This isn’t the first time China has played fast and loose with existing trade agreements. In fact the list is fairly well known: unfairly withholding rare earth materials from markets, and unfairly subsidizing light vehicle tires are two recent examples. Free trade and free markets are not free if one side frequently fails to abide by the rules.

All of this points out one major inconvenient fact, and that is while renewables hold much promise, the cost of “green” technology is very high, and whether it is China or the U.S., they are generally not economically self-sufficient to replace traditional energy sources without massive subsidies.

The China issue demands a solid response, and we cannot allow another nation to unfairly prejudice our manufacturing base, regardless of the product being produced. At the same time, the U.S. must also get its own financial house in order. With the national debt surpassing $16 trillion, the U.S. can ill afford to continue down the fiscal path chosen by Greece and Spain. Washington’s uncontrolled spending, including spending and subsidies on renewables has had little positive economic impact.

China’s actions are not that surprising as they believe that our lack of engagement in Asia, weak domestic economy, unbridled spending habits and dependence on Chinese imports is indicative of a weakening America. Even world leaders are now questioning our ability to finance U.S. commitments abroad. For example, China and Russia have openly called for the dollar to be replaced by different currencies as the de facto world standard and China continues to expand its naval presence to the point where it can now challenge the once dominant U.S. 7^th Fleet for operational control of the region.

To strengthen America, we need an energy policy that is pro-jobs, pro-market and pro-American. That means telling China that their annual MFN renewal is up for “discussion.” That also means harnessing proven energy supplies at home and in friendly countries such as Canada by fully permitting the Keystone XL pipeline.

If we had this additional energy online in addition to developing our renewable energy potential, America would be in a much stronger position to influence China. Negotiations, even among friendly competitors depends on the strength of a side’s position at the bargaining table and that means that America can ill afford to approach China with a weak hand that is significantly influenced by a weak energy policy.

The New York Times recently reported that the over-investment by Chinese solar panel manufacturers has placed not only the future of Chinese manufacturers at risk, but also the future of rest of the world's manufacturers. Given that capacity is so over-built, market participants cannot realistically operate manufacturing facilities near the required levels of production to enjoy any sort of economies of scale. Since 2009, demand for solar panels has increased almost threefold. Typically, this would be considered a good thing—except that manufacturing capacity has increased by close to five times during the same time frame. This supply and demand imbalance has pushed prices so low that it is reportedly causing the Chinese to lose one dollar for every three dollars they make in sales. Clearly, this is not a sustainable condition.

So, how does this situation affect US manufacturers? By driving down prices to a point where the massively subsidized Chinese manufacturers cannot make money, the relatively unsubsidized US manufacturers cannot make money either. As a result, the US has recently employed tariffs and trade restrictions to remedy the situation during this period of rapid change. Rapidly changing markets don’t make it easy for tariff setters to get it right; in fact, it is almost impossible to do so. This state of affairs does not bode well for any solar market in the world. Thus, this is an interesting time for solar market participants. Possibly, enough manufacturers will cease operations as they continue to see massive losses, helping to balance the market, or survival will be determined via protective measures wherein the winners and/or losers are determined by government fiat.

If past experience is in any way predictive of future performance, the government's selection process may not ensure survival of the most efficient producers—with winners selected by political expedients as opposed to just market realities. How many jobs are at stake, how much money banks have to write off, and how much new investment manufacturers need to continue to participate in the market will ultimately be the deciding criteria. Unfortunately, which company makes the best quality panel in the most efficient manner will likely have less of an impact in the survival process. Only the derivative results will be looked at once politics enters and determines the decision-making procedure.

