Critique of China solar anti-dumping tariff: Part II

11. June 2014 By:  Brad Meikle

In 2012, a U.S. International Trade Commission (ITC) anti-dumping trade case was brought against the Chinese solar photovoltaic manufacturing industry, which has since increased the price of solar modules by 10%.

Brad Meikle

Brad Meikle

A modification to the case ruled on June 2 will potentially raise the price of solar modules by 20-40%. A fledgling, nearly bankrupt foreign company, Solarworld AG, that employs no more than 650 people in the United States, after another wave of recent layoffs, initiated the case. Since 2012 all Tier 1 Chinese solar suppliers have turned profitable and Wall Street analysts expect further growth in margins and free cash flow. How can there be an anti-dumping case against a highly profitable industry?

This case is taking advantage of an archaic legal loophole and must be expunged based on its lack of merit. The June 2 decision may result in severely negative consequences to the solar finance, distribution and installation industry, which today employs 150,000 Americans, is on track to employ more than 350,000 by 2016 and more than 1 million by 2020. The U.S. will never be a manufacturing center for solar modules but the finance, distribution and installation industry is one of the most promising industries that will put honest Americans to work and feed families currently on unemployment.

The incumbent Oil, Gas & Utility industry spends hundreds of millions per year advertising their objectives of attaining a cleaner, cheaper energy infrastructure – now is their opportunity to act. This is a call on our political leadership, the carbon industry, renewable energy industry associations, and the ITC to come to action to prevent the passage of a policy that will increase energy costs and kill thousands of hard working American jobs.

Summary of the arguments being made in the case:

  • Chinese solar manufacturers are dumping product into the U.S. market at below cost.
  • The dumping activity is negatively impacting U.S. jobs.
  • Chinese solar manufacturers get access to below market rate financing, pay below market taxes and are unfairly subsidized.

Chinese solar manufacturers are dumping product into the U.S. market at below cost.

In 2012, the entire solar industry was unprofitable due to a 70% drop in module prices over the prior year. This is a cyclical correction similar to those exhibited by the semiconductor market, which enabled broad market adoption. Since the downturn began, Chinese manufacturers have reduced costs by more than 50% resulting in gross margins changing from negative 20% to positive 15-25% in recent quarters.

The dumping activity is negatively impacting U.S. jobs.

The growth of solar jobs in the U.S. is in Manufacturing, Distribution and Finance. Low cost centers will always be the manufacturing centers for solar panels, just as they are for mobile phones, computers, network equipment and appliances. There are 143,000 jobs in the U.S. in distribution, finance and installation as of December 2013, on pace to grow to more than 350,000 by the end of 2016. Solarcity, Sunrun, Clean Power Finance, Sungevity, Vivint Solar, Verango Solar are some of the industry leaders in this space. The estimate of 143,000 does not include the thousands of jobs that will be created at Goldman Sachs, Morgan Stanley, Wells Fargo and the other financing institutions that syndicate the finance of installations.

There are three companies now producing solar cells in the U.S., following bankruptcies by previously publicly traded Evergreen Solar and Uni-Solar. Suniva, Solarworld and Stion are all losing money still, despite a 30% rebound in market pricing for solar panels. These companies are currently planning a transition to manufacturing overseas in low cost centers. In total these companies employ less than 1,000 employees and have recently had layoffs.
The market for installing solar in the U.S. is nearly doubling per year, but is now faced with an anti-dumping tariff that has already increased the cost of solar by 10%. The fundamental merits of the case are entirely fallacious which should lead to it being immediately abolished.

Chinese solar manufacturers get access to below market rate financing.

The interest rate on most of the debt for Chinese manufacturers is actually quite high, on average 400-600bp higher than that of their South Korean manufacturers. Since the Asian markets crisis, as well as before, the South Korean central bank has supplied 1-2% interest rate debt to its main manufacturers. If cheap debt is a cause for an anti-dumping tariff then it should be applied to all Samsung & LG mobiles phones, televisions, household appliances, as well as their semiconductors. Samsung semiconductors represent 1/3 of the memory IC market and such a tariff would be highly damaging to global business trends.

Tax subsidies and infrastructure are a core part of incentives utilized in all emerging as well as mature markets. Industrial parks enable lower costs because the suppliers are located adjacent to manufacturers. If the US is going to pursue such an arcane policy against the Chinese for solar manufacturing they should also put an import tariff on every Chinese made iPhone, desktop, and notebook since they are nearly all made in China.

It is imperative that the ruling members of the ITC represent the interest of the overwhelming majority of the solar industry and the U.S. citizens, rather than the interests of a small minority representing less than 1% of the solar industry. This minority group is led by a CEO of a dying company who is not a U.S. citizen, and leading the case based on antiquated legal jargon that is phased for expiration in 2016. The bottom line is the anti-dumping tariff runs deeply contrary to the interests of the US and should be repealed immediately.

As anti-dumping case movements spread to India, Australia and other regions, it seems to obviously be an initiative to forestall the adoption of solar by incumbent utilities and incumbent oil/gas/nuclear generators.

This case needs to be reviewed carefully by the Executive Office of the U.S. Government, as it is a critical point in time for both U.S. job growth and the environment.

Edited by Edgar Meza

Brad Meikle is chief information officer of Meikle Capital Management. Based in the San Francisco Bay Area, Meikle Capital Management invests in solar, renewable energy, electric vehicle, semiconductor and emerging technology companies.

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