Mike Stewart/AP Photo
An employee works on a solar panel inside the Hanwha Qcells solar plant, October 16, 2023, in Dalton, Georgia.
Last Friday, the U.S. International Trade Commission (USITC) voted unanimously to advance investigations of solar imports from Chinese-headquartered companies in Cambodia, Malaysia, Thailand, and Vietnam, stating that “there is a reasonable indication that a U.S. industry is materially injured” by the shipments. Though the Southeast Asian companies claim to engage in actual manufacturing at these sites, U.S. solar manufacturers allege that Chinese components are merely routed through there to avoid tariffs and restrictions.
The USITC action, which should yield preliminary conclusions next month, could aid the survival of domestic solar manufacturers that initiated the investigation in April. The administration is trying to make up for lost time, after President Biden invoked emergency measures of the Smoot-Hawley Tariff Act two years ago to delay penalties on Chinese solar companies that were circumventing tariffs through transshipments. That delay, part of a successful lobbying effort by solar installers to keep the cheap foreign components flowing, stunted the growth of a homegrown solar manufacturing industry meant to benefit from the investments of the Inflation Reduction Act.
“Every single Democrat who voted for the IRA said they wanted to create a full-scale solar supply chain in the U.S.,” said Nick Iacovella of the Coalition for a Prosperous America, a domestic manufacturing group that has long warned of Chinese monopolization of solar production. “The tariff moratorium could not have been more damaging … it gave the Chinese a window to do something illegal.”
With largely duty-free access, U.S. imports of solar panels rose 82 percent in 2023, while prices dropped by 50 percent. Around 84 percent of those imports come from those four Southeast Asian countries.
A new report out by Wood MacKenzie ranks the top 12 solar module manufacturers globally, and nine of them are Chinese. The production capacity of these companies would “satisfy global demand twice,” according to the report. Estimates indicate that China produces more than 80 percent of all shipments across the solar supply chain.
The moratorium on tariffs expired last week, and accounting for the USITC action and a doubling of the regular tariff rate on solar cells, there are now seven different trade policies and import tariffs on solar components, according to Clean Energy Associates, a research group. Senior administration officials including Treasury Secretary Janet Yellen and National Economic Council director Lael Brainard have warned about the risks of Chinese overproduction in solar and other clean-energy goods. “The President is leading the way on an approach that invests in America and stands up for American workers against China’s unfair practices, following years of trickledown policies that hollowed out too many factory towns around the country,” Brainard said.
But the question is whether it’s too late to save solar manufacturing in the U.S.
WE’VE BEEN HERE BEFORE. The investments in the domestic solar energy sector in the Obama administration’s 2009 stimulus bill were essentially wasted because of Chinese dumping solar panels below cost. Chinese components are estimated at one-third the price of their U.S. counterparts, forcing domestic companies to sell at a loss to compete.
While this difference only translates to a small percentage of the overall cost of a utility-scale solar project—well below 10 percent, according to expert sources—solar installers and their associated trade group, the Solar Energy Industries Association (SEIA), obviously prefer super-cheap components. Even now, we see headlines about solar installers “bracing” for higher costs, despite components being a relatively minor portion of the cost mix. SEIA and other groups opposed the USITC investigation for presumably “creat[ing] market uncertainty,” while claiming to support a domestic solar supply chain.
In 2012, President Obama recognized the lost investment from the stimulus bill, and slapped a 25 percent tariff on imported solar cells. That’s the same tariff that Biden doubled last month. But Chinese solar companies turned to transshipment to circumvent the tariffs. The Commerce Department definitively found that circumvention was happening last year, but it was barred from acting to impose duties until last week because of the Biden executive order.
While the two-year moratorium was considered a “bridge” to fill in supply until U.S. manufacturers could ramp up operations, it really allowed Chinese firms to flood the U.S. market and rocket down price. “They flooded us with modules and dropped the price, so it basically gutted the market,” said Michael Stumo, CEO of the Coalition for a Prosperous America.
As a result, the vast majority of solar panels being installed in America have Chinese components. Republicans with the Virginia delegation in Congress this week questioned whether solar panels now being erected at the Pentagon were Chinese-made or transshipped from Southeast Asian countries.
At the surface level, this poses a conundrum for government policy: Should the U.S. allow cheap imports to rapidly build out renewable energy, or protect its investments in solar manufacturing? But this tension melts away the more you dig into the particulars.
The vast majority of solar panels being installed in America have Chinese components.
First, Chinese companies supplying solar modules to the U.S. have all been credibly accused of using slave labor in the prohibited Uyghur region. (SEIA has in the past had U.S. subsidiaries of those Chinese companies as members of their coalition.) At some point, the moral obligations of abstaining from slavery ought to take precedence over having cheaper solar installations, or at least require adherence to U.S. laws like the Uyghur Forced Labor Prevention Act.
Next, a centralized solar manufacturing sector leaves the world reliant on a foreign power for energy needs, essentially substituting China for the OPEC nations that have held the world hostage to fossil fuel production for decades. As we saw during the supply chain crunch, concentrated supply chains can break due to sudden shocks, triggered by labor shortages or extreme weather or geopolitical leverage. In this case, conceding solar to China gives over the industry to a country that, while greening its energy mix, continues to use lots of coal for industrial production, partially nullifying the effect of building clean-energy components.
