Trump agenda: Does the president have America’s back on trade?

ATLANTA — From its red brick headquarters on the outskirts of Atlanta, the solar producer Suniva has spent more than a decade touting itself as a champion of American manufacturing.

Founded by a local professor, its solar cells can be found in everything from the panels on a supermarket roof in Texas to a small-scale power project set up by a pecan farmer in southern Georgia.

Yet when it filed for bankruptcy in April last year, blaming cheap imports from China for its downfall, the documents betrayed a very different reality.

Signing the petition filed in Delaware Bankruptcy Court was Cheng “Alex” Zhu, the Chinese president of the United States subsidiary of Shunfeng International Clean Energy, which since 2015 had been the company’s Hong Kong-listed majority shareholder.

All the directors signing the attached board resolution did so in Chinese characters.

Were it not for US President Donald Trump, this might be just another debt-fuelled story of a Chinese corporate adventure gone wrong.

But Suniva now stands at the centre of a trade case that has worked its way to the US president’s desk and could end up as one of the opening shots in a trade war with China.

By the end of January, Mr Trump must decide whether to side with Suniva — which launched its trade action just days after it went into bankruptcy — and impose wide-ranging tariffs on imports of solar cells, most of which come from China, or with a broader US solar industry that is warning that those same tariffs will lead to higher consumer prices and cost tens of thousands of jobs if it makes solar less competitive against power-generating alternatives such as cheap natural gas.

The solar case is the first in a series of decisions confronting Mr Trump and an administration eager to finally deliver the sort of tough trade action against China and others that the president promised before he took office.

“One year in we’ve made almost no progress in terms of figuring out what (the administration’s) plan is,” says Mr Phil Levy, a trade adviser to former president George W Bush. “We know that he hates the current trade regime. But what’s the alternative?”

Also looming are deadlines prompted by investigations launched last year into imports of aluminium and steel and possible tariffs resulting from a probe of China’s intellectual property regime and practice of forcing foreign companies to transfer know-how.

It adds up to a critical moment on trade — an issue that was central to Mr Trump’s election 14 months ago and one that his supporters will judge him on. The imminent decisions expose the twin realities of Mr Trump’s trade policy.

As promised, he has begun to dismantle trade deals, pulling the US out of the Trans-Pacific Partnership with Japan and 10 other economies and launching renegotiations of the North American Free Trade Agreement with Canada and Mexico, and another deal with South Korea.

He has also continued to grumble about the trade deficit with China, telling President Xi Jinping recently that “the situation is not sustainable”, according to the White House.

But Mr Trump has yet to deliver on the tariffs he threatened to introduce during the 2016 campaign, or the unapologetic protectionism outlined in an inaugural address in which he pledged to “protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs”.

The biggest reason the Trump administration has done little so far on tariffs is that it has discovered the clash of interests inherent in most trade disputes.

Bashing free trade resonates on the stump and Mr Trump has promised unilateral actions that would stretch the patience of trading partners and test global rules.

But he is also encountering the truth that rashly imposing tariffs can hurt consumers and domestic industries, even if it helps specific sectors.

The solar case illustrates the complex economic and political realities of global supply chains and foreign investment.

Since its Chinese owners filed for bankruptcy, Suniva has worked assiduously to wrap itself in the American flag.

It has been joined in its push for tariffs by the US subsidiary of bankrupt German solar group Solarworld, which likewise has dubbed itself a champion of US manufacturing.

“Suniva has and will continue to focus on revitalising the American solar manufacturing industry that has been decimated by China’s cheating,” says Mr Mark Paustenbach, a spokesman.

As a result of Suniva’s bankruptcy after amassing tens of millions of dollars in debt, Hong Kong-based Shunfeng no longer controls the company, he adds.

Instead, SQN Capital Management, a New York lender which helped finance a 2015 expansion plan with a US$51 million (S$67.5 million) loan secured by Suniva’s manufacturing equipment, is leading the charge in the trade case.

Hardliners in the Trump administration and outside supporters are pushing for the president to impose tariffs to defend American manufacturing and a strategic sector which previous administrations have ceded to China.

“Swift and firm action on this case will right a great wrong done to American firms, workers and taxpayers,” Mr Greg Autry, co-author with White House adviser Peter Navarro of the book Death by China, wrote last week on a conservative website.

“More importantly, it will signal to Beijing and every other nation that the US government is once again putting the economic interest of Americans first.”

Suniva’s case for broad tariffs on all imports of solar cells is built on the legitimate argument that Chinese manufacturers have for years managed to evade anti-dumping tariffs by shifting production to other countries or shipping cells via third countries. The real question is how best to respond.

