Correction and clarification appended.
Solar and electric-vehicle companies are among the biggest U.S. victims of unfair trade practices, according to a report that accompanied President Trump’s announcement yesterday that he would levy $60 billion in trade penalties against China.
The report, prepared by the Office of the U.S. Trade Representative (USTR), summons a wide array of data to make the case that the Chinese government and Chinese companies have cooperated in a sophisticated, multipronged effort to appropriate U.S. technology and ideas in sectors from integrated circuits to biotech to aviation.
"China seeks to use foreign acquisitions and investments to upgrade its domestic industries and, ultimately, degrade, reduce, or replace U.S. competition in key sectors," said an accompanying fact sheet.
While it doesn’t have the cadence of a Trump speech, the report is a reflection of his "America First" agenda. It makes clear that the U.S. government is done with the idea of China as a developing country and instead wants to force a surging rival to change its ways.
One surprising element is that it focused on two young energy industries — solar and "new energy vehicles" — that have figured large in China’s plans for years but haven’t been a subject of much enthusiasm for Trump during his 14 months in office.
The 182-page report explained in detail how the Chinese government uses licenses, joint ventures, administrative rules, government funds, currency controls and cyberattacks to bend both Chinese and American companies to its will, with the goal of building Chinese industrial might.
What specific sectors will be hit by tariffs are supposed to be announced in the next two weeks. Whatever they are, they will likely spark retaliation by China that could harm American manufacturers, workers and consumers, with uncertain political consequences for Trump.
The trade action began in August when USTR began a proceeding under Section 301 of the Trade Act of 1974, which allows for a wide range of trade penalties on other countries to protect U.S. economic interests.
Trump’s announcement yesterday and USTR’s report are the result of that proceeding.
The report alleges that the Chinese government uses murky rules and ownership restrictions to force U.S. companies to hand over their technology and intellectual property; collaborates with Chinese businesses to strategically acquire U.S. businesses; and conducts computer espionage against U.S. companies, all so China can produce higher-tech, higher-value goods and rely less on trading partners.
Shale down, renewables up
USTR examined how the Chinese government teams with its companies to make acquisitions abroad in seven targeted industries, including renewable energy and new-energy vehicles.
In the early 2000s, China tried to buy its way into expertise in the United States’ world-leading oil and shale development companies. But as acquisitions failed to gel, and fossil fuel prices tanked, renewable energy became a prime focus.
The report explored how Hanergy Holding Group, a Chinese thin-film solar panel producer with global ambitions, used a government line of credit to buy foreign suppliers, including U.S.-based players Global Solar Energy, MiaSolé, and Alta Devices.
A similar story emerged from Goldwind Americas, the domestic arm of Xinjiang Goldwind Science & Technology Co. Ltd., whose largest shareholders include two state-owned businesses. It acquired a 160-megawatt wind farm in Texas, called the Rattlesnake Wind Project, in 2016, and is installing wind turbines there based on technology it acquired in Germany.
In autos, the report turned its attention to the Chinese conglomerate Wanxiang Group. In 2013, it bought A123 Systems, a battery maker, and a year later the assets of Fisker Automotive, a U.S. maker of luxury electric cars. Now Wanxiang is attempting to re-enter the electric-car market under the name Karma Automotive.
Chinese investment in U.S. automakers has climbed steeply in recent years, reaching $1 billion in 2016.
Automakers face steep tariffs for importing vehicles into China. That, the USTR report said, instead motivates carmakers to enter joint ventures, where they are paired up 50/50 with less-skilled automakers owned by the Chinese state.
This system spreads a foreign automaker’s superior technology through the state-owned company. Those companies, the report said, are steadily becoming more sophisticated.
"Technology transfer pressures have intensified as China has sought to develop expertise in the manufacture of new energy vehicles (NEVs), which includes plug-in hybrids, electric batteries and fuel cell vehicles," the USTR report said.
The report also detailed how computer espionage has strengthened Chinese industry.
It focused on 3PLA, the cyberdefense branch of China’s People’s Liberation Army. In 2013, the cybersecurity firm Mandiant released a report on data theft by 3PLA and the 20 sectors it had affected most. Energy was the fifth-largest.
Officers of 3PLA were indicted in 2014 by the U.S. Department of Justice. In each case, the USTR report said, the targeted industry was attacked while in the thick of a deal or dispute with China.
One industry member that was attacked was SolarWorld Americas — a company already well-known to Trump, since it was one of two solar manufacturers that brought a controversial request for solar tariffs that was approved by the administration this year.
Back in 2012, the USTR report said, SolarWorld had thousands of files stolen by Chinese hackers that revealed the company’s inner workings. At the same time, SolarWorld was waging an ultimately successful effort to persuade USTR to put trade penalties on Chinese solar producers for flooding the U.S. market with underpriced solar panels.
As part of USTR’s current Section 301 proceeding, SolarWorld said the attacks "resulted in more than $120 million in damages in the form of lost sales and revenue."
Furthermore, SolarWorld testified, a high-efficiency technology it developed called passivated emitter and rear cell, or PERC, then rapidly spread to two leading Chinese competitors, JA Solar and Trina Solar.
"Armed with our proprietary data and armed with our cost data, we saw our Chinese competitors leap overnight into PERC technology that we had innovated and with economic information that would unfairly enhance their positions in price negotiations," said SolarWorld Americas CEO Jürgen Stein.
Another company that submitted comments to USTR was American Superconductor Corp., which works in wind turbine systems.
It testified to USTR that its partner in China, the state-owned Sinovel Wind Group, bribed one of American Superconductor’s employees to get access to its servers and steal trade secrets.
American Superconductor believes that as a result, 20 percent of China’s 8,000 wind turbines work on the American company’s technology. Since, it said, the firm has lost $1.6 billion in revenue and laid off 70 percent of its employees.
Correction: An earlier version of this story incorrectly stated that A123 had received a loan or loan guarantee from the Department of Energy. It did not.
Clarification: Wanxiang Group purchased Fisker Automotive’s underlying holdings and technology. But Henrik Fisker, the founder, retained the name.