A Crisis or an Opportunity? The Trade War between the US and China in the Solar PV Sector

Abstract

Since early 2018, the US – China ‘trade war’ has increased tariffs on a wide range of Chinese products, including solar panels. The tension between the US and China in solar sector, if left unchecked, will not only harm the bilateral relationship between the two trade powers but also impede climate change mitigation as higher costs will slow down the deployment of solar products.

The article begins by tracing the rapid development of the solar energy sector in China, before reviewing US trade measures to counteract the increased imports and protect its domestic industry.

The article then proceeds to examine the World Trade Organization (WTO) rules, finding that China is likely to prevail in the dispute on claims made under the General Agreement on Tariffs and Trade and the Agreement on Safeguards. However, while WTO litigation may be a necessary step it is not sufficient. China must also take the opportunity to solve deeply-rooted problems in its solar industry, namely solar overcapacity and heavy reliance on export markets in a limited number of countries that render Chinese solar manufacturing susceptible to trade restrictions imposed by other countries. Addressing these issues will not only remove a major irritant to the US and other trading partners but would also solidify the position of the industry within the country.

The article recommends two options for China: first, explore domestic market potential for solar energy so as to absorb manufacturing capacity. The key here lies in progressively scaling up domestic solar consumption, which is essential in promoting China’s solar development in a healthy and sustainable manner. Second, strengthen ties with countries along the Belt and Road Initiative (BRI) in solar trade and investment. Exporting Chinese solar technologies and building solar power infrastructure in BRI countries not only alleviates China’s over-dependence on a limited number of advanced economies’ markets but also contributes to ‘greening’ the BRI and global climate change mitigation.

Keywords: US–China Trade War, Protectionism, Solar, World Trade Organization, Safeguards, Belt and Road, Climate Change