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Leo Hindery, Jr.

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China's Latest Target in Its Trade War Against American Manufacturing: The U.S. Solar Industry

Posted: 03/ 6/2012 8:30 am

On March 27 in D.C., I will be part of a panel at the Second Annual Conference on the Renaissance of American Manufacturing, along with Leo Gerard (International President of the United Steelworkers) and Mike Mandel (Chief Economic Strategist of the Progressive Policy Institute).

Building off of Mike's ongoing superb economic analysis to prove the imperative of a robust manufacturing sector, I will try to make the further case, as Rick Sloan (Communications Director of the International Association of Machinists and Aerospace Workers) and I tried to do in a piece last month, that U.S. government policies across the board -- trade, taxes, investments, R&D, exports, infrastructure and procurement -- need to be integrated into a manufacturing policy to rival those of our trade competitors.

A robust manufacturing sector -- with no less than 20 percent of the nation's workers engaged in it -- is critical to the American economy. Indisputably, manufacturing has the largest multiplier of all sectors of the economy (every dollar in final sales in manufacturing products supports about $1.40 in other sectors of the economy); manufacturing employees earn higher wages and receive more generous benefits than other working Americans (on average, they earn 23 percent more than workers in other parts of the economy); American manufacturers are responsible for the majority of all business-related R&D in the U.S.; and an increase in the production of manufactured exports and import-replacing goods in the United States is the only thing that will significantly bring down our trade deficit and reduce our international debt burden.

Before the March 27 Conference, however, the Obama administration will have an ideal opportunity to support America's manufacturing base when the Commerce Department considers two cases involving massive illegal subsidies and illegal dumping practices by China's state-directed solar manufacturing industry. These specific cases are part of the larger pattern of unfair trade practices by the Chinese that have taken a significant toll on American manufacturers and workers since China joined the WTO.

The extensive subsidies that China lavishes on its state-owned enterprises (or SOEs), from currency manipulation to low- and even no-cost loans, from free power and water to forced technology transfers and hoarding of rare earth minerals, have caused at least 18 million U.S. jobs, both direct and indirect, to be off-shored to China in the last decade. With these massive subsidies, Chinese manufacturers -- including the Chinese subsidiaries of and joint ventures with U.S. manufacturers -- can deliver products to market more cheaply than U.S.-based manufacturers operating without such subsidies.

These unfair subsidies and practices have impacted numerous U.S. industries, but none more so than America's solar manufacturing sector. According to the U.S. Department of Energy, the Chinese government has handed Chinese solar manufacturers more than $30 billion in subsidies in just the past few years. Not surprisingly, this largess has tipped the competitive balance in favor of the Chinese manufacturers. So far, 12 American solar manufacturers have either been forced to close or downsize, with significant job losses. The American companies are simply not competitive in the face of China's tilting of the playing field.

To be clear, I am not talking here about the much-publicized failure of the company Solyndra, which rather than making conventional solar panels made more expensive, but potentially more efficient cylindrical ones that became uncompetitive once silicon prices plummeted. Solyndra's collapse was as much due to a bad bet on long-term materials costs as it was to the unfair re-stacking of the economic odds by the Chinese.

That the goal of the Chinese is to dominate the global solar and renewable energy industry is clear. A report released in February by the Senate Finance Committee's Subcommittee on Trade titled "Losing the Environmental Goods Economy to China" provides ample evidence. According to the Subcommittee's report:

• The U.S. trade deficit in environmental goods with China reached an all-time high in 2011.
• Because of the surge in imports from China, the overall U.S. deficit in environmental goods increased an astonishing 87 percent in that time.
• U.S. imports of solar cells and modules from China went up 135 percent in 2011. Imports of solar cells alone from China shot up more than 300 percent.
• European Union and Japanese exporters of environmental goods are also unfairly losing market share to China.


As bad as the Chinese employing unfair trade practices to gain an upper hand over American solar manufacturers is the fact that the Chinese are using U.S. know-how as the backbone of their current solar manufacturing industry. This technology was blatantly pilfered from U.S. companies in the same way that the Chinese have made the theft of other American intellectual property the mainstay of their internal manufacturing policy.

As I've written previously, when it comes to finding solutions to the daily theft of America's invaluable IP, a single anecdote brings this imperative home. Microsoft, one of the real gems of American ingenuity and also one of the most patriotic major companies headquartered in the U.S., recently sold to a large commercial customer in China one (1) unit of its advanced business software, for several hundred dollars. However, when it sent out an upgrade to the software, the upgrade was downloaded 30 million (30,000,000!!) times. This egregious theft of Microsoft's IP is why Microsoft's profits from sales in China, with its 1.3 billion population, are no greater than its profits from sales in The Netherlands, with its population of only 16.7 million.

As a result, the United States went from having a small trade surplus with China in solar equipment in 2010 (primarily thanks to sales of manufacturing equipment and polysilicon, the base ingredient in solar cells and modules) to a huge deficit today. Imports of Chinese solar cells and panels rose from $1.2 billion in 2010 to $2.8 billion in 2011, a jump of $1.6 billion -- nearly 135 percent. U.S. exports of solar manufacturing equipment and polysilicon to China -- the same products that were keys to the 2010 surplus -- declined by $170 million and $194 million, respectively, in 2011, according a report by the Coalition for American Solar Manufacturing.

This issue isn't mere hyperbole.

China every day grabs global market share in everything technology-based. For example, in late February, according to Bloomberg, the Chinese Ministry of Industry and Technology announced targets for increasing production capacity at key polysilicon and solar cell makers, part of the Chinese government's plan to ensure its companies survive the current global industry slump. A Ministry official quoted in the story said that the government wanted to ensure enough domestic capacity to meet the export goals in China's latest five-year-plan.

Moreover, in addition to supporting the export capabilities of their domestic manufacturers, the Chinese government has announced specific plans to squeeze out U.S. polysilicon manufacturers in the interim. In the ultimate irony, the Chinese government, as an obvious stalling tactic, has started its own "dumping investigation" of the now much-beleaguered U.S. industry.

Ending China's unfair trade practices -- especially at the moment those targeting the solar energy industry in particular and the renewable energy industry in general -- should be an opportunity for all who are adversely impacted by China's behavior to come together: suppliers, manufacturers and installers of all types. On this point, one would think that curtailing China's unfair trade practices and strengthening our nation's solar manufacturing base would enjoy unanimous support from the entirety of the business community and Congress. Surprisingly, however, there are some companies and trade associations which either remain on the sidelines or directly oppose the trade case brought by U.S. solar manufacturers against China, worrying, perhaps, about how these trade cases might affect their own bottom lines.

However, given China's clear goal of dominating all global industries, no American company is immune from unfair trade practices, which is a lesson better learned sooner than later.

As I've written before, whether on a schoolyard or on a continent, "treading softly and using diplomacy" in dealing with a bully seldom promises a happy outcome. It's past time for America to stop being a spectator to global trade abuses, with our hands bound by either our diplomatic sensitivities or corporate short-sightedness in valuing short-term profits over the long-term viability of our national economy.

Leo Hindery Jr. is chair of the US Economy/Smart Globalization Initiative at the New America Foundation, co-chair (with USW President Leo Gerard) of The Task Force on Jobs Creation, founder of Jobs First 2012, and a member of the Council on Foreign Relations. He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. and Liberty Media, and is currently an investor in media companies.

 

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