Of course, “we,” as a global society, are hoping for more market success and innovation not just for solar, but for all forms of renewable energy. We need the renewable energy process to work. Climate change is just one aspect of the need; we also need technology that captures the world’s imagination, whether it is solar, wind, biofuels or ocean tides. If we do not rally together and instead continue to fight each other through tariffs and trade restrictions, we will not conserve our dwindling natural resources. Without a dramatic increase in concern, the world will not be able to diversify its energy generation portfolio to include new technologies or even to make the correct long-term decision concerning the technologies that we know. We will continue to compare solar and wind to coal, and to select the short-run, low cost product that, for now, is the relatively dirty alternative: coal. In my best estimation, this path will not get us where we need to go. We shouldn't rush to embrace market solutions that are administered by those without the long term firmly in mind.

Back in the day, we had a saying: Short-term budget problems shouldn’t sink long-term goals and objectives. Historically, governments playing in the market only causes suspension and/or abandonment of logical processes. However, that may be the answer in this scenario, given the perceived time frame for a solution to emerge. Perhaps the sudden unilateral administrative action is the best path after all. Let’s go ahead and let China decide the correct path for them and for us. But until then, we’ll take one step at a time and deal with them each in turn, without looking ahead to the resultant market that is created. It’s clear the US is not comfortable with delaying action on its part. So, let’s just plow ahead and try to survive… Efficient markets be damned.

Our trade conflict with China over renewable energy issues is a conflict of our own making. China is simply responding to follies the US has made through large subsidies, production tax credits, and renewable performance standards and mandates. The worst thing that the government can do is to continue its industrial policy of propping up energy technologies that are not commercially viable. As former Treasury Secretary Larry Summers previously stated, the government is a poor venture capitalist.

Late last year, T J Rodgers, the CEO of Cypress Semiconductors, wrote about how government subsidies and industrial policy helped create the bizarre situation that has pushed the country to seek help from the World Trade Organization (WTO). He noted: “Here then, is a practical guide to the Obama administration’s nonsensical solar policy: Washington gives tax breaks to Wall Street to fund LLCs that buy solar panels from the Chinese to ‘help’ the American solar industry, while the [US International Trade Commission] threatens to levy a tariff on those solar panels, which would raise the price of solar energy to US homeowners.”

If we were not engaged in an energy industrial policy, China would not be making and selling us solar panels, wind turbines, and the like. The Chinese are not dumb.

If China wants to subsidize its production of renewable energy equipment, why should we care? The Obama Administration obviously wants them to charge higher prices so that domestic manufacturers can compete and consumers can pay more. Since none of this technology is commercially competitive on its own, even after being heavily subsidized for decades, the market is sending the a strong signal that the government continues to ignore.

The unintended consequences of such policies keep growing. First, the government decides that it knows when a technology will be market ready and offers subsidies including a production tax credit. Since the technology is not commercially viable, mandates have to be put into place that drive up electricity prices. The providers get that revenue and the benefit of a tax credit. All that is being accomplished in effect is we are making rent-seekers richer and squandering scarce resources, which adds to the deficit.

The Chinese see this nonsense and want a piece of the action, so they sell us equipment at a lower cost. The transaction simply reaffirms P.T. Barnum’s memorable observation “there is a sucker born every minute,” and that there’s someone ready to take advantage of him.

The rare earth elements issue is equally instructive. China has a virtual monopoly on their production – they control over 90 percent. One reason is that we have made their mining and production too expensive through environmental regulations. If we want to promote domestic mining and production, the government ought to do a thorough regulatory review to make sure that the regulations are no more stringent than actually necessary.

But such a review may not be likely. The President continues to harp on oil imports and dependency while promoting electric cars which need rare earths for their batteries. He seems not to understand that he wants to replace imports from the many with imports from a monopoly.

Trade wars are ugly. The Chinese will not sit by idly as the US presses a case through the WTO. Actions have consequences and it is doubtful that we will like the Chinese reactions, whatever they are. But in the end our own policies will have brought be responsible for them.The best thing for the government to is force renewable energy firms to stand on their own. Wind and solar can fill a niche but are unsuited for baseload power generation. The sooner the government grasps that the better off our economy will be; and the need to go to the WTO would vanish. Instead of compounding our follies, the government should invest in basic research that leads to the creation of new knowledge and innovation and let the market use that knowledge for our economic benefit.

