When Samuel Slater smuggled British textile technology to the US in 1789, he knew he’d be tried for treason if caught.
The secrets of Britain’s cotton mills made it the dominant export power of the time, and the ban on leaking them was strictly enforced. But by committing mill designs to memory, and then building his own in Rhode Island, Slater became the father of America’s industrial revolution.
China is now being accused of undermining US industry with similar tactics. That the simmering trade war between the two major powers refuses to cool off probably shouldn’t come as any surprise. The Americans posted another record bilateral trade deficit in August ($28 billion), unemployment in the US still hovers around an official 10%, and a critical congressional election is taking place in a few days time.
On the face of it, what is more surprising is the industry that’s become the focus of the latest salvo in trade tensions: green technology.
In this era of climate change negotiations, China’s policymakers are far more accustomed to hearing their US counterparts push them to do more to limit carbon emissions.
But that didn’t stop US President Barack Obama approving an investigation earlier this month into allegations that China has been illegally subsidising ‘green’ industries, including wind and solar power, advanced battery manufacturing and energy-efficient vehicles.
The 301 investigation (named after the relevant section of the 1974 Trade Act) was initiated by a petition brought by the United Steel Workers (USW) and several other labour unions. If in the next 90 days investigators agree that the claims have merit, the matter is likely to be referred to the WTO, which could ultimately lead to retaliatory tariffs.
“This is a vitally important sector for the United States,” explains US Trade Representative Ron Kirk, the official in charge of the investigation. “Green technology will be an engine for the jobs of the future.”
US unions are worried that Chinese manufacturers will reap the major benefits of any ‘Green New Deal’ to make the US economy more environmentally sustainable. “By accepting the petition,” argued Leo Gerard, president of USW, “it sends the message that America is not going to stand by while our jobs get outsourced… we’re not going to allow unfair and illegal trade practices.”
It helps that his members are a vital constituency for the Democratic Party, now seeking to retain control of the House and Senate in November.
Week in China has written before about China’s renewable energy policies (see WiC80). Clearly, they are designed to improve energy efficiency across the economy, and to slow down the pace of environmental damage that the recent years of rapid growth have wrought.
But hopes for the renewable energy sector serve other goals for Chinese policymakers too, not least as one of the industries in which they hope to see Chinese firms make major commercial inroads overseas.
For environmental groups, it’s important not to lose sight of the bigger picture. “Do we truly need such a ‘level playing field’, where everybody talks about the necessity for renewables and low-carbon development, but doesn’t act on it?” asks China-watcher Dale Jiejun Wen, of the International Forum on Globalisation. “Why can’t United Steelworkers ask the Obama administration to support green jobs with real deeds instead of empty words?”
The gist of the USW’s complaint is that China has been protecting its own market for domestic firms, and forcing foreign companies to transfer their technology for the right to compete. Additionally, it has gained advantage by (allegedly) restricting the export of essential rare earth metals (see WiC81) and through offers of below-market state financing to Chinese companies.
The rule that made it mandatory for Chinese wind and solar power projects to source most of their equipment locally was officially rescinded last year, but the USW petition complains that it’s still effectively in place. It says that these sorts of measures are what have made China the world’s largest exporter of photovoltaic panels, and a growing force in the wind turbine market (see article on Sinovel, WiC80).
Those claims are being called “irresponsible” and “pure trade protectionism” by irate industry leaders in China. They say it’s hypocritical, since the US has spent $4.6 billion so far this year subsidising its own (mainly domestic) renewable energy projects.
“China has exported only three wind turbines of less than 10,000 kW generating capacity to the US,” China Daily points out, “while one US company alone [GE] has sold wind turbines of 1.13 million kW to this country in the past five years.”
Policymakers in China have dismissed the investigation as simply another ploy to gain votes ahead of November elections. “The mid-term elections will end, and then the main driving force behind the investigation won’t exist,” predicts Li Junfeng, deputy director of the National Development and Reform Commission’s (NDRC) Energy Research Institute.
But if the investigation doesn’t get shelved, Chinese officials have also said they are determined to fight the case.
“The United States will not win this trade war,” vowed Zhang Guobao, deputy director of the NDRC and head of the National Energy Bureau.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.