost (something that can't last forever), and at the end of the day U.S. companies are still able to compete.
There's also the solar supply chain to think about. Sure, U.S. manufacturers may be put at a disadvantage to Chinese subsidies, but module sales, inverter suppliers, solar contractors, utilities, and many others in the supply chain will be affected if and when costs go up. What may be good for a few companies isn't good for the solar industry as a whole.
Do we have two feet to stand on?
I'm not a lawyer (and won't pretend to play one on the Internet) but I don't understand how we can be mad about Chinese subsidies when we've funded Solyndra and given loan guarantees to solar installations. It isn't quite the same as the blank check LDK Solar (NYSE: LDK ) , Trina Solar (NYSE: TSL ) , Suntech Power (NYSE: STP ) , and others have gotten from China, but it isn't like we aren't trying to help our solar industry succeed.
If you're cheating and I'm cheating, is it fair to penalize you and not me? Shouldn't both of us be penalized?
It's bigger than SolarWorld
I can understand how SolarWorld would want to protect its business and don't even disagree that China hasn't helped build sustainable businesses by dumping money into companies that won't ever make money. But this may hurt the U.S. more than China.
GT Advanced Technologies (Nasdaq: GTAT ) is a major supplier of equipment and even raw materials to China and has a lot to lose if there is retaliation. We are also a major exporter of polysilicon, the raw material solar modules are built from. To top it off, China actually buys more solar products from us than we do from them. Subsidy or not, dumping or not, we're coming out ahead.
Call a truce now
What I'm hearing from the industry is that the current tariffs are not the best way to do business. Sure, China isn't competing on a level playing field, but this issue would be better solved through negotiation than by an escalating trade war.
President Obama, if you want the solar industry to succeed, this isn't the way to do it. You're making solar more costly for customers, putting exports at risk, and throwing up roadblocks for one of the few industries growing in the U.S. right now.
The industry has spoken and you're not helping.