No winner will emerge from solar trade war

The U.S. and the European Union (EU) brought their bilateral trade ties with China to fresh low this week.

They both decided to impose penalty duties and launch a new probe into Chinese solar power products.

The U.S. International Trade Commission nodded to Washington's plan Wednesday to issue anti-dumping and countervailing duties on imports of crystalline silicon photovoltaic cells and modules from China, saying that the U.S. solar industry was materially injured by the imports.

A day later, the EU announced it would investigate alleged state subsidies for Chinese solar panel manufacturers, in addition to an existing probe into "dumping" allegations of such products in European markets.

Although Brussels says its decisions are independent from Washington's, which has provoked protest from China, together they will almost certainly further strain the already complicated trade ties due to a series of probes and tax impositions earlier.

And no winner is to emerge from this battle.

Not long after the EU brought its biggest ever trade case against China over solar products, China said last week it would launch an anti-dumping probe into imports of EU-made polysilicon. On Monday, it filed a complaint to the World Trade Organization (WTO), requesting consultations with the EU and certain member states concerning photovoltaic subsidies.

China's Ministry of Commerce also pledged to evaluate its earlier countervailing investigation into polysilicon imported from the U.S., a move seen as the latest response to the U.S. decision last month to impose heavy tariffs on Chinese solar panels.

The exchanges, initiated by the U.S. and the EU, have already slowed down trade of solar products between the world's largest economies and forced some major industry players to cry out for support.

The whole industry risks a breakdown if things get even worse in the future, such as the EU imposing anti-dumping and countervailing duties on Chinese products after its investigations and China doing the same on products from the EU.

There is no sign that China will back down in this round of confrontation. It would like to prevent more such disputes by sending a signal that getting in trouble with the world's second largest economy on trade does no good to countries concerned.

If the EU and the U.S. are pinning hopes on pressuring China to gain their own industries competitive edge, it is wishful thinking as the sluggish domestic market and the general overcapacity of the solar industry are the real problems that will not easily go away.

It is unwise for them to blame domestic economic woes on trade because when the penalizing measures fail to work in the end, the governments will draw wider criticism from the public.

In fact, the external pressures can help Chinese solar product manufacturers to reshuffle the industry, pushing companies to tap emerging markets and some less competitive players to give up on the game.

They could also force Chinese producers to cooperate with their counterparts in other developing countries.

When trade frictions break out, it is wiser for governments to think through the consequences before they make further moves, as there is no winner in a trade war.