U.S. solar-panel makers have long complained that their Chinese rivals are unfairly subsidized by the government. On Tuesday, the Commerce Department said it would impose modest tariffs on Chinese solar cells. Further penalties could be on the way. So who benefits from a solar trade war?
The jobs question. In the past 18 months, according to SolarWorld, cheap Chinese imports have pushed at least seven U.S. solar-panel makers into bankruptcy. And that’s not counting cutbacks or downsizing. U.S. solar manufacturers say that the Commerce Department’s new tariffs, which impose a 3.61 percent charge on imports from most subsidized Chinese companies, are far too low to halt the massacre. They’re hoping that steeper penalties will come in May, after the government hears a dumping case against Chinese firms.
Yet panel manfacturers aren’t the only solar people around. The installation business now accounts for 52 percent of all U.S. solar industry jobs, according to the Coalition for Affordable Solar Energy. And other U.S. companies export manufacturing machinery and raw materials like polysilicon to Chinese solar makers, which is why, in 2011, we still had a trade surplus in solar goods with China. Steeper tariffs could, potentially, hurt those American firms. Research by the Brattle Group found that a huge solar trade war with China — one that involved tariffs of 50 percent to 100 percent, coupled with Chinese retaliation — could lead to 60,000 U.S. job losses in 2014.
The “cheaper solar” question. Another question is whether cheaper solar panels are really such a terrible thing from an energy perspective. The U.S. retail price of solar power is now about half of what it was five years ago. Solar installations doubled in 2011, and we’re fast reaching the point where solar can compete with traditional fossil fuel sources. If China wants to spend extra money providing us with cheaper electricity sources, why should we complain?
On the other hand, there’s no guarantee that Chinese solar panels will always be cheap if China corners the world market. The country spent years flooding the world with cheap rare earth metals, and now that it has a monopoly, China is hiking prices.
What’s more, it’s not clear whether steeper tariffs on China would necessarily cause the price of solar to skyrocket. For one, there is currently an oversupply of solar modules on the world market, which should make it easier to fill any shortfall left by China. While the Brattle Group estimated that a steep tariff (say, 50 to 100 percent) could jack up U.S. solar prices by 25 to 30 percent, other solar analysts say the precise effect is hard to forecast, because of the global glut.
The innovation question. There’s another, more subtle argument about the effects of China’s subsidized solar panels. This is the argument that, sure, it’s nice that China’s flooding the United States with cheap panels, but they’re also putting more innovative U.S. companies out of business — and we need that innovation for solar to truly catch on in the long run. (For all the recent hype, solar still provides less than 1 percent of the country’s electricity.)
It’s hard to predict how tariffs might affect innovation. At the moment, low Chinese prices are spurring some U.S. manufacturers to experiment with new technologies, like thin film, that helps drive down prices even further. Would that innovation continue with less competition from China? Or do U.S. companies that are breaking in with innovative new ideas need higher prices, driven by tariffs, to gain a foothold in the market?
Melanie Hart and Kate Gordon have a nuanced take on this question over at the Center for American Progress. They argue that most of the fanfare over China is beside the point. It’d be far better to bolster the industry with policies that create strong demand for solar — say, with a federal clean-energy standard — than with tariffs on imports. “Whether the U.S. solar market continues to grow,” they note, “may depend much more on demand-side policies than on access to cheap Chinese imports.” Then again, clean-energy subsidies are a non-starter in the current GOP-controlled House, while a trade war is an easier sell, politically.
Update: Commenters note that China’s solar subsidies may not last forever once it’s cornered the market. Fair point. A similar situation transpired in the rare-earth market, where China now has a virtual monopoly.