Energy: A Clean Tech Trade War Begins to Heat Up With China

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Renewable energy may be clean, but the international politics behind it are getting dirtier by the day. A little more than a month after the United Steelworkers (USW) filed a compliant with U.S. trade officials over what the union saw as China’s unfair subsidies for its clean-technology sector, the Obama Administration announced that it would go forward with an investigation of Beijing’s policies, raising the temperature of what could become a clean tech trade war. Here’s the statement from Ron Kirk, the U.S. Trade Representative:

The USW has raised issues covering a wide array of Chinese government policies affecting trade and investment in green technologies. This is a vitally important sector for the United States. Green technology will be an engine for the jobs of the future, and this Administration is committed to ensuring a level playing field for American workers, businesses and green technology entrepreneurs.
We take the USW’s claims very seriously, and we are vigorously investigating them. In light of the large number of allegations and the extensive documentation accompanying them, I have asked my staff to utilize the 90-day period allowed by statute to thoroughly examine and verify the USW’s claims. For those allegations that are supported by sufficient evidence and that can effectively be addressed through WTO dispute settlement, we will vigorously pursue the enforcement of our rights through WTO litigation.

What’s China allegedly doing wrong? The USW has asserted that China violated its obligations under the World Trade Organization by subsidizing domestic manufacturers of wind and solar products, batteries and energy-efficiency vehicles, to the tune of hundreds of billions of dollars. That support has helped Chinese companies come to dominate the nascent clean tech market, increasingly leaving U.S. startups—which haven’t had anywhere near the same degree of government support—in the dust. As the clean energy market continues to grow—by one estimate it will be worth some $2.3 trillion by 2020—there are legitimate worries that if China gains a controlling foothold, the U.S. might never be able to catch up, and American companies and workers will miss out on the next great industry. There are also complaints that China, which already dominates the mining and production of the rare earth minerals used in many next generation clean technologies, has been willing to use that control as a club in political battles with other countries. (China halted the export of virtually all rare earth minerals to Japan as of Sept. 21—most likely in response to a diplomatic dispute over contested islands in the East China Sea.)

Today’s announcement doesn’t mean that the U.S. will immediately bring a case against China to the WTO—as Kirk said, the White House will investigate within 90 days, and then decide whether to move forward. (There’s been no response yet from Beijing, where the announcement came after business hours on Friday.) Nor is the investigation just about clean energy. The deeper division is over China’s currency policy—critics, including the USW and economists like Paul Krugman, say that Beijing keeps its currency artificially low, which helps its own exporters by keeping the price of their products lower at the expense of manufacturers in the U.S. (Beijing denies this.) The House of Representatives voted last month to threaten China with a range of export tariffs over its currency policies, and Democratic Sen. Charles Schumer—a leading Senate critic of Beijing’s trade policies—wants the White House to do more:

The Obama administration is treating the symptom, but not the disease. An investigation into China’s illegal subsidies for its clean energy industry is overdue, but it’s no substitute for dealing with China’s currency manipulation. Democrats and Republicans alike in Congress are prepared to move legislation confronting China’s currency manipulation this year. We hope to have the administration’s support, but will go forward without it if necessary.

It’s not clear how much further the White House is willing to go. Treasury Secretary Timothy Geithner has been sharper in his criticism of China’s currency and trade policies recently, and the new winning strategy on the midterm campaign rounds is to bash China for just about everything. (And don’t think Beijing isn’t paying attention.) If Obama Administration were to bring a formal complaint to the WTO, it would be a record-breaker—and it wouldn’t be resolved any time soon. The impact would be felt far and wide, financially and geopolitically, given the range of issues that the U.S. and China need to cooperate on these days.

Far better minds than mine can tell you what would happen in the case of a real currency war—I suggest you start with my TIME colleague Michael Schuman’s post today on Curious Capitalist. But it’s also worth understanding what a clean tech trade war could mean for…clean tech. As this report from Pacific Crest Securities shows (download a PDF here), if the U.S. moves ahead with a trade complaint against China, it would could have a major negative effect on both Chinese and U.S. wind, solar and biofuel companies. While this could be good news in the short-term for the U.S. clean tech companies that are coming under pressure from their subsidized Chinese competitors, it’s difficult to see an out-and-out war working in anyone’s favor, especially if it poisons U.S./Chinese cooperation on climate change and other environmental issues, right before the UN global warming summit in Cancun. (See my recent post on the issue here.)

That said, unchecked Chinese subsidies for clean energy can cause problems of their own, as Michael Levi of the Council on Foreign Relations wrote last month:

What matters is whether the source of Chinese competitive advantage is genuine comparative advantage of the sort I just described, or whether it’s the result of unfair industrial policy. China can move into new parts of the solar value chain because it’s genuinely better suited to being there. In that case, the United States should applaud. Or it can move into new parts of the value chain because of illegal government supports of the sort that the United Steelworkers are accusing the Chinese government of using. That’s a much more problematic situation. It’s also the one we often find ourselves in these days.

Indeed. From the perspective of the climate, anything that can bring down the price of renewable energy is a good thing—whether we’re buying our solar panels from San Francisco or Shanghai. But unbalanced trade will carry its own threats—and won’t help build support for action on clean energy here in the U.S. So here’s an idea: the Obama Administration should bring its case to the WTO if it really feels one warranted (and not if the White House is only doping so to raise its profile with Democratic-leaning unions before November). But if Congress is going to complain about China, it needs to do far more to help clean energy right here at home. That seems like a fair trade.