You might have missed it with all the mud-slinging, accounts of sexual assault, email fiascos and assorted absurdity of the run up to this U.S. presidential election, however, economic nationalism and trade have resurfaced as potent political issues in the United States.
On the Left, Democratic contender Bernie Sanders and Green Party Candidate Jill Stein attacked pending and past trade deals as selling out the American middle class, and on the right Donald Trump promised to bring back American greatness in part by imposing heavy import tariffs on products from China. All of this inevitably alluded to the loss of jobs that is associated with manufacturing moving overseas.
With a rapidly growing number of U.S. jobs, solar is part of that discussion. Already there are over 200,000 American workers employed in solar, and as the nation’s solar market grows, that number grows. But while solar installation, sales and other solar jobs boom, solar manufacturing growth is flat, and continues to contract as a portion of total solar jobs.
Insurgent populist candidates’ call for a return of American “greatness” highlights an important question for the solar industry. Can solar manufacturing be lured back to the United States and the West, and if that happens, will it be an engine of job creation that carries with it broader prosperity?
Lost factories and jobs
In solar, it is no secret where the majority of manufacturing went: Asia, and specifically China. Two out of three PV modules produced globally are made in China, while only 2% of module production was located in the United States in 2014. Asia overall represented 87% of global PV module output, compared to 8% in Europe.
This is hardly a new development. By 2008 China was already the world’s largest producer of PV cells, with a market share of over 25%. This share has grown while Japanese and German shares of production declined.
Despite the imposition of trade duties on Chinese and Taiwanese solar products in 2012 and 2014, solar manufacturing gains in the United States have been very modest. While Q3 2015 module production was at its highest in five years, less than 350 MW were produced during the quarter. This put U.S. production at essentially the same volume as 2011, while from 2011 to 2015 global PV deployment more than doubled on an annual basis.
Manufacturers in China and other Asian nations have a number of advantages that allow them to produce at a low cost. These include not only lower wages, less strict environmental regulations and enforcement, and strong local supply chains. However, a key advantage that China, and to a lesser degree other nations have enjoyed is political support.
As documented in two successive U.S. countervailing duty (anti-subsidy) cases, Chinese PV makers benefit from a vast array of policy support from the local to the national level. Malaysia, another important location for PV manufacturing, offers a 10 year tax exemption for high-tech industries.
Armed with these advantages, a Chinese and Asian presence in PV manufacturing is now growing in the inverter, polysilicon and even manufacturing equipment spaces, which has put significant pressure on Western producers. For polysilicon, retaliatory tariffs against the United States have played a role, cutting off U.S. polysilicon makers from the world’s largest end-market.
The impact of polysilicon layoffs was noted by the Solar Foundation in its 2015 Solar Jobs Census, which stated that “losses seen in polysilicon manufacturing likely offset gains in less labor intensive inverter manufacturing.”
The bigger picture
The problems faced by solar manufacturing are part of larger trends in the USA. Manufacturing as a portion of overall U.S. employment and even raw employment numbers have been shrinking for many decades. U.S. manufacturing jobs fell by one third in the last 25 years.
And while global manufacturing employment levels are contracting over time due to increased automation, the United States’ share of global manufacturing has also declined. As recently as 2001, the United States had a nearly 30% share of the value added in global manufacturing. This fell to 17% in 2014, while China’s share shot from under 10% to nearly 25% over the same time period.
The role of multinational trade agreements in this decline is hotly debated. While declining manufacturing in the United States has followed recent trade deals, free market economists and think tanks assert that such deals merely coincided with existing trends. However, the disappearance of certain industries – such as the collapse of the U.S. textile industry following the North American Free Trade Agreement – are hard to ignore.
As all of this has happened, the economy has become far less equal, with the economic gains following the most recent recession going almost exclusively to the highest income earners, while “rust belt” cities whose economies were based on manufacturing – Detroit, St. Louis, Buffalo, Cleveland – remain largely in ruins.
In his campaign rhetoric, Republican nominee Donald Trump appeals strongly to a previous time in America. “Make America Great Again” is more than anything a call to return America to the nation that it was in decades past, which incidentally is a time when more Americans were able to find well paid, steady jobs that enabled them to buy homes and put their children through college, with one adult working who did not necessarily have a college degree.
