Are China and the EU Preparing For a Trade War?

For much of February, solar stocks — LDK Solar (NYSE:LDK), Yingli Green Energy (NYSE:YGE), and Trina Solar Limited (NYSE:TSL) among them — have been etching out significant gains. But that rally was stopped abruptly by reports that the European Union and China may be nearing a solar trade war.

The executive body of the EU began investigating whether Chinese producers had been dumping solar panels into the European market back in early September of last year. Dumping is a practice aimed at securing market share by selling panels below cost, and the European Commission suspected that particular method had been hurting the EU’s own solar industry. In 2011, Chinese companies sold approximately $26.5 billion in solar panels and components to the region, a figure that represented 60 percent of all Chinese solar exports. The solar industry in China has boomed thanks to these profitable exports to Europe.

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When the investigation was first launched, Reuters reported that China’s Ministry of Commerce spokesman Shen Danyang said that restricting “China’s solar panel products will not only hurt the interests of both Chinese and European industry, [but] it will also wreck the healthy development of the global solar and clean energy sector.” Previously, as rumors that the EU was planning an investigation began to surface, China’s solar firms warned that such a move would prompt a trade war…

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