The trade case filed by Suniva calls for broad “safeguards” on imports, such as the tariffs of up to 35 per cent that a majority of the quasi-judicial US International Trade Commission signed off on last year.

Mr Trump has until January 26 to decide whether to impose the mix of tariffs and quotas recommended by three of the ITC’s four commissioners, or to use something more benign such as a licence fee on imports, with the proceeds going to US companies.

The Suniva push has drawn opposition from many in the solar industry. Mr Tom Werner, chief executive of Silicon Valley-based SunPower, which manufactures its solar cells in Malaysia and the Philippines, bristles at the idea of his profitable business taking a hit from tariffs to bail out competitors.

“What a broad-based tariff would do is take a successful American company and have it fund two unsuccessful foreign-owned companies,” Mr Werner says. “It’s hard to find the logic in that.”

He argues that solar cells have become a commodity produced in highly-automated factories and that repatriating production would yield few American jobs.

Moreover, “tariffing solar cells is yesterday’s battle”, Mr Werner says.

“The future battle is the integration of storage with solar and the integration of solar with the grid. If you want to protect innovation the question is: ‘How do you have American manufacturing win in the next (battle)?’”

SunPower has been part of a group of solar companies pressing their anti-tariff case in Washington. It found a sympathetic ear from the National Economic Council, which is run by Mr Gary Cohn, widely seen as one of the most pro-trade members in the administration.

Less sympathetic, he says, have been others such as Mr Robert Lighthizer, the US trade representative and a longtime China hawk. “It’s a difficult conversation to have,” Mr Werner says of dealing with officials such as Mr Lighthizer.

Yet some Trump supporters have been recruited to the cause. Sean Hannity, the Fox News host and one of the president’s staunchest conservative defenders, has accused Suniva and Solarworld of manipulating US trade laws to elicit US taxpayer support.

“Now that Trump is in office it’s morning again in American manufacturing and one of the fastest growing industries in America today is solar manufacturing,” he declared in a radio spot recorded for a group opposing tariffs.

“But some foreign-owned companies, well they just can’t wean themselves off government protection.”

Mr Trump may have stopped short of withdrawal from Nafta and other dramatic moves promised during his campaign, but his protectionist rhetoric has encouraged US companies to bring anti-dumping and other trade actions.

Mr Wilbur Ross, US commerce secretary, regularly hails the more than 50 per cent increase in US anti-dumping cases in the past year. Those have included the case brought by Boeing against Canada’s Bombardier, which has resulted in preliminary tariffs of almost 200 per cent on sales of jets to US airlines and drew a political backlash in Canada and the United Kingdom.

Some experts worry over the long-term consequences of the flurry of new cases.

“Even if they back off on blowing up Nafta, we may be facing something more corrosive and damaging — the increasing desire to use safeguards (like those sought in the solar case) for uncompetitive industries, coupled with the lack of any new deals to open markets abroad,” says Mr Rufus Yerxa, a longtime US trade official who leads the National Foreign Trade Council, a business group.

“That double whammy could be very bad for our most competitive industries.”

The solar case is not the most inflammatory trade action in the Trump inbox. The commerce department last week presented the president with the result of a steel investigation aimed at China that is believed to recommend a mix of tariffs and quotas, giving Mr Trump 90 days to make a decision.

It invokes US national security and yet has been opposed by officials such as Mr Jim Mattis, the defence secretary, who argue that it risks alienating steel-producing allies such as Japan and Germany.

A separate investigation into China’s intellectual property regime holds out the prospect of further action. The push to tackle IP issues has broad support from a US business community fed up with what it sees as bullying by Beijing that forces companies to hand over key technologies in order to do business in China.

Yet many fear it will invite Chinese retaliation.

Beijing is not the only US trading partner preparing to retaliate.

EU officials have made clear they would target US bourbon and dairy exports if the steel case ends up hurting the European industry, while South Korea last week sought the World Trade Organization’s permission to revive a dormant plan to impose more than US$700 million in retaliatory actions against the US.

All the manoeuvring is a consequence of a president who has put trade at the centre of his agenda in a way few predecessors had, says Mr Douglas Irwin, author of a history of US trade policy.

Mr Trump, he argues, has brought a brand of unabashed protectionism into the Oval Office not seen since the 19th century.

Even Ronald Reagan tempered his trade battles with Japan with a public embrace of free trade. Yet Mr Trump is only a year into his term and so “there’s still a lot of waiting and seeing to be done”. Mr Irwin adds: “The show’s not over yet. It’s not even intermission.” THE FINANCIAL TIMES