April 18, 2012    Volume 19, No. 6

Search Back Issues
Guest Editorials
Trading Exchanges
About Us

Lean Machines Sixteen Case
Studies On Lean
From Manufacturing &
Technology News

Free e-mail newsletter

Lessons Learned From A Trade Case -- SolarWorld CEO Warns Others To Pay Heed: Your Industry Could Be The Next To Go

By Richard A. McCormack

The United States government has to start aggressively confronting foreign governments -- particularly China -- that are targeting and destroying American industries and jobs, according to the president and CEO of SolarWorld, the country's largest producer of solar panels.

The company, which filed a controversial trade case against China last year, has been struggling with the expense of taking on the Chinese government and the PR campaign that has been waged against it by Chinese State-Owned Enterprises, importers and dozens of their high-paid lawyers, lobbyists and PR agents in Washington, D.C.

What SolarWorld has learned from its foray into the U.S. trade dispute system is that the United States needs to adopt a new industrial and economic "game plan for the remainder of this century," says Gordon Brinser, president of SolarWorld Industries America. "The United States is sustaining a big hit from unfair competition. It's sacking our economy. It ain't a pretty sight."

SolarWorld is not impressed with the way the U.S. federal government deals with unfair trade complaints. The trade agencies are slow to respond when autocratic nations seek to destroy an American industry, says Brinser. U.S. trade laws are do not address issues associated with centrally planned economies and their massive scale of subsidies, incentives, state-owned enterprises and the lack of transparency. And the U.S. government is not "fully equipped to cultivate and promote an environment in which manufacturing can thrive," says Brinser.

The U.S. solar industry is one of many industries that has been and will be targeted by aggressive Chinese mercantilist practices. "China has moved on to its next solar-industry targets, including silicon refinement and manufacturing equipment," Brinser told the recent Conference on the Renaissance of American Manufacturing held in Washington D.C.

Since 2010, corresponding with an unprecedented surge of subsidized Chinese imports, 12 major U.S. solar manufacturing companies "have become road kill along China's five-year planning superhighway," Brinser said. "It became clear to SolarWorld that if China's trade aggression were left unchecked the U.S. solar industry would disappear."

In March, the company eked out a minor victory in its trade case. After the International Trade Commission ruled unanimously that the U.S. industry was suffering material damage due to dumping of Chinese products, the Commerce Department's International Trade Administration applied countervailing duty tariffs of a mere 3.59 percent on most Chinese imports, with a 2.9 percent margin for SunTech, the world's largest producer of PV cells and modules. "This was the preliminary CVD -- the first step," said Brinser after his speech. "The Commerce Department even indicated that they had not fully investigated all of the subsidies that we had allegations on. So they have more work to do there. The antidumping case is still to come."

SolarWorld, headquartered in Germany, has been producing solar products in the United States for 35 years. When it invested $500 million of its own money and hired 1,100 workers in its U.S. manufacturing operations in 2007, it was based on the assumption that it made good business sense to make products in the fast-growing market in which they were being sold. Labor amounts to only 10 percent of the cost. There would be no ocean shipping costs and there are abundant supplies of raw materials and equipment in the United States.

But a massive surge of cheap imports from China put its business -- and the entire PV manufacturing industry -- in jeopardy. The pressure to shift production to China has been unrelenting. "In meeting with investor analysts, SolarWorld hears many familiar questions, but one question never fails to annoy us," says Brinser. "That question is, 'What's your Asia strategy?' What we're really being asked, of course, is what plans do we have to build factories in Asia to produce solar products for consumers back in the United States. Our chief financial officer has developed the habit of turning the tables a little. He asks the investment analysts: 'What is your Asia strategy? Why don't you move to China?' "

It is absurd that the Chinese are able to sell at such cut-rate prices, says Brinser. China imports both manufacturing equipment and raw materials from the United States to make solar panels that are shipped back to the United States at prices that make no economic sense. "Let's be clear," he says. "China has no comparative advantage in solar. The Department of Energy recently found that Chinese solar producers face a 5 percent cost disadvantage in producing and delivering solar into the U.S. market."

But China has a different strategy. It is slashing prices in the short term to destroy American competitors, and when they are gone -- and they almost are -- then it will start raising prices, gouging the importers and installers who are clamoring against SolarWorld in its trade case.

