China is stealing America’s solar manufacturing industry. Should we fight back—or rejoice?

The American solar industry isn’t united behind this idea, though. Last fall, just one month after SolarWorld formed its lobbying group, the Coalition of American Solar Manufacturers, the U.S.-based companies that lease and install solar panels formed their own trade group, the Coalition for Affordable Solar Energy. While CASM cried for tariffs, CASE lobbied against them, warning that such protectionism could spark a solar trade war with China. A trade battle, the solar installers argued, would drive up prices, hurting the financing and installation sector of their American solar market, which accounts for more jobs than the manufacturing sector. Moreover, China might retaliate with anti-dumping cases against the high-tech companies that refine silicon, a crucial material in solar panels. In that scenario, everyone would lose.

As the Commerce Department launched its investigation of China’s trade practices last fall, the fight between U.S. manufacturers and installers grew vicious. The installers hurled numbers, commissioning a report that said a 100-percent tariff would cost American workers 50,000 jobs. They also hurled accusations of xenophobia, pointing to an ad that SolarWorld ran in Germany tarring Chinese goods as shoddy and cheap. SolarWorld apologized for the ad, but didn’t back down from the fight, calling the installers’ main spokesman a shill for the Chinese manufacturers. The fight got so nasty that the liberal blog Talking Points Memo asked, “Will America’s Solar Civil War Destroy the Industry?”

The divide between manufacturers and installers is a symptom of the U.S. solar industry’s problems, not the cause. And the causes are not as simple as either side makes them out to be. China isn’t the only reason companies like Evergreen, Solyndra, and BrightSource have struggled. All three made big bets on novel technologies that wouldn’t be economically competitive in the short term even against domestic competition. In a free market, some bets on innovation fail, and others take a long time to pay off. Solyndra was an example of the former. BrightSource is hoping it will be an example of the latter. If the United States wants to be a major player in clean energy, it has to accept both outcomes as natural consequences of supporting a nascent industry.

The installers are right that a trade war with China would be a setback for all concerned. But they’re wrong to argue that the United States should simply accept a backseat in solar manufacturing. In some labor-intensive manufacturing sectors, such as textiles, it’s true that the United States can’t compete with China and other developing countries. But it’s far from clear that’s the case in solar manufacturing, particularly since U.S. companies remain leaders in the production of polysilicon, the linchpin of the supply chain. In fact, an October study by the U.S. Department of Energy concluded that American companies have a slight comparative advantage over their Chinese competitors in solar-panel manufacturing. If that’s true, then the woes of First Solar (whose products are similar to those of the big Chinese manufacturers) aren’t the result of a bad bet, but of a tilted playing field. An investigation of China’s policies, then, would be warranted.

So far, the Department of Commerce has wisely steered a middle course. It agreed to investigate claims of both illegal export subsidies and illegal dumping, and in March it responded to the illegal-subsidy claim by imposing modest countervailing tariffs of 3 to 5 percent on Chinese panels. It’s expected to respond to the dumping allegations later this month.

Sen. Ron Wyden, D-Ore., who chairs the Senate subcommittee on international trade, customs, and global competitiveness, is hoping the Commerce Department hits back against Chinese manufacturers. “There needs to be more than a slap on the wrist here,” his deputy chief of staff told me. “That’s not how we’re going to get China to play by the rules.”

That’s true, but the United States also has to be smart about how it responds. Perhaps the best idea, though not the most politically realistic one, comes from Dan Kammen, an energy policy expert at UC-Berkeley. Instead of a war of escalating tariffs, bringing higher prices for everyone, he argues the United States should join China in a solar version of a “race to the top,” with both countries supporting solar innovation equally and transparently. If the reward is a world in which increasingly efficient solar power gradually takes the place of dirty and finite fossil fuels, a few more Solyndras along the way would be a small price to pay.

Correction, May 4, 2012: This article originally and incorrectly referred to "Colorado-based Evergreen" as a solar company that had gone bankrupt. It was actually Massachusetts-based Evergreen Solar that went bankrupt.