Tensions between the United States and China were ratcheted up recently when the Obama administration said it would investigate complaints of unfair trade policies in China connected to renewable energy. But a controversial wind farm project in Texas could offer a model for greater cooperation. It is succeeding because the manufacturing of hundreds of wind turbines will be split between the two countries.

The 600-megawatt wind project was announced last year by investors in China and the United States. It will involve the construction of about 300 wind turbines and will draw on financing from both Chinese banks and from the 2009 U.S. Recovery Act.

Several U.S. senators cried foul about the project, complaining that most of the jobs it would create would be in China, where construction of the turbines would take place. The project became a rallying point for opposition to the stimulus bill, as the senators called for a freeze in spending until a new law could be passed requiring that all of the funded renewable energy projects use equipment manufactured in the United States.

Since then, tensions between the United States and China over energy projects have mounted, reaching a high point recently when the United Steelworkers union filed a formal complaint about government subsidies paid to Chinese energy companies and other policies that it said violated World Trade Organization agreements. Last month, the Obama administration agreed to investigate the complaint, the next step before the matter is officially brought before the WTO. The move drew an indignant response from Chinese officials, who asserted that Chinese subsidies were matched by subsidies provided by the U.S. government.

But even as the United Steelworkers union was formulating its complaint, it was working on an agreement that would clear the way for the proposed Texas wind farm to continue—an agreement that suggests how China and the United States can work together to help scale up renewable energy production and drive down costs.

The original plan called for all of the wind turbines to be manufactured in China, then shipped to the U.S. for installation. This setup would create thousands of jobs in China, and only a few hundred in the United States. While most of the financing for the project would come from China, the project leaders made it clear that the success of the project depended on help from the Recovery Act—with several reports suggesting that about 30 percent of the funding could come from stimulus grants.

Senator Charles Schumer (D-New York) wrote to Energy Secretary Steven Chu, advising him to deny any Recovery Act funds to the project. “The idea that stimulus funds would be used to create jobs overseas is quite troubling, and therefore I urge you to reject any request for stimulus money unless the high-value components, including the wind turbines, are manufactured in the United States,” he wrote.

The project developers responded by announcing plans to build a wind turbine assembly plant in the United States that will eventually create 1,000 jobs, and may supply some of the turbines for the Texas project. Then the United Steelworkers announced a deal with A-Power, the Chinese contractor and manufacturer for the project. Many turbine parts will still be manufactured in China, but A-Power has agreed to buy 50,000 tons of U.S. steel for the project and make key parts of the turbine, such as the main towers, in the United States.

As well as mollifying the opposition, the new assembly plant and the steel agreement will give A-Power access to the very large wind-power market in the U.S. Although U.S. steel is more expensive than Chinese steel, A-Power says that it breaks even by saving on shipping costs from China. “The overall costs are more or less the same,” says Sun Kai, vice president and senior accountant at Liaoning Hi-Tech Energy Group, A-Power’s parent company.

Other Chinese wind companies are now considering similar approaches to accessing the U.S. wind market. For example, Goldwind Global, one of the biggest Chinese manufacturers, has announced it is considering building an assembly plant in the United States.

The agreement between the United Steelworkers and A-Power is a model that can be copied by other companies, says Joanna Lewis, a professor of science, technology, and international affairs at Georgetown University, although she notes that the specifics of each deal—such as what parts will be manufactured in the U.S.—will vary from company to company. “A-Power has managed the situation well, working with the U.S. so that both sides benefit,” she says.