China's SunTech, the world's largest solar manufacturer, lost $1 billion last year pursuing a strategy of reducing prices by 50 percent in one year, Brinser claims. SunTech's CEO acknowledged this strategy by stating on March 8, 2012, that current pricing is "not sustainable. . . We expect that as the weaker players exit the industry, prices will rationalize to allow the efficient module producers to generate a low-teen gross margin."

China's recent five-year economic plan describes seven strategic industries targeted for global domination, solar and renewable energy among them. "This problem is not just a challenge to the solar industry or to SolarWorld," says Brinser. "It is one that threatens all of our manufacturers and our economic system itself. I'm talking about China's state-driven economic model which is designed to gut and own our key industries."

China's government is driving this strategy as the largest shareholder in the country's 150 largest companies. It provides financing through its state-owned banks. It directs state-owned commodity producers to provide Chinese companies with cut-rate prices on raw materials and manufacturing equipment. It awards no-bid contracts to Chinese companies. It requires that only Chinese companies supply the Chinese market. And it allows for the flagrant stealing of foreign companies' intellectual property.

To his amazement, Brinser says, "the U.S. market remains wide open to state-owned and state-sponsored Chinese manufacturers. . . Chinese solar panels are even being installed on our military basis. How does that support our national security?"

The solar industry provides proof of China's successful strategy. China's solar manufacturing capacity exceeds domestic demand by a factor of at least 32. Ninety-five percent of Chinese production is exported. From 2008 to 2011, Chinese producers increased exports to the United States by 1,745 percent. China now controls more than 50 percent of the U.S. market, up from single digits three years ago. "And let no one say the U.S. has a net surplus in solar trade," says Brinser. "We lost that in one year." The U.S. trade deficit in solar in 2011 was $1.6 billion.

"As planned, China's campaign swamped the U.S. and global markets with prices that no one could sustain without the full backing of a central government." Seven of the world's 10 largest solar manufacturers are now Chinese, up from just one five years ago.

"We continue to spend huge amounts of money and energy waging a legal and PR battle, yet we are vastly outspent by the manufacturers from China and the Chinese government," says Brinser.

Very few, if any, U.S. industries could survive a similar onslaught of Chinese tactics "as they manipulate our trade remedy situation," says Brinser. There is no way a small- or medium-sized U.S. company could ever afford to take a similar 13-month-long case to the U.S. government. "We are fairly large -- we are the largest solar manufacturer in the United States and it's a daunting task even for us," he told Manufacturing & Technology News. "I can't imagine how smaller companies can take on this aggression from China."

The U.S. government needs to wake up and get active on behalf of U.S. industry. Those working in the federal trade agencies need to understand that they are employed by American producers and American workers, not the Chinese government and its high-paid lawyers and lobbyists in Washington. "The message we want to get out there is we want to rebuild this industry," says Brinser. "This is a national treasure for the United States. It was invented here. It can pull us out of an energy crisis. It can pull us out of a manufacturing crisis. It should be a national treasury and we have to really push it forward. We want to build the industry."

If the U.S. government does not step up to the challenge, "we can only expect more American manufacturing jobs to vanish, along with the innovation that has been at the heart of our nation's economic growth and leadership," says Brinser. The U.S. government needs to develop a strategy to deal with Chinese government-owned enterprises that are destroying American companies.

Brinser recommends that the newly created Interagency Trade Enforcement Unit take an aggressive role in monitoring import data for early signs of import surges. The trade agencies must make it easier to file and prosecute cases more quickly and with greater transparency. They must work with the Customs Bureau to aggressively find ways to circumvent foreign companies from bypassing trade remedies and their continued stealing of U.S. intellectual property. The government should also bring cases on behalf of companies and industries that are too injured or small to afford filing and prosecuting their own cases. And the government "must shed light on foreign companies that raise capital on U.S. exchanges and then withhold audit information from securities regulators," says Brinser. "What IS our game plan?"

Provide us with a comment on this article.

We'll notify you as issues and free stories like this one appear on this site. Sign up for a content-rich, e-mail newsletter. (You will NEVER receive spam.)

Please consider subscribing to Manufacturing & Technology News. You will have access to all back issues dating to 1998, plus receive the current issue electronically and via regular mail. It is all original reporting on the most important stories facing U.S. industry. No advertising. The cost of a new subscription is $495 per year.

Scan Back Issues Comments | About Us | How To Order

Reproduction Rights 2012 Are Granted To This Story So Long As A Link Is Provided To This Source Of Original Content.