China Versus The US, Europe and Japan? Trade Battles Reach WTO

Days after China formally raised the issue of US subsidies under the Inflation Reduction Act (IRA), the US and Japan, with every possibility of Europe joining in, have been reported to be in formal talks to form a loose alliance to counter the Chinese threat on trade.

While the United States and Japan have joined forces to establish new subsidy rules aimed at strengthening their semiconductor industries to counter China in the global chip market, observers are quite certain the cooperation would extend to the renewables market as well.

With an ostensible focus on securing vital supply chains and maintain technological competitiveness, the discussions currently cover goods such as semiconductors, storage batteries, and permanent magnets. The target apparently is to establish common criteria, and international rules on subsidies that will pass muster at the World Trade Organization (WTO) as well. In recent months, the US has been pushing back against firms supplying critical chip making equipment for advanced chips to China, enlisting Europe, Taiwan and Japan as well into the push.

At the WTO, China has called on the trade body for dispute consultations with the US over subsidies from the Inflation Reduction Act (IRA). Circulated on Thursday (28 March), China has made the case that US’ subsidies under the IRA  for production of domestic renewables – and electric vehicles – discriminate against goods of Chinese origin in violation of provisions under the General Agreement on Tariffs and Trade 1994, the Agreement on Trade-Related Investment Measures and the Agreement on Subsidies and Countervailing Measures.

All this, even as lawmakers in the US have urged the Biden administration to remove the exemption given to Bifacial modules on tariffs, besides the ongoing issue of sourcing any module that has inputs made in the Xinjiang region. The renewable energy supply chain, while considered  relatively low tech versus the global chip making supply chain, has come into focus after the huge drop in module prices caused by the massive capacities set up in China. It is beginning to hurt even Chinese manufacturers, that have warned about sharply lower profits in 2024-25. Manufacturers in Europe have virtually put up their hands at the current prices, even as some major manufacturing plans in the US also, despite subsidies, have been put on hold by firms (Notably Nexwafe with its 6 GW wafer plant plans) fearing unviable markets for their products at these rates.

The bunching up of three of the world’s largest economic markets against the second largest one sets the stage for months, if not years of tension in the global markets, as these groupings seek allies and support. India, aspiring to be a manufacturing power house itself, has stakes in both the renewable energy, and Chip making sectors, with one major difference from the US led grouping. It will be loathe to pay the much higher prices that a hard trade war with China will impose on it, be it in renewables or semiconductors.