Yingli Green Energy Hold. Co. Ltd. (ADR) (YGE), Trina Solar Limited (ADR) (TSL): Europe Hasn’t Dropped the Hammer on Chinese Solar … Yet

Europe didn’t drop a hammer on the Chinese solar industry with its preliminary anti-dumping tariff, but it announced to the world that it’s ready to swing if China doesn’t play ball. The European Commission announced that starting tomorrow, an 11.8% duty will be charged for imported PV products from China, but that number jumps to between 37% and 67% on Aug. 6 if the EU and China can’t reach an alternative agreement.

A few weeks ago, European and Chinese officials sat down to discuss a way to raise prices on Chinese panels so they weren’t “dumped” on the European market at a loss, but the discussions quickly broke down, and tariffs were expected to be the alternative. The 37% to 67% number had been reported by The Wall Street Journal, but apparently Europe is willing to give a two-month extension while still displaying that it means business.

Impact on manufacturers
Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) and Trina Solar Limited (ADR) (NYSE:TSL) have already come out against the tariffs, which shouldn’t surprise anyone. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) says it would be hit with a 37.3% duty if we get to Aug. 6 without a deal, and Trina Solar Limited (ADR) (NYSE:TSL) will be at a very onerous 51.5%.

No doubt it would be bad for Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) and Trina Solar Limited (ADR) (NYSE:TSL), but it’s lower quality and highly leveraged manufacturers that have the most to lose. LDK Solar Co., Ltd (ADR) (NYSE:LDK) is basically insolvent without Europe and will continue to deteriorate financially. Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) has already defaulted on bonds and sent its largest manufacturing subsidiary into bankruptcy, and if Europe slaps even a 37% duty on imports, it will be in even more trouble.

The timing of tariffs couldn’t be worse for Chinese manufacturers. Last month, JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) CEO Xie Jian told the Financial Times that solar prices were beginning to stabilize and supply and demand would balance out long-term. If Europe puts hefty tariffs on imports, the demand could take another hit, and Chinese manufacturers would have to rely on China and Japan for even more demand.

A trade war erupts
There are also questions as to how China will react if major tariffs are implemented from Europe. There was little reaction when the U.S. imposed anti-dumping tariffs, but these were largely ineffective because of loopholes manufacturers could use to subvert them.