The Peter Zeihan Podcast Series - China's Competitive Edge: Solar Exports

Episode Date: February 1, 2023

As the US attempts to reshore many previously outsourced industries, the Chinese are looking for any opportunity to retain their competitive edge...so let's talk about solar panels.Full Newsletter: https://mailchi.mp/zeihan/chinas-competitive-edge-solar-exports

Hey everybody, Peter Zion here coming to you from fairly windy and noisy Miami. I hope the sound on this one's okay. The news that you can use this week is that the Chinese government is considering putting export bans on certain types of solar panel manufacturing, specifically the ability to make the wafers and skill and ingots that go into certain types of silicon panels. Some people are saying that this is a retaliation to things of the United States. It's done recently with semiconductors. I don't think there's a direct link here a couple things first of all when you think of technology and you think of China those two words only go together in the word manufacturing the Chinese

do not have a history in really any industry or subsector of being the innovators they've got the manufacturing plant because it used a mix of labor and security and scale in order to become the dominant player in a lot of sectors solar panels are one of those but they don't do much innovation at all in fact we were kind of racking our brains over this at the offices we know what items out there where the Chinese the pioneers at that they hold the technological edge and there's still a demand for it outside in the rest of the world. There is at least nothing. What's going on here is that the Chinese have discovered that the United States is starting to build an

industrial policy and lots of other countries in the world are going with it. And once you marry state power to the efficiencies that you get from the American workforce and capital markets and market size, well the Chinese just aren't nearly as important in that sort of world. So in those rare places where they do have a technical edge, they would like to keep it. This brings us to the solar panels. The Chinese dominated this space years ago and drove out most of the competition completely, and then we're left as the only ones in the space, something like 80% of the global total. And the assembly of solar panels requires a lot of fingers and eyes, something that the Chinese dominate because of the size of their labor force. And that means they have made certain technological

advances. The one that they're talking about at the moment, the most important one by far, is that the Chinese and only the Chinese can make the wafers for the PV panels larger and thinner than anyone else. It's an edge they would like to keep. But with the United States now mandating that a certain percentage, a rising percentage of solar panels have to be manufactured in the United States, this technology is going to move there, whether it's the U.S. having to develop it or not. So the question comes down to what kind of time? time frame are we talking about? If the Americans started from a naked start, this would probably be a five to eight year process, which for the Biden administration is just not fast enough. And so

that brings us to the question of espionage. Now, the Americans as a rule are not great at industrial espionage, and it's because our economy is too large and the government tends to be two hands off. So let's say, for example, that the CIA did have the capacity to steal the plans for the next transmission that the Germans were able to put together. Who do you give it to? Four? Chevy? Doesn't work that way here because we would have to choose signs on everything. Our economy is too big. There just aren't a lot of sectors where we only have one significant firm. But that's not the case in most other systems where you have national champions in part because of technology theft. The three countries that would be most likely to go after this are three countries that after

China are the biggest thieves of technology in the world. And that would be France, South Korea, and Israel. And of those three, the South Koreans are definitely the ones to watch, because they now have a fairly robust history of building industrial plant within the United States in order to meet whatever requirements the U.S. government demands. So I can absolutely see a future where either the Biden administration breaks with longstanding policy and actually gets intelligence, professionals involved in technology transfer against the wishes of the home country, or more likely the South Koreans have already stolen the stuff and they're already negotiating with the Biden administration on how to build stuff on our side of the border in order to get the

Koreans concessions in other economic sectors, which is something they would direly love anyway. One way or another, this is going to happen. The Biden administration has already put out the money. The demand is there. The solar panels are getting more efficient every year. They're making more sense in more parts of the country. Most of all, most importantly, the political will for the general population to play hardball with the Chinese is there. So all the pieces are in place, and Chinese leadership in this sector, its days, are numbered.

And even if that proves to be false, if the Chinese refuse to export the tech to the United States, then the United States won't have a choice, but to build the stuff itself. One way or another, solar panels are coming home. All right, that's it for me. Take care, everyone.