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Trade and Tradeoffs: The Secret to Solar Success?

Which is more important: making solar panels cheap or making them here?

In the end, this may not be an either-or question, but it’s the one that’s raised by the Commerce Department’s decision last week to impose a small import duty on Chinese-made solar panels.

Some U.S. solar companies argue that China illegally subsidizes its solar manufacturers, giving them an unfair advantage and driving American firms out of business.  We’re already importing $2.6 billion in Chinese solar panels, accounting for 47 percent of the market (compared to 27 percent for American solar firms). Given America’s jobs crisis, we can’t afford to miss any opportunities in the growing field of “green jobs.”

Yet the U.S. solar industry wasn’t united on the tariff issue. Others argue that the real barrier to expanding the solar market is its cost: solar electricity is more expensive than conventional sources, which is a major reason why solar power still produces less than 1 percent of all our electricity.  Tariffs are essentially a tax on foreign products, designed to keep them from undercutting domestic manufacturing. But that means prices are higher for everyone.

The rhetoric around both trade and green jobs tends to get pretty apocalyptic (and pretty dense as well), but here are several reasons why the trade issue may be less than it appears:

The import duties are very small.  The tariffs, or “countervailing duties” in bureaucrat-speak, are supposed to be in proportion to the amount of illegal help the foreign manufacturers are getting—they’re supposed  to level the playing field. The Commerce Department says the Chinese subsidies range from 2.9 percent to 4.73 percent – not very much, all told. Under world trade rules, these Chinese companies aren’t supposed to be getting that help at all, but at least they’re not getting a lot of it.

This also means the impact on American consumers and American industry will probably be small as well.

Solar is getting cheaper overall. The Solar Energy Industries Association reports that solar photovoltaic costs fell 20 percent in 2011, driven by a combination of lower component costs, larger installations, and government support.  Given that the government’s official goal is to cut the cost of solar power by 75 percent and have solar energy be cost-competitive with other forms of energy by the end of the decade, that’s good news.

That said, solar is still a long way from becoming a major part of our energy mix. The Energy Department says 2011 was a record year for solar installations, and we now have enough solar capacity to power a million homes. That’s great. But there are 77 million freestanding houses in the United States, so we’re not there yet.

The future of American manufacturing jobs isn’t about what we build, it’s about how we build it. There are those who argue that green jobs could help reverse the long decline in U.S. manufacturing. Unfortunately, that’s probably not going to be the case. Back in 1940, one in four American workers was in manufacturing; now it’s one in 10. But manufacturing output keeps rising even though the number of manufacturing workers was declining. Between 1997 and 2005, well before the Great Recession hit, output by American manufacturing companies  jumped 60 percent. But we also lost four million manufacturing jobs in the same time period.

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The real issue in manufacturing isn’t that we’ve stopped building things, or chosen to build the wrong things.  It’s that technology makes it possible for companies to  build things  with fewer workers, and that globalization allows more products to be built anywhere. Those job trends aren’t going away, and the proportions of workers in manufacturing aren’t going to dramatically reverse, even if we plunge wholeheartedly into green jobs.

Besides, expanding solar power is going to create jobs in the U.S. no matter what: jobs selling panels, installing them, and upgrading our power grid to accommodate them. Those jobs happen no matter where the panels are made. Already 100,000 people work in the solar industry, and  we could use more – presuming we adopt solar as a major power source at all.

If we are, then there are far more fundamental questions: how much are we willing to spend to upgrade the power grid? Can improving technology alone make solar competitive with fossil fuels? Or are we willing to  re-examine the economics of energy, like subsidies? And how does all that play out with the consumer?

All of that brings us back to the real over-arching question. Will we start making the changes needed to move to cleaner, more efficient , more forward-looking technologies or will we just keep clinging to the status quo?