By: Sam Reynolds
Over the last decade, the worldwide price of solar panels has plunged 90 percent. For many, this is a breakthrough development in the transition to a low-carbon global economy; for others, it is simply the result of unfair Chinese trade practices—cash grants, preferential loans, subsidized inputs and others—enabling their photovoltaic manufacturers to dump products into foreign markets.
Last February, U.S. President Trump imposed tariffs of up to 30 percent on imported solar panels, increasing import duties levied by the Obama administration. The tariffs are part of Trump’s efforts to take special aim at Xi Jinping’s “Made in China 2025” strategy, which identifies ten key sectors for industrial growth. Trump believes that blocking unfair industrial policies will restore jobs in America.
However, on June 7, 2018, solar panel developers announced that trade barriers caused them to freeze $2.5 billion in investments for large, utility-scale projects, along with thousands of jobs.
The tariffs are extremely detrimental to the American solar industry and are indicative of a deepening divide in science and technology: As China prioritizes research and innovation as engines of growth, the United States moves in the opposite direction, scrapping domestic supports for its producers and reneging on commitments to international environmental agreements.
China’s dominance in photovoltaic manufacturing is not only borne from a desire to outmaneuver American producers, but out of a broader international political context that has altered the motives for innovation. Understanding the interplay between science and diplomacy leads to a view of the industry that is more than zero-sum. Outcomes of mutual technological gains and economic benefits abound. A more coherent U.S. policy must embrace these opportunities, not deny them.
China goes all in, America walks away from the table
As a result of its increasing focus on research and development (R&D) for long-term development, China has been able to realize the economic potential of international environmental agreements while the United States has retreated.
From 2013 to 2018, China doubled its funding for basic sciences and became the leader in science and engineering articles worldwide. China’s spending on R&D increased by 20 percent each year from 2003 to 2013, and many predict that its R&D expenditure, in absolute terms, will surpass the United States’ in a matter of years.
In the 2015 Paris Agreement, China saw opportunities to export solar panels worldwide and correct severe market failures at home, namely energy poverty and pollution. Upon committing to capping its CO2 emissions by 2030, China made plans to invest nearly $400 billion in renewable energy by 2020, creating over 13 million jobs. That same year, it doubled its domestic solar capacity and achieved total electrification. After being rated the deadliest country on the planet for air pollution, it set a goal of 105 gigawatts (GW) of solar power by 2020. It surpassed its goal in 2017, three years ahead of schedule.
Months later, President Trump declared his intention to withdraw from the Paris Agreement altogether.
The effectiveness of U.S. tariffs
Rather than protect manufacturers, trade restrictions have the opposite effect. Except for the two companies that requested tariffs, Suniva and Solarworld, nearly the entire industry, even Sean Hannity, was against them. American companies like SunPower that manufacture overseas became subject to import duties. SunPower estimated a $55 million loss from the tariffs, and cancelled $20 million in investments for the American solar industry. Solar installation was the fastest growing job category in the United States, but tariffs will cut an estimated 23,000 U.S. jobs this year.
The import duties will not generate increased domestic manufacturing because much of the growth in the U.S. solar industry is not in manufacturing. While China has dominated assembly processes, its share of upstream areas of the supply chain—silicon purification, and ingot and wafer manufacturing—has been relatively small. The United States accounts for a large portion of the upstream production processes worldwide.
There are opportunities for trade based on comparative advantage. Understanding the technical aspects of solar panel construction reveals where the United States’ advantages lie and the rippling effects of trade protectionism.
Overall, the trade barriers are expected to slow the deployment of solar panels in the United States 20 percent by 2019. The tariffs were not levied to encourage the U.S. solar industry; they were done in support of an America-first ideology that has caused drastically more harm than good for one of the fastest growing sectors of the U.S. economy.
A better strategy
China supported its solar manufacturing industry by increasing funding for R&D, rural electrification subsidies, large government projects and leadership in international environmental negotiations.
In the United States, meanwhile, President Trump championed trade protections but also proposed large cuts in government research spending, scrapped NASA’s carbon dioxide monitoring program, and initiated an EPA review of the Obama administration’s Clean Power Plan with the goal of terminating it. This incoherence is a recipe for disaster. Trade policies must go hand in hand with domestic supports.
There are opportunities for cooperation, and science plays a large role. In 2009, the U.S. Department of Energy and China’s Ministry of Science and Technology launched the jointly-run Clean Energy Research Center, bringing together scientists in support of renewable energy development, and the Energy Efficiency Action Plan to promote wider penetration of energy-efficient technologies. China recently proposed the construction of a $50 trillion global energy grid, with large transmission lines connecting countries to energy bases in the North Pole. This project might be overly ambitious for numerous reasons, but it is an example of an area where scientific cooperation could lead to mutual gains.
There is also an enormous role for international diplomacy. In joining the United Nations Framework Convention on Climate Change, national governments agreed that steps must be taken to fight climate change by reducing greenhouse gas emissions. Once that commitment is sincere, countries can reach mutually-beneficial trade agreements according to comparative advantages. Participation in global negotiations stimulates industry by opening markets worldwide, while concomitantly providing for the planet’s sustainable future.
The United States can no longer afford to dismiss international negotiations. It must support science through economic policy and diplomacy. Prospects for economic growth and global leadership depend on it.
Sam Reynolds is pursuing his master’s degree in international relations from the Johns Hopkins School of Advanced International Studies. His primary areas of interest include the geopolitics of climate change, migration, and science diplomacy. He is currently an intern in the Asia-Pacific program of the EastWest Institute.