China dominates solar PV manufacturing and trade barriers unlikely to change that

At a glance

Reconfiguring Globalisation: A Review of Tariffs, Industrial Policies, and the Global Solar PV Supply Chain, by Linxiao Zhu. Oxford Institute for Energy Studies, December, 2024.

This report from the Oxford Institute for Energy Studies examines how trade barriers affect global solar photovoltaic (PV) supply chains. China dominates solar PV manufacturing, producing 90 per cent of equipment. Western governments like the United States, European Union and Canada, as well as India, often impose tariffs, quotas and subsidies to shield their nascent clean-tech industries from cheap imports. These strategies usually work best when paired with generous subsidies. For example, the U.S. has grown domestic solar module production from 7GW to 45.1GW, with 37.3GW more in development, since passing the 2022 Inflation Reduction Act (IRA). Still, Chinese firms contribute 20GW of the planned capacity, showing how they often bypass tariffs.

The author highlights that Western tariffs on Chinese solar products often raise costs without significantly boosting domestic industries. The EU lifted trade protections in 2018, becoming the largest open market for cheap Chinese solar imports. Installations surged, but this year European manufacturers faced layoffs, bankruptcies and relocations. Some moved to the U.S., drawn by IRA subsidies and stronger trade barriers. Experts predict the U.S. will soon become the second-largest solar module producer, but president-elect Donald Trump’s commitment to repeal or phase out some of the IRA measures and raise tariffs threatens this progress. Meanwhile, China’s low-cost panels are driving global solar adoption and advancing the energy transition.

Key findings

• China dominates the solar PV supply chain: China controls over 90 per cent of global solar PV manufacturing capacity. This includes significant operations in Southeast Asia, which help it to evade trade barriers. 
• Cost disparity between Chinese and Western producers: U.S.-manufactured solar modules are up to 27 per cent more expensive than Chinese counterparts. U.S. market prices reach triple the global average.
• Impact of the U.S. Inflation Reduction Act: The IRA has driven U.S. solar module manufacturing capacity from 7 GW to 45.1 GW, with a further 37.3 GW in the pipeline.
• Limited effectiveness of trade barriers: Western tariffs on Chinese solar products have raised costs without significantly boosting domestic manufacturing, particularly in Europe.
• China’s overcapacity: China’s production surplus risks flooding global markets with low-cost panels. This will undermine local industries in countries without strong trade protections.
• China’s technological leadership: China leads in solar PV technology, including advanced high-efficiency crystalline silicon cells.

Bigger picture

China dominates solar PV manufacturing, producing 90 per cent of the world’s solar panels and building nearly twice the solar and wind capacity of the rest of the world combined. This has not evolved smoothly. A series of trade wars, starting in the early 2010s, reshaped the global solar market. The U.S. and Europe aimed to shield their industries from cheaper Chinese products, arguing they benefited from generous state subsidies and unfair trade practices. But Chinese companies quickly adapted. Initially, they used Taiwanese cells in U.S.-bound modules. When tariffs expanded, they set up manufacturing in Southeast Asia. By 2022, Malaysia, Thailand, and Vietnam supplied 68.73 per cent of U.S. solar imports, while Chinese modules accounted for just 0.31 per cent. China has also invested in solar value chains in the Middle East, particularly Saudi Arabia, the United Arab Emirates and Oman. By doing so, it is taking advantage of supportive policies, meeting local supply chain requirements and avoiding tariffs. Despite trade restrictions, China’s solar industry has grown dramatically, from 30-40 GW of module production capacity in 2011 to over 1 TW today. The rest of the world’s 2011 total production capacity was less than 20 GW and the West today is struggling to exceed 100 GW.

While the U.S. has expanded its manufacturing bases, its modules are over 27 per cent more expensive than China’s. U.S. buyers pay nearly double the global average price for monofacial monocrystalline modules. As of July 2024, U.S. module prices were $0.3/W, which is roughly three times the price of Chinese modules elsewhere. U.S. manufacturers also face almost double the capital expenses of their Chinese counterparts. The Trump administration’s plans to reduce subsidies and raise tariffs are likely to exacerbate these challenges, threatening both production and installation growth.

