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Washington has once again punched new import duties on solar panels and other related products from China. While the new duties would further escalate tensions between the two countries, the U.S. believes that the Chinese manufacturers have hitherto benefited from unfair subsidies offered by their government.

The news of new import duties to be leveled on Chinese solar products have pushed the stock price of U.S. solar companies First Solar Inc. (FSLR - Analyst Report), SunPower Corp. (SPWR - Analyst Report) and SunEdison Inc. (SUNE - Analyst Report) higher by 3.9%, 7.0% and 6.1%, respectively, yesterday.

As they say, one man’s gain is another man’s loss. Many Chinese solar companies suffered in yesterday’s trading session. Specifically, JinkoSolar Holding Co., Ltd. (JKS - Snapshot Report), Yingli Green Energy (YGE - Snapshot Report) and Trina Solar Inc. (TSL - Snapshot Report) were down by 7.5%, 4.1% and 4.5%, respectively.

New Tariffs

The preliminary duties, as determined the U.S. Department of Commerce, will range from 18.56% to 35.21% on Chinese solar panel imports. The aim is to safeguard the U.S. solar market from the dumping of cheap Chinese products.

The decision addresses one of the main charges in a petition brought by SolarWorld Industries America, a German solar manufacturer with major operations in the U.S. A complaint lodged by SolarWorld brought to the fore a loophole that the Chinese solar product makers were exploiting to evade duties imposed by the Department of Justice in 2012.

In 2012, the commerce department implemented anti-dumping duties of effectively 25.96% and countervailing duties of 15.24%. Tariffs were only applied to the cells used to make the panels. Many Chinese solar manufacturers were able to dodge the hefty levies by assembling panels from cells produced elsewhere, especially in Taiwan. Yet those cells were derived from components -- ingots and wafers -- from China.

The latest move therefore marks an escalation of the U.S.-China trade conflict that has been simmering since 2012. Extra duties will now be imposed on both the cells and the final solar panel products. On top of that, the preliminary decision on the anti-dumping section of the complaint is due by July 25.

The department will initially impose duties of 35.21% on imports of panels and other products made by Wuxi Suntech Power as well as five other affiliated companies, 18.56% on imports of Trina Solar and 26.89% on imports from other Chinese producers. This would be applied to products that are not already affected by the first round of duties. Hence, panels assembled from cells made in Taiwan will also come under the gambit.

The Chinese Response

China, the world’s prime manufacturer of solar panels, expressed strong displeasure with the U.S. decision. Although anti-dumping duties from the EU and the U.S. have dented the industry, it hasn’t changed the actuality that China still rules the solar roost.

China's Ministry of Commerce pointedly said that the U.S. had "ignored the facts" and further added that such use of trade measures "would not solve the development problems of the U.S. solar industry."

China had earlier hit back by imposing anti-subsidy duties of 53.3% to 57% on U.S. polysilicon and claimed that the imports were being sold below market value.

In an ironic volte-face, solar trade relations have heated up lately with every country in this arena trying their level best to protect homegrown interests. The U.S. has been appealing to the World Trade Organization to look over the local content requirements for India’s solar program.

The U.S. has argued that the Indian government has violated global trade rules. In response, India on its part has decided to impose anti-dumping duties on solar modules imported from the U.S., China, Malaysia and Taiwan.

Solar Companies to Look For

As the unseemly battle for solar dominance rages, which will not be in the best interest of this emerging industry, it seems for now some U.S. solar stocks are making the most of the conflict.

Below we have picked two stocks poised to benefit from this impasse. Overall, the tariffs imposed on Chinese solar producers will give the following U.S. companies a competitive edge.

First Solar

Though First Solar is subject to intense competition, it is poised to develop economically sustainable businesses as it has an established expertise and meaningful PV generation solutions in other areas of the solar value chain, such as, project development, EPC or Engineering, Procurement, and Construction capabilities, and Operations & Maintenance (O&M) services.

Recently, First Solar reached an agreement to buy skytron-energy, a subsidiary of AEG Power Solutions. This acquisition is a strategic step by the company to capitalize on the growing opportunities in the European solar market and will expand its global O&M portfolio by over two-fold.

First Solar has recently extended its technical collaboration with General Electric Company (GE - Analyst Report) to develop state-of-the-art utility-scale PV (photovoltaic) power plant design. The recent collaboration is a logical extension of the partnership forged in Aug 2013, when General Electric had traded its thin-film solar panel technology to First Solar for a minority stake in the latter. The technological collaboration was a win-win deal for both the participating companies through cost reduction from operational synergies.

This Zacks Rank #3 (Hold) company comfortably beat the Zacks Consensus Estimate by 120.0% in the first quarter 2014. It has also lifted its 2014 financial guidance on the back of strong earnings delivered in the first quarter.

SunPower

Founded in 1986, SunPower designs, manufactures, and installs solar panels based on a silicone design invented at Stanford University. U.S solar demand was up 32% in 2013 and the Energy Industries Association estimates demand will grow by another 35% in 2014. Backed by its strong quarterly earnings and recent partnership with Google Inc. (GOOGL - Analyst Report), the company is all set to scale new highs and poised to grab most of the demand.

This Zacks Rank #3 (Hold) company has beat the Zacks Consensus Estimate in each of the last four quarters, and saw a 68.33% positive earnings surprise on an average.

Will the Haggle on Duties Hurt the Solar Industry?

As per the research firm GTM, U.S. solar installations were worth $13.7 billion last year. Of these, about 50% of the solar equipment installed in the U.S. was made in China while, in the rooftop solar sector, another booming area, the Chinese share was 71%.

As per the solar Investment Tax Credit, the value of imports of solar products from China dropped by almost a third from 2012 to 2013 and imports from Taiwan increased over 40%.

The ruling will unfortunately put a hold on the entire U.S. solar industry as it will immediately boost the price of solar power. Again, except major solar cell suppliers in Taiwan, U.S.-based downstream PV companies such as SolarCity Inc. (SCTY - Snapshot Report) and SunEdison are major importers of modules fabricated in China but use non-Chinese solar cells for rooftop, commercial and utility-scale PV projects in the US. These companies will be also hit by this imposition.

So, if we are to expand renewable manufacturing infrastructure worldwide to fight the climate crisis, SolarWorld and the Chinese manufacturers should try to settle their dispute before the industry is hurt at large.

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