Silicon Valley vs. China?, 10/13/10

In The New York Times, 10/13/10, “Silicon Valley’s Solar Innovators Retool to Catch Up to China ,” we hear a redundant theme: American innovators are finding it difficult to find capital because cheap subsidized solar panels from China are making profitability elusive.   In California, home to many of the solar innovators, already 40% of installed solar panels were made in China.

China’s subsidies to this burgeoning industry include free land for factories, low cost loans, and the overarching protection of its undervalued currency.  Couple these advantages with the low cost of labor (engineers paid under $3,000 annually), and successful competition would seem virtually impossible.  The WTO which is supposed to police unfair subsidies to exports is slow to act.

Meanwhile, China is moving fast to secure U.S. market share and drive our home-grown competitors out of business.  China will produce over half the world’s solar panels this year, but only 5% of that production will go to installations in China; 95% of their solar panels will be exported to the U.S. and Germany, the latter having a significant Feed-In Tariff incentive.

WTO provides for countries to retaliate with tariffs, but our Congress is operating under fear:  fear of losing the support of their constituents, fear of being cast as against “free trade,” fear of losing the monetary support of outsourcing companies.

It is not just the solar market that is under pressure and unfair competition from China.  Until a year ago, China enforced a 70% domestic content provision for the manufacture of wind turbines, something we should do to nurture a burgeoning solar industry.  That would fix the problem.  We should also insist upon the restriction of a U.S. Patent to products with 80% domestic value added in manufacturing.  And, of course, a VAT would also help to level the playing field for solar and everything else in this plague of outsourcing.