Understanding the Pentagon's ban on Chinese solar products
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The recent furor recalls the 2009 US-China trade disputes on tires and chicken, when trade frictions between the two countries escalated to a fever pitch. Moreover, disputed catalogues have expanded from low end export goods to medium and high end products, such as steel. The Chinese government has to be aware that subsidies flowing to its own solar industry touch a very sensitive nerve in the U.S.
Through enacting this Defense Act, the U.S. may potentially cause trade conflicts in the solar industry. Even if Chinese companies are able to manipulate the price of solar products to comply with the Buy America Act, the US government can initiate anti-dumping and countervailing investigations on China's solar export subsidies and impose extra duties on Chinese imports. Getting involved in trade war is not in the interest of either country.
Though the Defense Act excludes Chinese suppliers from DOD procurement using the GPA, the real policy goal is to motivate China to sign the GPA. The U.S. used to have a big share in China's government purchasing, but in 2010 China adopted policies which favored innovative domestic products in its government procurement. Worried about China's rising trade protectionism, US businesses urged the US government to press China to join the GPA. Given the nature of this bargaining, the U.S. is unlikely to ban procurement of Chinese solar products in all of its agencies if China joins the GPA soon enough.
The connection between the Defense Act and US national security is not significant in this case, but is worth it to think about the reasons why the defense industry creates so many trade protectionism disputes. China is becoming a regional power and its investment in the U.S. is increasing rapidly. As the U.S. starts to view China as a threat to its hegemony in Asia, bilateral distrust is magnified. Congress would rather overreact to any Chinese investment in national defense-related industries, even without credible evidence to any national security threat, rather than trust China. The U.S. seems to be warning China to keep its distance in their economic partnership.
With the messages sent by the US Defense Act, China also has a few lessons to learn. Over subsiding an industry such as solar power is not a sustainable strategy in the long run. China should use the US investigations on its products as a mirror and adjust its industrial policies to implement better practices. In addition, China needs to speed up the process in joining the GPA, as the convention provides a relatively fair playground for government procurement negotiations. Last but not least, communication is always important in confronting any trade disputes.
The author is a non-resident Vasey Fellow at the Pacific Forum for the Center for Strategic and International Studies (CSIS).
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
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