Why Tariffs on Chinese Solar are Good News for U.S. Manufacturing

The Department of Commerce (DOC) has announced big, new anti-dumping tariffs on Chinese-made solar panels. The American solar industry’s trade body, the Solar Energy Industries Association (SEIA), has worked actively to avert further tariffs on imported Chinese panels, arguing that it will do irreparable harm to the nascent industry, cause a slowdown in what has been one of the fastest-growing job markets in the country, and delay the timeline for making solar cost competitive with coal and natural gas.

And while SEIA’s argument is correct that cheap Chinese solar modules have been instrumental in bringing down the cost of solar and creating parity between coal-fired electricity and renewables, the group has also reinforced the unfortunate trend in the United States of focusing on the service economy at the expense of advanced manufacturing. And the artificial, government-subsidized plunge in Chinese solar modules prices over the past 10 years has further aggravated that short-sightedness.

Let’s be clear – cheap Chinese panels have been a boom for the U.S. solar industry only when it comes to the “downstream” – i.e. the service side of the business including installation, finance, etc. But they have largely been a bust for the “upstream”, i.e. solar manufacturing. And that has been driven by unfair (and well documented) government-backed support in China.

We don’t want to do anything to stop momentum in the downstream business. But we also don’t want the United States to surrender the future of solar manufacturing to China because of unfair competition.

Fair trade laws were created to prevent the abuse that occurs when large well-funded companies are allowed to price smaller, unprotected companies out of the market. And that is what has just happened in solar. As the CEO of one of those small companies, I have witnessed over 80 percent of my competitor companies in solar go out of business. While consolidation of a new industry is inevitable as it matures, many of those companies did not go out of business because they “failed”. Many of them hit their goals, but those goals became irrelevant as China priced them out of the market. U.S. investors gave up the fight, as they saw China pour tens of billions of dollars into propping up their domestic industry, which created massive overcapacity and companies selling below cost.

So while it is worthwhile having an active discussion about the level of tariffs that should be applied to Chinese solar panels, simply advocating for an end to tariffs is a slap in the face to U.S. manufacturing and the overall health of the U.S. solar industry. And while SolarWorld, which brought the trade case against China, is certainly no victim (they once hired Chinese companies to make their panels to benefit from the cost savings), they also have a legitimate point on market fairness.

When an earlier round of tariffs were put in place, many claimed there would be dire consequences, yet we had one of the highest growth years in solar ever in 2013. Of course, that was because the first tariffs had loopholes that any decent businessman could find and exploit. Now, even though those loopholes may be closed, one should never under-estimate the ingenuity of business people around the world to find ways to reduce costs and drive the market. In fact, solar panel costs are not even the main cost driver anymore. That honor belongs to soft costs, particularly in the United States where soft costs are double that of countries like Germany and Australia. Let’s focus on soft costs if we want to facilitate faster deployment of solar.

As for jobs, beside the fact that solar employment continues to increase in spite of tariffs, our discussion needs to include manufacturing jobs as well. Have we just given up on manufacturing? It is well known that manufacturing jobs have a multiplier effect, contributing more to the economy than equal-paying service jobs. Tariffs will provide an opportunity to create jobs on the upstream side of solar (as witnessed by SolarCity’s recent acquisition of U.S.-based manufacturer Silevo); that is a very good thing. For those that say the United States cannot compete in manufacturing, the reality is quite different. Using advanced manufacturing techniques pioneered here in the U.S. combined with thin film solar technology also pioneered here, solar panels can be made in the United States for less than $0.30/watt, a number no manufacturer in China is likely to ever hit using today’s dominant technology – crystalline silicon.

With better quality control, high speed automated tools, and advanced thin film technology, the U.S. can make solar panels at lower cost and higher quality than manufacturers in China.

SEIA has proposed a settlement under which further tariffs would be avoided if Chinese companies agreed to create a fund that would benefit U.S. solar manufacturers directly. But that might as well be an admission of defeat for U.S. manufacturing. The United States should become the leading solar country in the world, but not at the expense of allowing others to break the law. In fact, we can become leaders in both the upstream and downstream sides of solar. Let’s support fair trade practices and provide the opportunity to create solar manufacturing jobs here in the U.S.

Brad Mattson is author of the upcoming book, “The Solar Phoenix: How American Can Rise from the Ashes of Solyndra to Global Leadership of Solar 2.0”, and CEO of Siva Power, an advanced solar technology company based in Silicon Valley.

Morning Consult