What’s going on with U.S. tariffs on solar equipment?

by Sean Callahan

U.S. representatives from the International Trade Commission caused a stir in the solar energy industry when they made recommendations for new tariffs that would apply to imported solar photovoltaic equipment. Trade protectionism has long been a feature of President Trump’s platform both during the 2016 campaign and as President.

Suniva Inc. and SolarWorld Americas Inc., two American solar equipment manufacturers that had filed Chapter 11 bankruptcy issued a complaint to the ITC, claiming that cheap, subsidized imports forced them out of business, according to the New York Times. However, other industry players contested that assertion, maintaining that imported materials are actually helpful for the industry and have allowed solar energy to take hold in the U.S.

The case for and against solar tariffs

Tariffs on imports could reach as high as 35 percent. The idea, from the perspective of the trade commission, is that steep tariffs would protect American interest at home by helping U.S. manufacturers gain favorable market position over cheaper imports. Thus, following that logic, demand for American-made solar equipment would increase, causing manufacturers to expand hiring.

On the other hand, opponents of the ITC’s recommendations hold that protectionism is not the path toward solar energy success. For instance, one trade group, the Solar Energy Industries Association, has consistently opposed any type of barriers to solar imports and declared that tariffs, in this case and any other, would be detrimental to the industry. Reuters reported that the SEIA stance mirrors that of the industry at large: tariffs would needlessly inflate solar equipment prices.

A statement on the SEIA website reads: “In May 2017, two American solar manufacturers filed a petition with the International Trade Commission (ITC) under Section 201 of the Trade Act seeking relief from foreign manufactured CSPV cells. This ill-advised petition could more than double the cost of solar and put 88,000 U.S. jobs at risk.”

A walk down memory lane

Imports, tariffs, solar energy, Chinese competition – these are all topics that everyone has an opinion on. It can be difficult to discern unbiased analysis from individual interests or personal philosophy. As it stands, the topic outlined above can be boiled down to this question:

Does trade protectionism support American interests, or does it damage the industries involved?

This is not a new question. In searching for sources on the issue, one early result pointed to a 1987 article from Harvard Business Review (HBR). The following statement from the piece could apply to any era:

“Protectionists usually couch their claims in terms of saving particular industries from imports, as with shoes, lumber, and steel pipe. The facts show, however, that tariffs and quotas seldom save jobs for long or preserve the competitiveness of the industry to be ‘saved.’ Meanwhile, of course, the consumer suffers through higher prices.”

HBR went on to address the claim that protectionist measures save jobs – that is, keep workers in their current positions. These statistics, in particular, jump out:

  • According to researchers from the Institute for International Economics, American consumers paid a sum total of roughly $53 billion in the form of higher prices due to tariffs and quotas on imports that year.
  • Since 1950, 16 primary U.S. industries received protectionist tactics – and after those measures lapsed, only the bicycle industry expanded. In that case, the bicycle industry grew production and employment until 1955, but in the following five years its three largest companies shut down facilities and moved.
  • Trade protectionism could prevent industry contraction for a period, but it does nothing for jobs involved in using or distributing the protected goods. In other words, hiking prices for a raw material “undermines the competitiveness” of industries that rely on that material.

In short, the idea that protectionism does anything but protect those industries it’s aimed at is nothing new. So why would anyone recommend enforcing tariffs on imported solar materials as a way to promote American interests?

Throwing shade on solar potential

While we can’t comment specifically upon why the commissioners chose their recommended course of action, we can examine the winners and losers of the proposal, should the Trump administration choose to adopt it. Oddly enough – the winners list is quite short.

Winner: Suniva and SolarWorld Americas. These companies filed bankruptcy and retroactively claimed cheap imports sank their profits. With solar tariffs, surely these two producers would ramp up manufacturing and succeed where they had failed – right? Importantly, Forbes notes that both organizations are not wholly American-made – Suniva is majority Chinese-owned while SolarWorld is predominately German.

For what it’s worth, there’s no telling what the long-term outlook is for either of these organizations. In all likelihood, their bankruptcies emerged through failure to compete on a global scale with numerous solar manufacturers. It is unclear whether or not tariffs on American imports will tip the balance in their favor.

Loser(s): American solar consumers, the American solar manufacturing industry, American solar industry jobs, the energy economy at large.

Look, we all want the American manufacturing landscape to be the biggest and best. But enacting tariffs doesn’t help local manufacturers become profitable – it only increases the cost for the consumer and other purchasers of that equipment. Higher costs, especially in an industry that is still making up ground against more entrenched energy sources like oil and gas, could be a deal-breaker for those on the fence about clean energy, from developers to utility companies to homeowners.

In turn, lower demand produces fewer jobs, lower economic yields and slower expansion of clean energy.

Smart economic policy would examine the potential for the solar market globally and determine how the U.S. can be a value-add player in that realm: if not through manufacturing CSPV, then through other types of capabilities – or even by simply leveraging low-cost energy options as broadly as possible and pumping up demand.

Hampering solar development to satisfy a flawed understanding of trade economics and bolster a self-serving political agenda only amounts to shine-blocking.

Sean Callahan is a guest blogger for Climable.org. He can be reached at smc724@gmail.com.