This Wednesday, we anticipate that the U.S. Department of Commerce will affirm its preliminary finding that Chinese solar panel-makers are engaged in unfair trade practices, cementing major tariffs on Chinese solar products imported into the U.S. This is just the latest development in a growing series of renewable-energy trade disputes around the world. The Commerce Department is also considering similar action against wind tower imports from China and Vietnam. What’s more, renewable energy issues are increasingly subject to litigation at the World Trade Organization, including a recent U.S.-EU-Japan-China dispute on rare earth minerals, a key input in renewable energy technologies.

U.S.-China trade competition is also front and center on the presidential campaign trail, where both President Obama and GOP nominee Mitt Romney are challenging China’s trade practices.

In light of this week’s announcement, it’s more important than ever that the administration and Congress use diplomacy to resolve renewable energy trade issues, particularly between the U.S. and China. Trade litigation alone is not enough to solve the complex challenges that exist between our countries. Prior to these trade cases, the U.S. and Chinese solar industries enjoyed a strong, productive working relationship. For both sides to succeed, we must return to our collaborative roots at both the industry and government levels.

There are two possible paths for a solution: under the first, the U.S. and China work together to find a mutually-satisfactory resolution of the solar trade conflict, which the broader renewables community then builds upon to get ahead of and prevent future conflict in other sectors. Alternatively, we can continue down the path of litigation, resolve a few issues here and there, but also widen this divide, which then spreads to other sectors of renewable energy trade.

We must take the first path — these are global issues demanding global solutions, and that’s what SEIA has been working to achieve. We see a glimmer of progress. This week, trade groups and multinational companies have joined forces to call for collaborative, long-term solutions. They are working pro-actively with governments and civil society organizations to develop a green free trade approach that delivers economic growth and preserves environmental prosperity. Working through the World Economic Forum’s Green Growth Action Alliance (G2A2), this coalition of companies, public finance agencies, and leading non-governmental organizations is calling upon others to join these efforts to advance an economically and environmentally-sustainable green growth action agenda.

While Wednesday’s decision will rightly show that the U.S. is eager to protect its rights in the global trading system, it’s vital that this is accomplished in a way that adequately acknowledges the global nature of the growing renewable energy industry. Solar is now the fastest-growing industry in the U.S., even in the face of significant trade conflict and aggressive political attacks. If the opposing parties come to the table and work together to help grow this global industry, the possibilities are endless.

This is a hard and complex issue, even if it were not a Presidential election year. In October 7th's New York Times, reporter Keith Bradsher reported, "China's biggest solar panel makers are losing as much as $1 for every $3 of sales" even with large federal and local government subsidies. The Chinese counter that the US federal 30% investment tax credit tied to State government renewable energy portfolio standards and system benefit trust funds are in the same ball park. China is also using solar at large scale with Forbes reporting last year "Feb 28, 2011 – According to internal statistics, Chinese solar energy consumption was up and they recently completed a 1.65 GW solar project in Hefei. But in the end, the Obama Administration is making the right move to insure that the entire US solar manufacturing base doesn't collapse to over-subsidized one-country competition. Romney swings in both directions on this issue and due to his adamant lack of support for the extension of the wind production tax credit -- it is not clear what direction he would go. Chinese energy policy is truly "all the options" including the entire portfolio of renewables. China is a leading driver in using renewable resources itself so as to position itself as a lead in dominating the global markets. The US should be careful not to drive a trade war with China, but rather be very selective and discriminating as a way to seek market accommodation. The world needs a diverse set of players in the solar, renewable energy, storage, and energy efficiency industries. By rapidly expanding and "scaling" manufacturing and deployment of these energy applications, global employment will rise, greenhouse gases will be lower, and most importantly, dramatic energy price swings will be mitigated stabilizing global economies over-reliant globalized energy commodities.