This is not to say that overt racism is not part of the Trump campaign. However, a significant portion of his appeal is his outsider status. Trump presents himself as an alternative to a corrupt political class, which, among other things, has at best acquiesced to the loss of U.S. manufacturing, if not directly caused it. But Trump was not the only candidate running on outsider appeal and anger against entrenched politics. The Sanders campaign was more overtly predicated on the promise of rebuilding the U.S. middle class. And while his signature policy proposals focused more on education and health care, Sanders is a fierce critic of current and past multinational trade deals.
On the campaign trail, Sanders also promised to rebuild infrastructure, which was a direct appeal to job creation. And while she is not seen as a viable candidate due to the U.S. electoral system and the Green Party’s past record of poor performance, the vision of renewable energy and job creation is most directly articulated in Green Party Candidate Jill Stein’s vision for a “Green New Deal.” There is an irony that all of these candidates were or are running against Hillary Clinton, whose platform lists concrete policy proposals to restore American manufacturing. However, Clinton’s credibility on this issue is threatened not only by her past support of multinational trade agreements, but her husband signing the North American Free Trade Agreement and championing such trade deals during his time as president.
Jobs, or manufacturing jobs?
A veteran U.S. politician once said that politics is like a bad marriage, in that the fights are almost always about something else. And while the loss of manufacturing jobs is an important part of their criticism of trade deals, neither Jill’s Green New Deal nor Sanders’ appeals to rebuilding infrastructure directly addresses manufacturing.
In the solar industry, manufacturing’s place in job creation is easily overstated. Only 30,000 of the 209,000 workers in the U.S. solar industry in 2015 were in manufacturing. While the solar industry has grown, the portion that manufacturing employs has shrunk, from 27% in 2010 to only 15% in 2015, during a time in which solar employment doubled overall.
Proponents of manufacturing will note that not all jobs are created equally. It is unclear if solar manufacturing jobs pay more or less than other solar jobs, as Solar Foundation data are limited on this point, but raw wages are not the only consideration here. Factories can serve as the center of production ecosystems, and the U.S. government’s Bureau of Economic Analysis estimates that every dollar worth of manufacturing output drives around $1.50 in productivity in other parts of the economy.
“The economic development community believes that manufacturing is the highest thing that you can do in order to attract other companies and other investment, universities and people,” notes Solar Foundation Executive Director Andrea Luecke. “It is sort of the gold standard for economic development.”
Enter Frank Asbeck
There is one CEO in the solar industry who believes in American solar manufacturing – and has been willing to go to war for it. Frank Asbeck’s SolarWorld has held on while dozens of other manufacturers in the U.S. and Europe have filed for bankruptcy – sometimes emerging with new Asian owners – or gone to Asia themselves.
To say that Asbeck is a controversial figure in the solar industry may be something of an understatement. While Asbeck’s critics note that this defender of American manufacturing is German – as is his company – the largest U.S.-headquartered solar manufacturers have chosen to build most of their products overseas, while SolarWorld bought and expanded a U.S. factory.
In its response to pv magazine ’s inquiry, SolarWorld emphasized quality, social and environmental factors in its choice to manufacture in the United States. “We believe that to perform for 25 and more years under all weather conditions, a solar-technology product needs to be manufactured using the most advanced automation and quality control possible to achieve the longest durability,” reads a statement attributed to Frank Asbeck. “In addition, SolarWorld favors strong environmental and social standards, especially in manufacturing a product that is an icon of sustainability.” Asbeck is not alone. SolarCity is building a massive factory in Upstate New York, which speaks to a faith held by Elon Musk and the Rive brothers in U.S. manufacturing. However, delays at the gigafactory in Buffalo do not speak well as to how this vision is playing out, and SolarCity was not available for comment on this article.
U.S. government funding
The state of domestic solar manufacturing is not something that the Obama Administration has been uninterested in. And while direct support such as the now-expired section 48C Advanced Energy Manufacturing Tax Credit in the 2009 Stimulus is rare, the U.S. government continues to fund clean energy research and development (R&D).
Of the four programs in the U.S. Energy Department’s (DOE) SunShot Initiative, one – the Technology to Market program – is focused on moving novel, early stage technologies and business models into the mass market. And while DOE funds only U.S. companies to perform R&D work in the United States, the mandate that DOE officials are working under is limited.
The DOE does not provide broad manufacturing support. Instead the agency is trying to enhance the competitive technological advantages of individual companies, in an effort to stay one step ahead of competitors.
