Every justification for trade restrictions this year must dress itself up in paranoia about Chinese industrial policy. If there is one way to fully entrench Beijing’s position in high-tech supply chains, however, it is to give in to that protectionist urge.
Consider the tariffs and price floors that President Donald Trump is preparing to announce on polysilicon and related solar power equipment, reported by Bloomberg News. Those who have backed the proposed measures have framed this fight as existential, with China in the ascendant: The US solar industry leaves “an adversarial power” with “the keys to our energy future,” according to the Commission for a Prosperous America, a protectionist lobby group. That sounds like ample justification for introducing Section 232 trade measures, which govern threats to national security.
There is just one problem with all this. The US has not imported polysilicon from China since 2022, when the Uyghur Forced Labor Prevention Act banned usage of all materials made in Xinjiang, a major hub for the industry. Tariffs are not going to materially affect a trade that does not exist. The companies that would suffer are based in Germany and South Korea — and the US itself, which depends on a constant flow of solar materials to sustain its own photovoltaic panel industry.
Few sectors better demonstrate the counterproductive nature of 21st century trade restrictions than solar. Since 2012, the US International Trade Commission has been on a campaign to wipe out external threats to local production of photovoltaic panels. Over the entire period, the local industry has resolutely failed to prosper.
Why should that be? The best explanation is that they are getting on with something far more profitable — making computer chips.
The silicon used in solar panels and the variety used in microprocessors are more or less the same material. The solar-grade stuff sells for very low margins and accounts for about 98 percent of global production. It is overwhelmingly made in China. About 60 percent of semiconductor-grade polysilicon, however, comes from the US. Tiny in volume but high in purity, it accounts for at least half of profits in the global industry.
That profitability has allowed US manufacturers to adapt to the chaos that years of misconceived policy wrought. A trade war starting in 2012 all but killed off local solar manufacturing, by preventing US installers from using cheap imported panels and giving China an excuse to propel its nascent polysilicon sector to global dominance.
US producers also pay far more for their key raw materials, thanks to separate trade actions restricting imports of silicon metal from half-a-dozen countries including Norway, Australia, Iceland and Malaysia.
Faced with a government that is hostile to clean energy, costs their international rivals do not have to deal with, and a boom in demand for artificial intelligence (AI) chips, it is little wonder that the US polysilicon producers who survived this period, Corning Inc and Germany’s Wacker Chemie AG, pivoted to chip manufacturing instead.
That pattern has reversed somewhat in the past few years, as the sheer strength of demand for solar energy started to burn through. Corning’s solar revenues grew 90 percent in the June quarter, and are on track to roughly triple to US$3 billion in the medium term.
Wacker, however, is struggling. The company cut its guidance for polysilicon in results last month, and CEO Christian Hartel has questioned whether conditions would become brutal enough that it might have to close its plant in Charleston, Tennessee. OCI Co, a South Korean company that makes solar polysilicon in Malaysia, appears to be in an even dicier situation if US tariffs are introduced.
This protectionist campaign misdiagnoses what ails the US solar sector. China dominates production of the lowest-cost solar polysilicon not due to subsidies, but because of immense scale advantages. Those are driven by a certainty about demand, which the US’ stop-start approach to the energy transition cannot hope to match.
To the extent that non-Chinese rivals are able to hang on in this brutal environment, they need stable and predictable policy so that they can make the most of the limited market available to them. More tariffs are not going to provide that.
Do not forget what is happening with the semiconductor end of the business, either. Profits in the Chinese panel industry are miserable, but the sheer tonnage of polysilicon being refined gives local producers ample opportunities to improve the purity of their products, and compete harder in the more profitable arena of supplying raw materials to the chip industry.
While Washington and its allies are consumed with trade bickering over solar panels, Beijing is busy building up its polysilicon business to take on the one sector where the US remains dominant: computer processors. If you think AI is the place where the West can maintain its technological lead over China, you better watch out what is happening in the solar industry.
David Fickling is a Bloomberg Opinion columnist covering climate change and energy. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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