China’s rise continues to seem unstable and so does its development in the new energy industry. Now, it appears, Uncle Sam is taking action that could destabilize all of this even further.

Following  calls for action against Chinese “illegal industrial policies”, the U.S. Department of Commerce (USDOC) initiated antidumping (AD) and countervailing (CVD) investigations on Chinese Crystalline Silicon Photovoltaic Cells, which includes both cells and modules,  in November 2011. One month later, the US Trade Representative brought forward a dispute to the World Trade Organization (WTO), challenging China’s measures concerning wind power equipment (wind turbines).

In January 2012, the USDOC kicked off AD and CVD investigations on utility scale wind turbines from China. The WTO dispute is still undergoing lengthy consultation though. The USDOC ruled and imposed provisional AD and CVD duty deposits on solar cell and panel as well as wind turbines early this year, ranging from 34% to 253% on solar panels (both AD and CVD) and 13% to 26% on wind turbines (CVD only since the AD preliminary results are have not yet been announced).

Some of China’s other primary trading partners could also follow suit. There was rumor that India was preparing to seek trade remedies against import of solar cells and panels from China. Much concern has been raised ever since the USDOC’s November initiation of AD and CVD investigations, many worry the European Union (EU) will take similar actions soon. If the report that a complaint was lodged to the European Commission on Tuesday (July 24) is true, billions of dollars of Chinese exports will be subject to investigation within 45 days, and the industry will inevitably suffer a double blow.

Chinais not without contingency measures however, It holds a few cards and has learnt to play trade games with the best of them. Last November, China initiated a trade barrier investigation on the U.S. new energy policy. As a result, China preliminarily found WTO violation in May 2012, indicating the possibility of challenging the US trade barriers to the Chinese new energy industry in the WTO. Last Friday (July 20), China initiated an AD investigation on import of solar-grade polysilicon from the U.S. and Korea, as well as a CVD investigation on the U.S.

Each country is entitled to take such actions under the WTO regime, and you can hardly blame any country at all, as they are remedying “unfair trade”. In theory, we should send a thank you note to everyone who does as they are in essence safeguarding world trade systems.

However, one can hardly be convinced that rules are honored and protectionism will be restrained. It reminds me of early 2002, when President Bush decided to impose safeguard measures on certain steel products, which immediately triggered protective actions by other steel producing countries as well.

Will the chain of actions turn into a full blown snowball effect in the months ahead, and even potentially trigger a trade war in the industry (or worse)? Compared with the Bush steel safeguard measures, the current atmosphere  seems more worrisome, at least in my opinion.

First of all, the world economy is suffering from great recession, with uncertainty and pessimism in Europe, the U.S. and even BRICs. It is not a surprise that calls for protectionism and resistance to imported products will echo wherever people are enduring difficulties. There are few economists who believe and welcome the once trashed “Beg-Thy-Neighbor” policy, but that does not suggest that world leaders are not inclined to do so. How would world economies support each other’s recovery and take coordinated measured for sustainable development? Will newly elected or to-be elected leaders resist pressures from small groups of special interest lobbyists? We will see.

Secondly, unlike steel products, whos “golden era” is believed to be over , new energy is regarded as a key element to sustainable development -- a new engine for the world economy in the decades to come. There is undoubtedly competition among key players, and nobody (from China, India, Brazil to developing countries) wants to fall behind in the bid for such a promising sector. None! Since this new engine has such a huge appetite, some countries that are unable to feed it (by providing financial aid to the industry) are now inclined to kill the engine of their competitors. This is astonishing and we should remember that pulling down others in order to be on top is a real danger to everyone.

Thirdly, the trade war or chain of trade disputes has eroded the world trade system, which is fundamental to world trade growth. Nobody is satisfied with the WTO Doha Round which is in deadlock after 11 years of negotiation (many commentators claimed that Doha was dead). On Wednesday (July 26), the WTO Director-General Pascal Lamy urged its members to “change gears”, but few paid attention. The public is getting more and more frustrated with protectionism and abusive application of trade remedies. As Chinese Premier Wen Jiabao said several years ago, “confidence is more important than gold”. Will the world leaders take positive actions to restrain selfish and short-sighted protectionism  for the benefit of the system as a whole? This has yet to be seen.

We can only hope for the best.