“The rate at which innovation can happen, and how we can support the speed of innovation is the way that a company here in the U.S. can keep its competitive advantage,” DOE SunShot Director Dr. Charlie Gay told pv magazine .
This innovation-only approach has been in sharp contrast to nations like China, which directly support manufacturing. The result over the last six years is that most of the leading novel technologies in the solar industry, such as CIGS thin film PV, concentrating photovoltaics and epitaxial wafers have either been drowned out by low-cost crystalline silicon PV cells and modules from Asia, were bought up by Asian companies, or never made it to commercial scale – with or without R&D support from the U.S. government.
Making things again
In both sets of trade cases against Chinese imports, SolarWorld and its lawyers argued that trade action would stop the flow of Chinese goods and allow U.S. manufacturing to return. However, despite two sets of antidumping (AD) and anti-subsidy (CVD) cases and the inclusion of Taiwan in the second case, U.S. solar manufacturing has not returned in any meaningful way. Instead, Chinese retaliation is wiping out the nation’s solar polysilicon sector – with the exception of Wacker Chemie, which has negotiated a deal directly with the Chinese government.
One problem facing trade protectionists is that even if the flow of goods from China is stemmed, the United States market can be met with products from South Korea, Malaysia and other Asian nations, and the trend of top-tier Chinese PV makers setting up factories in Southeast Asia shows the futility of AD and CVD actions against specific nations.
For the United States to rebuild solar manufacturing, or any manufacturing that has been lost overseas, trade action appears to be an inadequate policy measure. The nation will have to prioritize manufacturing and develop a comprehensive industrial policy – something that other nations have done better in recent decades than the USA has.
One area of policy where China has a clear advantage is in financing. In 2010 and 2011 state-run Chinese banks made over $48 billion in lines of credit available to leading Chinese PV makers, which not only gave the potential for enormouscapacity expansions but also made these companies virtually unsinkable when the subsequent market downturn came.
And while such public banks are outside the realm of mainstream political discourse, the United States also has public lending institutions – the Overseas Private Investment Corporation (OPIC) and the Export-Import Bank. These two organizations essentially jump-started the large-scale solar market in Chile, and have enabled First Solar to command a significant market share in India. The difference here is that the function of these banks is limited to supporting U.S. companies and products in other markets, and not for the domestic market.
However, even if the United States can rebuild its domestic solar manufacturing and/or manufacturing more broadly, there remains the question of just how many jobs will be created. Over time the share of global jobs in manufacturing is declining due to automation, and as such nations are trying to grab a share of a shrinking pie.
“We are never, ever going to return to the level of manufacturing employment that we had in the ’40s and ’50s,” warns Solar Foundation’s Luecke. However, it is clear that any manufacturing jobs which the United States does regain will be of outsized benefit to the entire economy.
Rethinking what is possible
Before even that can happen, the United States has to rethink some of the assumptions about what government should and should not do, and the kind of society that it wants to have. If the aim is not only to be a nation of consumers and service providers but a nation that makes tangible goods, including for its own domestic consumption, then rebuilding the manufacturing sector needs to be a priority. There are, generally speaking, three potential approaches to do this. One is a “race to the bottom,” with fewer regulations and reduced wages to match the lowest global wages. And despite the obvious societal costs, it is unclear to what degree lowered wages and limited regulation would actually help. In the solar industry the manufacturing of many components is highly automated, and low wages have neither been a key advantage in China nor a key barrier in the United States. There is also the approach of protectionism. In the United States this would be very difficult, given the number and scope of multinational trade deals that have been signed. To pull out of these trade deals would have heavy consequences for existing U.S. exports.
The final option is to implement a serious program of government support for U.S. manufacturing. In her platform Hillary Clinton has proposed some limited measures such as tax incentives for U.S. manufacturing, and it is unclear whether or not these will be enough.
Instead of demonizing China, it may be necessary for the U.S. to learn from our neighbors in the East. “If we borrow a page or two from [China’s] book, I think we would be better off,” Solar Foundation’s Luecke told pv magazine .
The United States has some decisions to make. Does it really want to build PV cells and modules in the United States? Or is it happy to have them shipped in from overseas, like the computers, clothing, and the other products that are consumed? If America wants to make solar PV, there is some hard political work to be done.