A Trade War With China Will Be A Tough Ballgame

Chinese solar manufacturer JinkoSolar expects sales to increase 30%, despite Trump’s tariff.

When he started a trade war, Donald Trump challenged China to a tough game of hardball. It may turn out to be the World Series of Energy. The Chinese seem unafraid. Perhaps we should be.

According to an article in Nikkei Asian Review, US tariffs on solar products from China will have very little negative effect in the Asian country. In fact, they are expected to backfire.

JinkoSolar Holding, Inc., which is the world’s largest solar PV manufacturer, had been selling about 20% of its production in the US, but seems rather unconcerned about the idea of losing that market. The company has announced that it will simply sell the panels in other parts of the world. Its projections for 2018, even considering the tariff, are that its output would grow by 30%.

One of the problems with the tariff is that the US administration failed to take into account the speed at which the market is growing. Losing 20% of a current market is not going to hurt Chinese solar manufacturers when they are growing as fast as they are. Considering the speed of growth, loss of the American market seems almost hypothetical.

There is another side of this story, however. The reason Chinese PV makers were targeted by the Trump administration was not because the Chinese were unfairly subsidizing their own products or dumping overstock. While that may have been an issue in the past, it was dealt with in the past, and that chapter is over.

The Trump administration set out to protect US solar manufacturers, without any allegation of foul play in the market. It appears that it was protecting American industry because it was uncompetitive. You can decide for yourself whether Trump was protecting US solar manufacturers or, as I believe, US fossil fuels producers.

Because the “protections” are not based on unfair practice by China, they may constitute unfair practice of their own. But they will have no negative effects for the Chinese solar industry outside the US. In fact, the effects could turn out to be positive.

The American market has taken about 20% of the world’s total production. That means American producers are protected in 20% of the world market and Chinese makers retain their competitive edge in the rest of the world. Because the American tariffs on solar PVs allow the manufacturers in this country to remain uncompetitive here, they de-incentivize them from being competitive in the world market.

Much of the Chinese government supports to economies of the rest of the world, which will reportedly inject $1.2 trillion into less-developed countries over the next few years, might be spent by those countries to buy Chinese solar panels. (See CT’s “Don’t Bet On A Decline In Chinese Solar PV Production.”) While this may be an indirect form of support for the Chinese PV makers, it is not illegal.

Renewable energy and dealing with climate change, have long been called the biggest business opportunities ever. Just as an example, a 2013 EcoWatch article was “Renewable Energy Revolution: The Biggest Business Opportunity on the Planet.” That article, however, probably did not turn many investors’ heads.

Now, we are beginning to see capitalists take note, and for a clear reason. The CleanTechnica article, “Saudi Arabia & Softbank Will Partner To Build World’s Largest Solar Power Plant,” speaks to a single investment, in a single solar project. It will have $200 billion go for 200 GW of solar power with battery backup. We might wonder how much of that will go to Chinese manufacturers.

But the really interesting thing about that investment is that it is a tiny fraction of what is going to be spent on renewable energy worldwide as we address climate change. Clearly, this really is the biggest investment opportunity in history. And just as clearly, the Trump administration’s interest remains elsewhere, acting in the short-term interests of a very few people.

Donald Trump, and those who support him, have good reason to be afraid of China in this tough game of hardball. China is in the ball park, ready to play. But the President of the United States, who issued the challenge, is in a sandbox holding a small bag of marbles.