No Assembly Required
“I may be dumb, but I’m not stupid.” – Terry Bradshaw
The instructive difference between the word “manufacture” and the word “assemble” is not something people usually spend much time thinking about. After all, both activities frequently occur in factories that make stuff, and many factories do a mix of the two. Technically, manufacturing involves the transformation of raw materials into a part or a component, whereas assembling is the process of taking multiple parts and arranging them in a specified way. To use a simple example, plastic bucket forms are manufactured using polyethylene in a process called injection molding, but the product is not complete until the metal handle – a part that is almost always sourced from another manufacturer – is added in assembly.
The variety of raw materials and parts used to make a final product dictates its supply chain complexity, as does the degree to which companies specialize or vertically integrate across the various steps of the process. If one company comes to dominate an important link, it can exert excessive market power at the expense of other participants. With some exceptions, manufacturing offers greater opportunity for developing such moats than assembling, with the former usually requiring substantial capital investments and specialized know-how, and the latter more susceptible to replication. In the case of our plastic bucket, molding polyethylene is harder than sticking a handle on a formed bucket, but the ubiquity of polyethylene, gauged wire, and injection molding machines means there are no moats to be had in the bucket-making business, and you can still buy one for less than $5 at your local hardware store.
Replace the word “company” with “country” in the preceding paragraph and the same analysis can be applied to international trade. For industries of strategic importance, countries compete to control key links in the chain and project significant geopolitical power as a result.
Well, some countries do.
For the past several decades, administrations from both political parties have overseen an unprecedented gutting in the US manufacturing base, leaving wide open the opportunity for geopolitical foes to fill the void in requisite supply chains. Nowhere is this more evident than in the solar industry where China leveraged dirty coal, slave labor, and aggressive import duties on key intermediate goods to illegally support its domestic manufacturing base. Allowing China to flood the market with artificially cheap product put significant pressure on global competitors. As a result, China has achieved near-monopoly status at several important manufacturing steps in the chain, putting many Western manufacturers out of business in the process.
Regardless of our view of the suitability of solar power in the collective suite of energy options, it is simply undeniable that the industry is set to grow at breakneck speed in the decade ahead. For this reason alone, understanding the industry’s history and how it will likely evolve are important endeavors. With US trade policy finally beginning to fight back against China’s abuses, and hundreds of billions of dollars earmarked by Congress in an attempt to rejuvenate domestic solar manufacturing, the stage is set for a chaotic period in the US solar industry. What is truly needed for the US to become competitive again? Let’s dig in.