The report also highlights China’s leadership in solar technologies and manufacturing equipment. It says China is “on track to achieve an unprecedented pace of technological upgrades to its existing capacity over the next five years while the West struggles with the pace of reshoring.” It is rapidly transitioning from Passivated Emitter and Rear Cell (PERC) technology to Tunnel Oxide Passivated Contact (TOPCon), which offers greater efficiency. These technological upgrades could leave Chinese products generations ahead of U.S. offerings by the time new tariffs take effect, delivering better performance at lower costs. China is appearing to welcome additional U.S. tariffs, arguing in Chinese media they will isolate the U.S., weaken its exports and strengthen China’s domestic demand. The report highlights the benefits of collaboration over protectionism in addressing China’s overcapacity issue while also advancing a fast, affordable energy transition. With insights that could extend beyond solar to wind power and electric vehicles, the report is for anyone interested in the future of global energy systems and economic resilience on the path to net zero.

Challenges and opportunities

Barriers to energy transition progress:

• Trade policies and tariffs: Western restrictions on Chinese solar products have raised costs without effectively boosting local manufacturing.
• Overcapacity in manufacturing: China’s overproduction risks flooding markets with low-cost solar panels. This threatens local industries in unprotected economies.
• Geopolitical tensions: Increasing trade and labor sanctions against Chinese supply chains create supply uncertainties.
• Technology gaps and cost disparities: Western producers face higher production costs and lag behind China in scaling advanced technologies.
• Limited policy coordination: National approaches like the U.S. IRA and EU’s Net Zero Industry Act remain siloed, lacking global alignment on subsidies, standards and trade.

To address these challenges, the report recommends:

• Regional manufacturing hubs: Policymakers could focus on creating regionally integrated supply chains to reduce reliance on a single country.
• Investment in R&D for advanced technologies: Closing the technology gap requires targeted investments in next-generation solar technologies, such as higher-efficiency TOPCon cells.
• Collaborative industrial policies: Aligning subsidies, incentives and trade policies across nations could enhance the scale and affordability of renewable technologies.
• Leveraging local advantages: Countries like the U.S. and EU could use their advanced infrastructure and technological expertise to develop competitive niches within the solar supply chain.
• Global standards for fair practices: Establishing uniform standards on carbon footprint and ethical labor practices could promote fair competition and improve consumer confidence.

In their own words

While new U.S. tariffs against China’s tariff-jumping practices can take years in legal proceedings to take effect, Chinese solar products may already be generations ahead of the fully U.S.-manufactured products then, with significant efficiency improvements and cost reductions expected in the next five years.

Reconfiguring Globalisation: A Review of Tariffs, Industrial Policies, and the Global Solar PV Supply Chain, by Linxiao Zhu, Oxford Institute for Energy Studies, Dec., 2024.

Final thoughts

The report examines the complex relationship between geopolitics, trade policies and solar manufacturing, highlighting China’s meteoric rise to market dominance. It warns that escalating global trade tensions could harm U.S. and EU solar industries. While U.S. manufacturing struggled to compete with tariff-jumped imports, the IRA offered large-scale subsidies to boost capacity. However, Trump’s proposed removal of subsidies and expansion of tariffs risks derailing progress. In contrast, the EU’s limited subsidies and weak trade barriers make it unlikely to establish a strong domestic solar manufacturing base in the near future.
China’s solar industry, which has relied on exports for 40 to 60 per cent of production over the past decade, could also feel the impact of rising tariffs. Record-low module prices — falling below $0.1/W in July 2024 — have sparked an overproduction crisis, threatening profitability and likely leading to significant industry consolidation. But Chinese manufacturers have shown themselves to be adept at outmaneuvering tariffs and this seems likely to continue. Meanwhile, the surplus of low-cost Chinese solar products over the coming years is expected to accelerate the global energy transition. This shows how the energy transition is a shared, global effort requiring collaboration and thoughtful planning for fair and successful implementation.

The report could have further explored how other economies might capitalize on these trends and policy shifts. For example, India has ambitious solar goals and has made recent strides in installations and manufacturing. Investors could foster competing markets in developing regions with lower labour costs, supporting equitable growth and meeting rising demand. Beyond solar, insights from the report could inform strategies for other clean technologies like wind energy, battery production, and electric vehicles. These are industries where China also holds a significant but smaller market share (65 per cent, 77 per cent, and over 50 per cent, respectively). Exploring these connections would provide a fuller picture of how global economies can navigate and benefit from the energy transition.

Download the full report originally published by the Oxford Institute for Energy Studies in December 2024.