A proposal launched on Tuesday by Senators Charles Schumer (D-N.Y.) and Sherrod Brown (D-Ohio) could bar Chinese-made solar panels from qualifying for the existing 30% tax credit that U.S. individuals and businesses receive for purchasing and installing solar panels.

The proposal would add a domestic content requirement to the Energy Investment Credit and Residential Energy Efficient Property Credit (both expire in 2016), mandating that 70% of the parts of a solar panel qualifying for the tax credit must be made in the U.S., or, if the final point of manufacture is the U.S., then 50% of the parts must be U.S.-made.

The move comes as the Commerce Department prepares to announce a preliminary decision—that could come as soon as today (Thursday)—on an antidumping petition against Chinese solar manufacturers.

In March, the Commerce Department imposed countervailing duties on the imports of Chinese crystalline silicon photovoltaic cells and modules, but the tariffs were smaller than some solar companies had petitioned for, ranging from 2.9% to 4.73%, depending on which company manufactured them. The tariffs being decided this week could be much higher—as much as 100%—and could have major implications for U.S. companies using Chinese materials in their products.

The senators alleged in a joint statement on Tuesday that Chinese companies have been able to dominate the world’s solar industry so quickly in part because “they have taken large, government-subsidized loans from banks.” These subsidized rates have led to “plunging prices for wholesale solar panel makers in the U.S.,” at approximately $1 a watt of capacity today, down from $1.80 in January and $3.30 in 2008, they said.

According to the Energy Information Administration, 57% of all solar photovoltaic cells sold in the U.S. in 2009 were imported. China was responsible for half of the world’s production of solar panels in 2008, although 99% were exported, the senators alleged. The IRS provides tax incentives for all solar panels sold and installed in the U.S., “no matter where they are made,” and “it makes no sense to let Chinese companies take advantage of these tax credits, on top of the built-in subsidies it already enjoys back in China,” they said.

“The federal government has to take China’s strangle-hold on the solar power industry very seriously, and U.S. manufacturers must have every arrow in their quiver to fight back,” said Senator Schumer. “This proposal is tough, but it’s needed to successfully counter China’s unfair trade practices. This hard-hitting plan will level the playing field for U.S. solar producers so that they can compete, create jobs and become a global leader in this rapidly-growing industry.”

“We can’t trade our dependence on foreign oil for a dependence on Chinese-made solar panels,” Senator Brown said. “We went from a solar trade surplus with China to a solar trade deficit in a matter of years. . . . When the Chinese government provides direct export subsidies to its solar manufacturers that’s not competing—it’s cheating. And it’s costing American jobs in solar manufacturing.”

Sources: POWERnews, Sens. Schumer and Brown, EIA