Obama’s decision to get re-elected and avoid trade war with China

As it goes with having the world’s most vibrant economy, China is the target of heated accusations of cheating to get there. Often it is guilty as charged, which is the case with a decision yesterday by the Obama administration to slap tariffs on Chinese solar module manufacturers after a finding that they are illegally subsidized.

Yet, did China in fact get off easy? The answer is yes, and the reason is President Barack Obama’s conflicting duties — to avoid a dangerous trade war with China, while also winning re-election.

Here briefly are the facts: In October, a group of U.S. solar panel makers filed a complaint saying that Chinese rivals were driving them out of business on the back of government subsidies. To charges that U.S. companies are subsidized, too, the plaintiffs said that, unlike their Chinese rivals, 95 percent of their product is not aimed at exports.

To even the playing field, they sought high tariffs on Chinese-made panels. In December, the International Trade Commission sided with the U.S. companies, and yesterday, the U.S. Commerce Department followed up with the penalty: a 2.9 percent duty on products sold by a Chinese company called SunTech, a 4.73 percent duty on Trina Solar, and 3.61 on the rest of China’s solar producers and exporters.

No one — not the American plaintiffs nor the Chinese defendants — complained. The New York Times’ Keith Bradsher and Matt Wald quote a Chinese official named Li Junfeng: "I’m happy that it’s not a lot, but not surprised — the Chinese government does not give too many subsidies to the companies."

The backdrop is layered: The Chinese juggernaut has been a key issue in the U.S. presidential campaign, as it has been in previous recent election cycles. Republicans say that Obama is soft on China, and that if they were in power, they would let Beijing know who is boss.

So in response, the Administration has made essentially an election-year decision. By issuing tariffs, Obama benefits from appearing arguably tough against China, while at the same time it lessens the chances of further aggravating Beijing: The tariffs are comparatively low, and they include an escape route — if any of the penalized Chinese solar-module markers build their products in a third country, there is no tariff. "Low cost, relatively high return for Obama," Larry Sabato, a professor at the University of Virginia, told me by email.

Amir Rozwadowski, an analyst with Barclays Capital, told clients that "China is not out of the woods yet," since higher tariffs could come in a companion ruling May 17 on the dumping portion of the complaint. So far, though, the administration has be measured. Rozwadowski said in his note:

This does provide a window by which Chinese module vendors could circumvent the tariff. While likely costing them more upfront to invest/partner in order to produce cells elsewhere, the ruling does not prevent them from doing so.

Look for plenty of more opportunity in the coming months for election-led trade tension. Just last week, the Obama Administration, along with Japan and the European Union, filed a complaint to force Beijing to open up its exports of rare earth elements, which go into high-tech, clean-tech and military products.