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Solar Loses To China Importers. And Now, Forced Labor.

October 26, 2020

By Kenneth Rapoza, CPA Industry Analyst

A court puts a stop to tariffs on double-side solar panels. And a WSJ article singles out solar as an industry supposedly being hurt by the trade war. Our domestic manufacturers are fighting an uphill battle against China. Now add forced labor to the list of handicaps.

After moving one step forward, US solar moved one step back this weekend. Court of International Trade (CIT) judge Gary Katzmann issued a temporary restraining order on Saturday that puts a hold on the Trump administration’s latest bid to end a loophole it had granted on two-sided solar panels in a trade dispute US manufacturers won against China. The move keeps two-sided solar panels exempt from the 2018 anti-dumping and countervailing duties imposed on China made solar cells and solar modules.

Those duties have enabled the US to go from virtually zero solar module production to about 5 gigawatts a year, around a third of the market. But the solar power industry is a global battleground. This weekend's case is just one recent highlight.

Solar, like rare earth metals used to power long-life batteries, is set to be the oil of the future. China runs the business on them both. It’s going to be a fight to avoid dependence on their supply chain.

On October 25, Wall Street Journal ran a feature highlighting how tariffs didn’t boost US manufacturing and cited solar in a dig against that trade war policy. They were practically gloating.

A solar industry executive was cited as an example. Ironically, he stands less as a testament of how tariffs “didn’t work” and more of a testament to what American manufacturing is up against.

Hemlock Semiconductor CEO Mark Bassett said he supported President Trump’s efforts to help solar companies with tariffs at first, but now thinks other changes are needed.

He says China’s retaliatory tariffs made Hemlock’s products more expensive for mainland importers. The phase one trade deal signed in January specified that China would buy more US solar-grade polysilicon, Hemlock’s main product. But China never lifted its tariffs on polysilicon and so Hemlock lost a market. US trade negotiators recognized that many US companies, like Hemlock, were dependent on Chinese supply chains, and sought to get China to agree to pare back its industrial subsidies. But the phase one US-China trade deal failed to achieve that goal because Beijing has no interest in rolling back that model. 

“We’ve reached out to Chinese companies, ‘Are you interested in buying polysilicon?’” said Phil Dembowski, Hemlock’s chief commercial officer in the WSJ article. “But they all tell us the same thing—no mechanism to import it without paying duties. They’d like to, but they can’t afford that tariff.”

Interesting.

We believe it is more likely that the Chinese company is being told not to import from the US because it is part of an industrial strategy to dominate the entirety of the solar supply chain.

And then there's this...

Xinjiang At It Again

If solar got a temporary set back due to the CIT this weekend, here’s a way a step forward: ban imports of solar cells made from polysilicon that China’s now allegedly making with forced labor in Xinjiang.

More than half of China's production capacity is located there, and China accounts for over 70% of the world's supply, according to consultancy IHS Markit Ltd.

Xinjiang is facing human rights issues involving as many as 1 million Uyghurs, held up in detention camps, better known in Beijing as re-education facilities.

If there is reasonable evidence that polysilicon for solar was being made with forced labor, US Customs and Border Protection would ban all solar products made from forced labor-polysilicon at the ports. It is unclear who filed a petition to Customs to investigate forced labor violations, and what company, if any, was the focus. We advocate for a Xinjiang wide supply chain ban, which is something CBP does not usually do. 

The solar industry will say that past interruptions to the polysilicon supply chain in Xinjiang have led to price spikes for the raw material in China. That’s the favorite excuse on all things trade related – it will cost too much. Last month, IHS analysts noted that the cost of Chinese polysilicon rose 65% “after accidents at major facilities” and a recent COVID-19 outbreak at a manufacturing plant.

With green energy becoming more popular, solar is becoming a classic example of an American industry over-dependent on China. China loves green energy. And it thrives on making itself the go-to hub for as much of it as possible.

Chinese solar panel makers spent $1 billion on American polysilicon, like Hemlock’s, in 2010. Anticipating continued strong sales to China, Hemlock spent more than $1 billion to build a new factory in Clarksville, Tenn., that was completed in 2012, according to the WSJ's reporting. Now they’re not buying. Obviously, they want Hemlock to move there. Or close their factory and just allow China to make it.

This is playbook China. Anyone falling for this at this point is like that friend that keeps going out with the wrong type, and wonders why they keep getting their heart broken.

Solar is a strategic industry for the Made in 2025 industrial program because China knows the Western world is giving up on fossil fuels. China will be its Saudi Arabia, its OPEC, controlling the supply of the materials that power Tesla car batteries and rooftop solar panels.  That plan includes making solar-grade polysilicon. Not only does that turn China into a competitor to Hemlock rather than a customer, as even the anti-tariff WSJ admitted, the fact that more than half of it is made in a state known worldwide as a jail cell for ethnic and religious minorities should cause people to wonder how we are supposed to compete against a country that is not even playing the same sport.

“The tariffs have put the solar module industry back on its feet,” commented CPA Chief Economist Jeff Ferry. “Now we have to address the rest of the solar supply chain, including polysilicon, and rebuild a US industry that is self-sufficient, resilient, at the technological leading edge…and completely independent of China.”

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