EAI Fellows Program Working Paper Series No.44

Author

Ka Zeng is Professor of Political Science and Director of Asian Studies at the University of Arkansas. Her research focuses on China’s role in global economic governance. Dr. Zeng is the author of Trade Threats, Trade Wars (Michigan, 2004), co-author of Greening China (Michigan, 2011), editor of China’s Foreign Trade Policy (Routledge, 2007), and co-editor of China and Global Trade Governance (Routledge, 2013). She is a contributor to journals such as International Studies Quarterly, Review of International Political Economy, World Development, Journal of World Trade, International Interactions, China Quarterly, Journal of Contemporary China, Social Science Quarterly, and International Relations of the Asia-Pacific.

Abstract

This paper draws on the two-level game approach to analyze the influence of domestic politics on U.S.-China trade disputes in alternative energy, especially in solar energy. It suggests that the difficulty Washington faces in getting China to address market access barriers in renewable energy needs to be viewed in light of both the coalitional dynamics in the U.S. re-sulting from the specific bilateral trade and investment relationship in this sector and Bei-jing’s willingness to use industrial policy to foster economic competitiveness in nascent in-dustries. Specifically, as China occupies the middle of the supply chain in the solar industry, both downstream users of low-cost Chinese imports and exporters of upstream products to China have voiced strong concerns about the U.S.’ trade action. Such domestic opposition, coupled with the importance of industrial policy for defending the country’s long-term in-terests in a “strategic emerging” sector such as alternative energy, substantially constrains Washington’s ability to influence Chinese policies.

Introduction

China's rapid export growth in recent years has generated heightened tensions in its trade relations with the United States (U.S.), leading Washington to more frequently resort to the dispute settlement mechanism (DSM) of the World Trade Organization (WTO) to address its market access concerns. This paper examines Washington’s efforts to address Beijing’s compliance with its commitments to the Agreement on Trade-Related Invest Measures (TRIMs) in alternative energy, especially in solar energy. It will be suggested that the U.S. has exerted the most intense pressure on China to modify its trade practices in alternative energy in comparison to other TRIMs-related sectors such as automobiles or semiconductors, and yet it has achieved the least success in eliciting positive Chinese responses in this sector.

This paper further draws on the two-level game approach to develop a framework for under-standing the above pattern, suggesting that the degree to which the relevant actors in the U.S. are united in support of an aggressive market opening strategy and the resolve of the Chinese leadership in defending the alleged market access barriers play an important role in helping us understand the case outcome. Washington’s effort to open the Chinese market is least likely to generate the desired outcome when domestic business groups in the U.S. are divided over the negotiation strategy and when the Chinese leadership has demonstrated intense resolve in defending the problematic policies.

Applying the above framework to U.S.-China trade disputes in solar energy, this paper suggests that the difficulty faced by the United States in pressuring China to modify its practices in this sector needs to be viewed in light of both the coalitional dynamics in the U.S. resulting from the unique nature of the bilateral trade and investment relationship in this sector and Beijing’s willingness to use industrial policy to foster economic competitiveness in nascent industries. Spe-cifically, as China occupies the middle of the supply chain in the solar industry, both downstream users who rely on low-cost Chinese imports and businesses that export upstream products to the Chinese market have voiced strong concerns about U.S. efforts to impose trade restrictions against China. Furthermore, growing Chinese investment in the U.S. solar industry has led American subsidiaries of Chinese solar companies to join the debate in opposition against the trade restrictions. Such domestic resistance, reinforced by the importance of industrial policy for de-fending the country’s long-term interests in a “strategic emerging” sector such as alternative energy, has substantially constrained Washington’s ability to influence Chinese policies...(Continued)