Commentary | Trade and Globalization

China needs to play by the rules in green technology trade

In recent years, China has emerged as a leading manufacturer of green technology, but concerns are mounting that it is using illegal trade practices to gain an unfair advantage over other countries.

The United Steelworkers (USW) filed a section 301 petition with the U.S. Trade Representative (USTR) on Thursday, September 9, which accuses China of illegally stimulating and protecting its producers of green technology exports, ranging from wind and solar energy products to advanced batteries and energy-efficient vehicles. Illegally subsidized and supported Chinese renewable energy products have weakened the stimulus effect of Recovery Act spending, and they threaten the future of America’s renewable energy sector.

The USW petition claims that many of the practices China uses to support production and exports of its green technology industries are illegal under international trade agreements or the terms of China’s WTO entry. China has already used massive subsidies and other illegal practices (such as forced technology transfer and restrictions on access to critical materials) to stimulate development of its green technology industries.  A recent New York Times report provides examples of such subsidies. It also estimates that China will “produce more than one half of the world’s solar panels this year,” with 95% of those panels exported to the United States and other countries, and that China is also “on track to make nearly half of the world’s wind turbines this year.” 

U.S. production of clean energy equipment has been in decline. Several U.S. manufacturers of solar panels have shut or are planning to shut domestic operations, while setting up production in China. U.S. wind technology manufacturing declined 33% in 2009. Eighty-four percent of U.S. government clean technology stimulus money went to foreign producers of wind turbines ($850 million), supporting 4,600 jobs overseas.

The U.S. economy exhibited widespread evidence of demand leakage to imports in GDP during the second quarter of 2010. The most recent estimates show that the rise of imports (which are subtracted from GDP) shaved 4.5 percentage points off of growth in the second quarter, and net imports (exports minus imports) subtracted 3.4 percentage points from GDP. So although gross private investment contributed 2.8% to GDP, and consumption and government spending remained positive, overall growth was a tepid 1.6% in the period. While government stimulus was still pouring demand into the economy in the second quarter, demand was leaking out even faster through rapidly growing imports of renewable energy equipment and all other types of goods and services. 

China has used widespread subsidies and other trade distorting practices to gain global dominance in a range of heavy industries, as shown in a series of reports by EPI Research Associate Usha Haley. In No Paper Tiger, Haley showed that China has tripled its paper production since 2000, and that this growth was fueled by over $33.1 billion in government subsidies between 2002 and 2009. In Through China’s Looking Glass, Professor Haley showed that Chinese glass production more than doubled between 2003 and 2009, and that this growth was supported by at least $30.3 billion in subsidies between 2004 and 2008. In an earlier report for the Alliance for American Manufacturing, Shedding Light on Energy Subsidies in China, Professor Haley showed that over the past decade China has become the largest steel producer and exporter in the world and that its steel industries benefitted from $27.11 billion in energy subsidies between 2000 and mid-2007, alone. 

The USW petition asks that the USTR act to enforce U.S. rights under international trade agreements on subsidies and countervailing duties, “through a formal request for consultation at the WTO, and, if necessary through WTO dispute settlement.” The USTR has 45 days to respond to the USW petition and must decide whether to accept the petition by October 24.  According to Terry Stewart, of Stewart and Stewart, who filed the 5,800-page petition on behalf of the USW, the law (section 301 of the Trade Act of 1974) allows the USTR to postpone the initiation of the investigation and consultations for up to 90 days, but it would have to issue a notice of delay and send a report to Congress on the reasons for it. 

“Green jobs are the key to our future” said USW President Leo Gerard. “It is our national priority to reduce our dependence on foreign energy supplies. But if all we do is exchange our dependence on foreign oil for a dependence on Chinese alternative and renewable energy production equipment, we will have traded away our nation’s energy, economic, and job security.” The United States needs major public investments to build up homegrown renewable energy industries, and a plan to root them in the domestic economy. We cannot allow China to thwart the rules of the global trading system and control the green industries of the future. 

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