China's Ministry of Commerce today announced that it will begin a year long investigation into U.S. and South Korean polysilicon imports, with the possibility of extending the probe into early 2014. This development has worried many members of the solar industry who believe that further trade barriers would hurt their businesses. China's decision was made following complaints from domestic producers GCL Poly-Energy Holdings, LDK Solar, and Daqo New Energy that U.S. and South Korean companies were dumping polysilicon, or selling it below cost. Polysilicon prices have dropped 56% in the past year according to Bloomberg New Energy Finance.
The announcement marks an escalation of the trade conflict between the United States and China. Earlier this year the U.S. Commerce Department imposed "preliminary tariffs of as much as 250% on imports of Chinese Solar cells", according to Bloomberg. The Chinese investigation serves as a rebuttal to these trade restrictions. Though not yet embroiled in a trade war it is clear that tensions are growing. Reuters explained the two countries' reactions saying that "Washington says China's attacks are largely tit-for-tat retaliations to valid U.S. complaints, while China suggests the White House is simply "China-bashing" in an election year". This conflict is not new. From a political perspective, both sides have been very vocal about their trade disagreements for years. In addition, as Reuters wrote, "Western solar companies have been at odds with their Chinese counterparts for years, alleging they receive lavish credit lines to offer modules at cheaper prices". Here Reuters is of course referring to U.S. subsidies on solar modules, including a "tax-exemption program" promoted by the federal government.
This does not bode well for solar manufacturers who are already dealing with significant oversupply of solar panels. As we have previously reported, many U.S. and European solar companies have recently gone bankrupt. If China decides to impose punitive tariffs Reuters reports that "they would most likely affect importers like the U.S. polysilicon maker Hemlock, the world's largest, and the largest South Korean producer, OCI Corp". If China retaliates to U.S. trade duties it would put the already struggling American and South Korean solar industries at a disadvantage. The Coalition for Affordable Solar Energy urged the countries "to prevent this destructive trade war" in the interest of creating jobs and maintaining a competitive solar industry.
However, U.S. Manufacturers are not the only ones hurting, the Chinese solar industry has suffered losses for more than a year. Analyst Felix Fok from JI Asia told Reuters "China is doing this because some of its companies are basically on their knees". China's solar companies, like the rest of the global industry, is struggling with oversupply, European subsidy uncertainty and dropping material and solar panel prices. While imposing tariffs on U.S. and South Korean imports may alleviate some of the pressure on domestic polysilicon manufacturers, the higher quality of foreign silicon means that China will still need to import a considerable amount of material. This is especially true if China aims to meet its ambition solar energy targets for 2015 and beyond.
Analysts do not seem to think that trade restrictions are a viable solution to the solar market's issues. Charles Yonts, from CLSA Ltd. in Hong Kong, told Bloomberg that China and Chinese module makers "have more to lose than domestic polysilicon producers have to gain". Meanwhile, Jigar Shah, president of The Coalition for Affordable Solar Energy told Reuters that "Lowering, not artificially raising, the cost of solar should be a global goal." The solar industry is caught in the middle of a trade conflict whose scope reaches far beyond panels and silicon. Escalating this conflict will not be beneficial to the solar industry, which is still very much in its early stages.