Moreover, these Chinese practices are not limited to solar markets. As a letter sent to the USITC and Commerce Secretary Gina Raimondo earlier this month from 14 Democratic members of Congress stressed, solar is one of three strategic industries in clean energy that China is trying to dominate, along with electric vehicles and batteries. If trade laws mean anything, the Democrats argued, they must be enforced regardless of industry.
There is bipartisan support for sustaining a domestic solar industry. A second letter from six Republican House members mirrored Democratic support for the USITC investigation. “Despite significant investment, robust demand, and a growing workforce, American workers cannot compete when the deck is stacked against them so severely,” the Republican letter stated.
Finally, there is enough of a glut in production right now to facilitate the transition without affecting installations. According to Iacovella, more than two years’ worth of panels are sitting in U.S. warehouses. Countervailing and anti-dumping duties work retroactively, so any imports that haven’t been installed once the duties are finalized would be liable. This has triggered a scramble before a December deadline to draw down this large glut of import stocks. Moreover, it’s hard to make the argument that cracking down on trade law violations would disrupt installations, when the industry could draw down inventories for two years.
“We shouldn’t make policies based on the companies installing the product,” Iacovella said. “We should start with the companies manufacturing the product.” Whereas installation-driven policies focus on the cheapest inputs and exacerbate supply chain risks, manufacturing-driven policies can reduce those risks while improving the job quality and dynamism of industrial towns, as well as boosting efficiency. “The best innovation happens on the factory floor,” as Iacovella put it.
THE INFLATION REDUCTION ACT PROVIDED long-elusive certainty to domestic solar companies, and according to the White House there has been $17 billion in planned investments in domestic solar manufacturing during the Biden presidency. Clean Investment Monitor estimates that domestic solar manufacturing investments increased by 248 percent year over year in the first quarter of 2024. Buy America laws and procurement policies have also helped to keep manufacturers alive.
REC Silicon is the first solar manufacturer to revive the production of polysilicon, a key ingredient for most solar panels, in a domestic factory, in partnership with Qcells, a Korean firm. Qcells is also using a new cost-saving technology for solar production that could help compete with Chinese companies on cost. First Solar, unquestionably the biggest domestic manufacturer, doesn’t use polysilicon in its thin-film panels. The company, based in Arizona, received $710 million in 2023 alone from IRA subsidies. It has factories overseas, but does not rely primarily on Chinese inputs.
But this is all a flyspeck compared to what China is doing in the solar space. “The profitability hit for [domestic producers] to gain strength to build more plants was pretty severe,” Stumo said. “The predatory behavior weakened China’s competitors here.” At least one domestic producer, Cubic PV, has canceled a wafer factory in the U.S. because prices have plummeted.
In short, Chinese dominance of the solar market risks the waste of taxpayer investments to boost domestic manufacturing. And First Solar has said they cannot sustain their place in the industry on an unlevel playing field.
The end of the moratorium, however, has had a positive effect; LONGi and Trina Solar suspended production at some Southeast Asian factories last week, anticipating the crackdown. The resumption of tariffs on imports could help domestic companies attract investment.
But more needs to be done to repair the damage from keeping the door open for Chinese solar for the past two years, according to the Coalition for a Prosperous America. First, the U.S. can complete the domestic content bonus rule, which would give additional incentives to producers to use U.S. components in solar installations. The Treasury Department released guidance on the domestic content bonus last month for steel and iron, but it has yet to address solar production.
This delay has also been characterized as giving time for domestic manufacturing to ramp up. But that could be built into the domestic content bonus rule; continuing to lag on finalizing the rule just moves that timeline out.
Second, Chinese companies are currently able to shift final assembly facilities to the U.S. and take advantage of IRA tax credits. This would essentially move the transshipment problem from Southeast Asia right into our backyard, and while it would increase domestic manufacturing, it would not solve the monopoly problem with respect to components. Legislative action could solve this, but the White House could also bar “foreign entities of concern” from receiving IRA tax credits.
How to structure that is an open question. “Our trade laws are based on geographical origin of the good, but when BYD is setting up in Mexico, geographical origin doesn’t do it,” said Stumo. He thinks that the level of foreign influence and access to a company, rather than the percentage of foreign ownership, is how to make sure that a tax credit ban would actually work. “We need everything out until we let it in,” he said. “Right now, it’s everything’s in until we take four years to decide if we should keep it out.”
In the absence of a policy, Chinese companies are already angling to take advantage of site locations. One manufacturer, Trina Solar, has applied to operate a solar assembly plant in a “foreign-trade zone” at the Dallas Fort Worth Airport; that application is under review. This would allow Trina, one of the companies the Commerce Department found was circumventing tariffs through Southeast Asia, to avoid those duties. “It would be crazy to have a company that’s already violating the law enter a free trade zone,” Iacovella said. JA Solar, another Chinese solar company, is already approved to work in a foreign trade zone in Phoenix.
One outstanding question is what a U.S. solar supply chain will look like in its own right if government policy is reconciled to rescue domestic production. Already, First Solar forecast a 60 percent market share among U.S. manufacturers in utility-scale installations last year. The future could see just a handful of U.S. solar companies dominating manufacturing.
But that’s a second-order problem, says Iacovella. “China has a monopoly on the industry. That is the only monopoly we should be concerned about.”
