The escalation of a trade war between the US and China over solar power components threatens to do serious damage to the American industry, its leading association has warned.

Hostilities rose with a missive issued by the China’s Ministry of Commerce to the United States on Sunday over its anti-dumping measures and counter investigations on Chinese solar products.

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“China will closely follow the case, assess the impact on the Chinese solar sector and resolutely safeguard our interests through various mechanism,” the ministry said in a statement reported by its state media.

The ministry added that a probe into Chinese solar cells that opened in November 2011 did little to help improve the performance of the US solar industry.

The US commerce department said last week that it would investigate a complaint that Chinese manufacturers were using loopholes in import duties imposed in 2012 to continue selling at illegally low prices in the American market.

The Solar Energy Industries Association said that if the US went ahead with a new round of import duties hitting solar panels from China and Taiwan, it would cut off the supply of low-cost equipment that has been a critical factor in the industry’s rapid growth in recent years.

The association represents companies working on installing and maintaining solar power, as well as manufacturers. Many of its members have benefited from the influx of cheap Chinese panels that has helped solar power compete with fossil fuels.

SEIA urged the government to reach a compromise with Chinese manufacturers that would allow continued imports while providing some relief for companies with US factories that have complained of illegal competition.

John Smirnow of SEIA said: “As the conflict escalates, the threat to the industry grows.”

US imports of Chinese polysilicon photovoltaic cells – the components that are assembled into panels – face two sets of duties: one because manufacturers were selling at prices less than their costs, and one because they had benefited from subsidies from the Chinese government.

SolarWorld, a German company that owns a large solar panel factory in Oregon, in December filed a complaint that Chinese companies had been able to avoid the tariffs by using cells made in Taiwan, while keeping the rest of their manufacturing in China.

The commerce department is now investigating whether photovoltaic cells from Taiwan are being dumped – sold at a below-cost price – in the US, and whether other solar products from China are being dumped or benefiting from government subsidies.

The import duties from 2012 so far have not had a very significant effect on the US market, analysts say, because of Chinese companies’ ability to use cells from Taiwan. The price of panels, which had been in free fall, levelled out last year, but that was a global phenomenon caused by the loss of some Chinese capacity and increased demand in China and Japan.

Chinese manufacturers’ share of the US market fell, but only modestly: from 57 per cent in 2012 to 49 per cent in 2013, according to GTM Research.

However, if the commerce department finds that there has been illegal competition from the Taiwanese cells and levies a new set of duties, the impact is expected to be much more serious.

Shayle Kann of GTM Research said: “This time, there is no value chain strategy that would let the Chinese companies avoid these duties.”