For a cautionary tale on how a trade war with China could backfire against the U.S. under President Donald Trump, talk to REC Silicon ASA Chief Executive Officer Tore Torvund.
After the U.S. slapped duties on Chinese solar panel exports in 2011, China shot back about a year later with measures against the American polysilicon exports used to make those units. Along with other producers in the U.S., REC Silicon, a Norwegian company which produces the material at factories in Moses Lake, Washington and Butte, Montana, was clobbered.
The company’s U.S. workforce shrank by about 350 workers over the past three years as orders plunged, Torvund said in an interview in Beijing. The fix: opening a $1 billion joint venture factory in the central Chinese city of Yulin that’ll employ up to 650 workers.
“We need to build capacity inside China since we do not have access to China from the U.S.,” he said. “It started in the U.S. It’s what often happens: When one country makes a move, another country makes a different move.”
The case shows how the tariffs Trump threatened to impose on Chinese exports during campaigning may boomerang back to hurt America. Regardless of the merits of the U.S. tariffs on solar panels –- and of any similar ones Trump might impose -– the outcome was losses for China, the U.S. and the solar industry.
History shows China hits back fast on U.S. trade slights
The story isn’t unique. A U.S.-China trade tiff over tires that began in 2009 probably did create a few jobs in that industry in America. But on balance, it led to an estimated overall loss of more than 2,500 American jobs as consumers spent more on tires and less on other goods, lowering employment in the retail industry, according to a 2012 paper by the Peterson Institute for International Economics in Washington.
U.S. chicken producers also lost export sales when China retaliated against that industry, the report said.
Torvund discussed at length how the war over solar has affected REC Silicon and the two nations. Here are some excerpts:
Question: How has this trade war impacted REC Silicon?
Answer: Eighty percent of the capacity of using polysilicon is now in China. We are as a U.S.-based industry almost completely dependent on having access to the Chinese market. So it means the U.S. producers are left out of 80 percent of the world market. We have a 57 percent duty if we would like to send polysilicon to China. The price now in China is about $17 per kilo. If our customers from China would like to buy from the U.S. we have to sell at $11 because they have to pay then 57 percent duty on top of that. In practice, it’s not possible.
Question: How have you responded to the trade war?
Answer: We entered into a joint venture with a Chinese partner – we own 49 percent, they own 51 percent — to build a plant here in China. REC has particular technology and the Chinese paid me $200 million to enter into that joint venture because they want to build a plant with this kind of technology. It is due to begin operations in the third quarter. This plant will have a capacity which is equal to what we have in the U.S., about 20,000 metric tons of polysilicon capacity. We will have about 600, 650 employees here. We have about 20 Americans managing this project here in China. We have had 50 Chinese working in our two plants in the U.S. for training for about a year. It will be running at full capacity.
Question: What’s been the impact on the U.S. and China?
Answer: With this trade war between the U.S. and China on solar, nobody would ever invest in polysilicon in the U.S. We used to be the biggest private employer in Moses Lake. We have reduced capacity. We don’t pay a lot of tax any more. The Obama administration was focused on trying to solve this issue because they wanted to promote clean energy and have access to low-cost solar panels, because in the U.S. the cost has typically been higher than elsewhere. This trade war has probably hurt employment in the U.S., but it ultimately also hurt employment in China. Some of the Chinese solar companies are now starting to make investments in Vietnam and Malaysia so that they can avoid duties in the U.S. because it is only panels made in China that have the duties. That’s bad for China. It is also hurting the whole industry in its competition against alternative energy. We need to be as competitive as we can against coal and natural gas and that means being as cheap as we can.
Question: What would be your message to Donald Trump?
Answer: The absolute best thing would be to end the trade war between the U.S. and China on solar. Gradually, most involved parties see that this difficulty continuing will more or less destroy part of the U.S. industry in this area. Having this trade war is bad for employment in the U.S. and China. If the new administration is looking for highly paid good jobs, hopefully they will accept that, too. Hopefully Trump will see that employment and jobs are more important than ideology.