Is the Inflation Reduction Act Hindering Competition?

A critical debate is unfolding at a federal trade panel that could significantly influence the United States' ambition to establish a robust domestic solar supply chain capable of rivaling China's dominance. Three U.S. solar manufacturers are pushing for the Commerce Department to take action against the influx of solar cells and panels from Southeast Asia, arguing these imports are unfairly subsidized by China and undermining local industry.

While much of the media portrays this issue as a clash between U.S. solar manufacturers and developers reliant on imported panels, a deeper conflict is brewing within the American solar industry itself. The real divide is between established manufacturers, who seek protectionist measures, and emerging innovators who advocate for open competition. The core question is whether Washington should prioritize the interests of entrenched players over fostering a dynamic and competitive domestic supply chain that aligns with the evolving needs of U.S. consumers.

Strategic Partnerships and Technology Transfer

Rebuilding the entire solar supply chain in the U.S. is a gradual process. For example Illuminate USA a business launched in 2023 who are backed by Invenergy the largest privately held U.S. developer and operator of wind, solar and other clean energy projects has partnered with a leading Chinese solar panel manufacturer to bridge the gap in knowledge. To compete globally, American companies must access and learn from the best available technologies, which necessitates collaboration with established players in the field.

Initially, domestic efforts will focus on panel manufacturing. More complex upstream processes, such as producing solar cells — critical components of solar panels — will require more time to develop domestically. Until then, U.S. panel manufacturers will need to import these cells, making the current push for tariffs by incumbent manufacturers counterproductive. These tariffs won't protect non-existent domestic cell manufacturing capabilities but will instead hinder the growth of the U.S. solar industry.

Misguided Protectionism and Market Realities

The incumbent manufacturers behind the trade complaint argue that they are defending American jobs. However, many of them are deeply entrenched in Asian supply chains. For example, one company has assembly plants in India, Malaysia, and Vietnam, with about half of its U.S. sales coming from these foreign operations. Another petitioner, based in South Korea, relies entirely on imported cells and will still depend on overseas sources for the majority of its needs, even if it establishes U.S. cell production. Notably, their petition does not address imports from South Korea.

These companies are not so much defending American jobs as they are protecting their market share and profits against the competitive pressure from newer, more innovative manufacturers.

A closer look at their products reveals why: One company uses less efficient thin-film technology compared to the widely adopted crystalline silicon technology. Many developers prefer or even require crystalline silicon because its higher efficiency translates to fewer panels, less land, and lower installation costs to generate the same amount of energy.

The Impact of Protectionist Policies

Granting the incumbent manufacturers' request for tariffs would slow down the deployment of solar energy, stifle innovation, increase energy costs, and keep the U.S. solar industry technologically behind China. This outcome would be contrary to the objectives of the Inflation Reduction Act.

Congress's introduction of the 45X advanced manufacturing tax credits in the Inflation Reduction Act was a crucial step in revitalizing America's solar manufacturing base. These credits are fostering competition and innovation, allowing new manufacturers to offer strong wages and positioning the next generation of American companies to compete globally, especially with China.

A Call for Forward-Looking Policies

The Commerce Department should support this resurgence in domestic solar manufacturing rather than undermine it with restrictive tariffs. Encouraging innovation and open competition is essential for establishing a competitive and sustainable American solar industry that can thrive in the global market.