GTAT: Trade war hurts our sales in China
Thanks to companies like Nashua-based GT Advanced Technologies, the United States exports more clean energy technology to China than the other way around
Thanks to companies like Nashua-based GT Advanced Technologies, the United States exports more clean energy technology to China than the other way around, and that imbalance would grow even more in our favor if good trade relations are nurtured between the two countries.
That's the conclusion of a Pew Charitable Trusts report and webinar that featured the company as a case study to illustrate its point.
"We've been living the story the data tells," said Hoil Kim, vice president, general counsel and secretary of GTAT, during the webinar. He said the company has been lobbying against the escalating trade war with China.
The Pew data shows that the U.S. enjoyed a $1.63 billion trade surplus with China spanning across the three major aspects of clean energy industry -- solar, wind and "energy smart" technologies in 2011.
The results were "counterintuitive," said Phyllis Cuttino, director of Pew's clean energy program. "We were surprised by it. It was not what we expected."
While China exported the final product, and ships more finished goods into the United States, the U.S. shipped more capital equipment and specialized material -- and the latter was worth more than the former.
This was particular true when it comes to solar energy, which has been the flash point of a trade war between the two economic superpowers.
China has been flooding the world market with solar cells and modules. It shipped $2.65 billion of solar panels to the U.S., compared to a paltry $12 million the other way round.
But the U.S. shipped $2.2 billion worth of capital equipment used to make those cells and panels, as well as $1.5 billion in materials and wafers that the panels are made of. When you add it all together, the U.S. comes out ahead by more than $900 million.
Similarly, China builds the towers and turbines for most of the wind farms that are springing up around the U.S., but specialized blades and the electronics and control mechanisms are manufactured by U.S. companies, resulting in $146 million surplus.
As for energy smart technology, China manufactures LED lighting, but it spends six times more to get the capital equipment and material to do so.
All in all, in this category -- which includes everything from electric cars to smart metering -- the US enjoys a $571 million trade advantage.
GTAT doesn't have anything to do with the wind surplus, but is a major factor in the solar and LED trade advantage. The company makes the furnaces that produce polysilicon and sapphire crystals -- materials used in both industries -- as well as the equipment that makes the wafers that are turned into solar cells. .
"That technology was kept captive by a small number of companies, and we are making it available to a wider range of competitor," said Kim. "Almost every major solar company in China is a customer with GT. We provide all of the merchant polysilicon around the world."
This has fueled massive growth in the company since it went public. The report touts GTAT as a "clean energy success story," with 2011 revenue of nearly $900 million, up from $644 million in 2008.
But as one questioner pointed out, financial advantage doesn't necessarily translate into a lot of U.S. jobs. GTAT employs about 500 people, with only 200 in the New England region.
But the report failed to mention that GTAT recently laid off a quarter of its workforce. The company actually went into the red in 2012 by $63 million, partly due to a $159 million loss in the third quarter and $57 million goodwill write off, thanks to a glut in the solar cell market.
GTAT blames much of this slow down to the trade war.
Nat Bullard, a Bloomberg energy and China analyst who did much of the research for the report, said that there was a major change in trade patterns in 2012, resulting in a 37 percent slowdown in China's solar panel imports into the United States. Other countries, like Korea, have picked up the slack, and Bullard said that it still looks like the U.S. will still retain the advantage.
"We are in a flurry of legal activity impairing trade around the world, which is not productive in raising welfare for all the consumers involved," Bullard said.
"The uncertainties of trade, and the narrow understanding of it, contribute to the head winds in the solar industry," Kim said.
While Pew called for an increase in federal dollars going to research and development, GTAT said it would be content if the U.S. just got out of the way of free trade.
"GTAT has not taken government support," he said. "But we would like policies that don't impede on what we are doing. " He said the trade war is causing "a drag" on his company.
However, Kim said, GTAT is positioning itself for the next upswing in the capital equipment cycle in two ways.
One is developing material that would allow companies to produce more efficient solar cells, which would lower the cost per watt of generated power. That would in turn make solar energy more competitive and increase the demand for solar cells, as well as capital equipment and materials that produce them.
The second would produce a material that can cut into wafers with less waste, lowering the cost of solar cell production.
When asked if the U.S. should feel threatened by China's five-year plan to develop its clean energy industry, Kim responded, "The more aggressive the goals by the Chinese, the more opportunities there are for us." - BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIE