With Western media reports about China’s environmental situation focusing largely on air and water pollution, the nation of 1.4 billion people often does not receive proper consideration as a leader in sustainability. Over the course of the last 15 years, however, China has rapidly ascended to the role of the world’s unequivocal solar energy leader.
China’s solar market has been thrust into the international spotlight in recent weeks with U.S. President Donald Trump’s decision to levy protective import tariffs against foreign-manufactured solar photovoltaic (PV) cells and modules. While the tariffs, starting at 30 percent in the first year and dropping down to 15 percent by the fourth year, apply to imports from all countries, they are largely a response to cheap Chinese products and companies moving manufacturing operations into neighboring countries. But how did China’s solar products come to be the focus of international trade disputes? And what will happen next?
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In the early 2000s, recognizing the growing international demand for solar power resulting from installation subsidies in Europe, China began focusing on exports and classified the PV industry as a key industry moving forward. Due to this classification, PV manufacturers qualified for financial support in the form of export credits, guarantees, and insurance. The government’s promotion of solar PV production rapidly influenced China’s role in the global market. In 2003, China’s market share of solar cell and module production stood at 1.6 percent; in 2007, China became the global leader in solar production with a market share of 27 percent.
China then solidified its role as the world’s solar PV manufacturing leader following the global financial crisis in 2008. Due to a government stimulus package to fund key industries, the China Development Bank (CDB) opened a US $30 billion line of credit for solar cell and module manufacturers in China. Even though Chinese firms had to pay high market rates on their loans, Chinese manufacturers still had access to funding when commercial banks and private investors in the West were not interested in funding solar. Financed by these investments, China’s global share of PV cell manufacturing nearly doubled from 2009 to 2011, rising from 32 percent to 60 percent.
History of Solar Trade Tariffs
Import tariffs levied against Chinese solar products are nothing new. Based on an investigation in 2012, the International Trade Commission and U.S. Department of Commerce (DOC) determined that Chinese manufacturers received imbalanced subsidies from the Chinese government, and that U.S. manufacturers were subsequently harmed by the Chinese products being dumped on the U.S. market. The DOC accordingly set duties averaging 31 percent on solar products imported from China.
However, using a loophole in the final ruling, Chinese manufacturers circumvented the duties by importing cells manufactured in other countries, primarily Taiwan, and then assembling the modules in China. Following another petition and investigation, the loophole was closed with another round of import duties in 2014.
Domestic Installations and New Export Markets
Due to the U.S. tariffs and similar ones implemented in the EU, China moved to limit its reliance on western solar markets through two primary means: increasing domestic installations and expanding into new export markets.
As China’s solar manufacturing capacity grew in the years following the 2008 fiscal crisis, solar demand worldwide decreased. The Chinese government responded by developing initiatives to increase solar deployment across the nation as a means of absorbing excess production that could not be exported. In 2009, the central government launched the Golden Sun Demonstration Project and the Solar Roofs Program, firmly establishing domestic solar installations as a top priority.
To continue expanding on this success, the government introduced a feed-in tariff (FIT) for solar PV for the first time in 2011, which remains the primary tool for encouraging domestic PV installations. The FIT legally established a set price at which renewable energy must be purchased from producers. The price is set higher than that of coal to encourage development. The implementation of the FIT has coincided with unprecedented domestic PV growth in China. When implemented in 2011, cumulative solar PV installations in China totaled 3.3 gigawatts (GW); by the end of 2016, China’s installation total stood at 76.5 GW. The next year, China redefined the pace of PV deployment, installing 52.83 GW of solar PV in 2017 alone, accounting for over half of all solar installed worldwide that year.
In addition to absorbing overproduction via domestic installations, China’s solar manufacturers have been quickly expanding into other export markets, catalyzed in part by the first round of tariffs implemented by the U.S. and the EU back in 2012. In the early 2000s, China’s solar export market relied primarily on the EU and the U.S., but this is no longer the case. Last year, China’s largest destination for solar exports was India (30.9 percent of exports), with Japan (17.2 percent) taking the second-largest overseas market spot. Less than 6 percent of Chinese-manufactured solar products found their way to the United States in 2017.
Why the New Tariffs?
The history of tariffs, China’s decreased reliance on the U.S. market, and China’s shift away from manufacturing subsidies leave many wondering why the Trump administration chose to implement a new round of tariffs last month. The claim is that the tariffs will protect American businesses, jobs, and manufacturing harmed by cheap imports. It is not immediately clear, however, which of these objectives will be accomplished by the new tariffs.
Interestingly enough, the two businesses that initially filed the petition for tariffs, Suniva and SolarWorld America, are foreign-owned companies, but have manufacturing operations in the United States. At the same time, the American company SunPower manufactures modules overseas, which are now subject to import tariffs. Due to the tariffs, SunPower announced plans to halt $20 million in planned American investments.
In terms of jobs, as of 2016, the U.S. solar industry employed just over 260,000 people. Well over half of these jobs are in the installation sector. With the manufacturing processes increasingly automated, the United States is home to just 2,000 solar cell and panel manufacturing jobs, yet the Solar Energy Industries Association (SEIA) estimates that the new tariffs will cost the American solar industry 23,000 jobs.
What Comes Next?
In the near term, the Trump administration’s tariffs are widely expected to increase the cost of solar and hinder the pace of U.S. solar installations. Another potential consequence of the tariffs is a trade war with China and other countries, akin to the one started by the first round of tariffs in 2012. After the initial announcement of those duties, China implemented its own tariffs against U.S.-manufactured polysilicon used to make solar cells, crippling the U.S. industry.
Due to the legally-ambiguous nature of the Trump administration’s tariffs, South Korea and Taiwan have already filed a legal challenge with the World Trade Organization. Based on America’s history in these types of cases, it would not be surprising for the United States to lose. However, the case will likely drag on for some time, by the end of which the tariffs would be nearing the end of their term anyway.
The new tariffs are not completely without benefit, though. American-based solar manufacturers will have a short-term advantage and there will be some investments and jobs brought by foreign companies building factories in the United States. China, however, already has an essential monopoly on the global solar industry, manufacturing over 70 percent of the world’s solar panels and installing over half of them. These tariffs will not change that. Despite a short-term impact, China’s solar market, and the world’s, for that matter, will be just fine.
Samuel Corwin is a 2017-2018 Fulbright fellow based in Nanjing, China, where he is researching development trends in China’s domestic solar PV market and the influence of local governments.
The views reflected in this article are not those of the Fulbright program or the U.S. Department of State.