Trump’s 30% Solar Import Tariff

Trump’s 30% Solar Import Tariff

30% Solar Import Tariff

On Monday, January 22nd, the Trump administration announced a 30% Solar Import Tariff on solar cells and modules.  On the surface, this action appears to be pro-USA manufacturing and anti-renewables. This action may be attempting to be both of these things; let’s look at the pros, the cons, and its possible effectiveness.

Arguments For the 30% Solar Import Tariff

US based solar panel manufacturers SolarWorld and Suniva filed a petition for an import tariff in mid-2017 under Section 201 of the Trade Act of 1974.  The petition argued that solar imports from China and other countries had damaged the domestic solar industry.  This action is the source of the recently implemented import tariff.  The Office of the United States Trade Representative (USTR) has openly acknowledged that Chinese state incentives, subsidies, and tariffs have been used to pursue domination of global supply chains.

The solar import tariff will increase the price of solar cells and solar panels manufactured outside of the United States of America.  

On average, the price of an imported panel will go up $0.10 to $0.20 cents per watt.  Companies SolarWorld, Suniva, and First Solar argue that this additional fee will put US manufactured products, including their own, on a level playing field and encourage US manufacturing of solar panels.

The import tariff might incentivize some solar manufacturers to open up shop in the US.  

Soligent, a major US renewable industry supplier, recently held a 201 Trade Case phone call with a team of solar, financial, and economic industry professionals.  Participants included Canadian Solar, Raymond James, and Wells Fargo.  On that call, we reviewed the economic case for a major solar manufacturing plant in the US.  The conclusion was that a $0.10 per watt increase in prices could get US made solar cells and panels to parity with imported cells and panels.  This might reduce resistance for companies to open solar manufacturing plants in the US.  Startup time for such plants would be 12 to 24 months.

“Made in America” has cultural significance in the USA.

For many, “Made in America” equates to quality. Without a doubt, bringing more high-tech manufacturing to the USA would have a positive effect on the economy.

Arguments against the 30% Solar Import Tariff

Many industry analyst state that Solar World and Suniva filed the trade case because old manufacturing technologies or inferior products made them uncompetitive, rather than pressure from low-cost international goods.  If this was the case, the 201 trade case is unnecessary; it will be unproductive while also damaging the solar industry.

The 30% solar import tariff is going to slow the solar installation industry down and result in a net loss of jobs in the USA.  

The Solar Energy Industries Association (SEIA) estimates that 23,000 jobs will be lost due to the canceling of billions of dollars worth of solar projects that no longer meet investors financial return requirements.  This is not a small number, even in a domestic US industry that employs over 260,000 people.

The Solar Energy Industries Association (SEIA) estimates that there are 38,000 solar manufacturing jobs that make racking systems, inverters, and tracking systems.  There are only 2,000 jobs that manufacture solar panels in the US.  These jobs exists presently without any import tariff.  If the import tariff ends up saving all 2,000 jobs and causes a loss of 23,000, that puts the US 21,000 jobs in the hole.  In a time where job growth is a top political priority, this is a step backwards.

The import tariff threatens environmental progress.

The 30% solar import tariff falls in line with the Trump administrations pro-coal and climate-change-denying posture.  It is unknown if this stance pushed the administration to levy the import tariff, or not.  In either case, less of the nation’s electricity coming from domestic renewable sources is definitely a bad thing for the environment.  

The tariff disproportionately punishes the utility and commercial solar industries.

Because solar panels make up a larger portion of system cost in larger scale systems than in residential systems, increase in this component price has a greater effect on larger system economics.  While residential solar prices are expected to increase 2-4%, utility solar prices could increase up to 10%.  Though residential solar is a prolific and growing industry, utility and commercial solar make up the largest percentages of new solar generation capacity in the US and would be hit hardest by the tariff.

Is the 30% Solar Import Tariff Achieving the Intended Goal?

If we take a step back and look at the big picture, a 30% solar import tariff is short sighted.  The import tariff is unlikely to meet the goals of the 201 trade case and does not appear to be part of a larger domestic manufacturing strategy with a solid foundation built on long-term, outcome associated policy.

The Goals of A Section 201 Trade Case are not going to be met.

The Goal of A Section 201 Trade Case has to, by statute, be designed to:

  1. Effectively assist the domestic industry in adjusting to import competition
  2. Cause greater economic and social benefits than costs.  

On Being Effective

In the past, import tariffs have not achieved their ultimate goal.  A 2013 Georgetown University Law Center study of three US trade cases petitioned under Section 201 of the Trade Act of 1974 found that “none of the three industries achieved sustained competitiveness after safeguards terminated.”

On Creating a Net Economic and Social Benefit

Job losses from this import tariff will undoubtedly exceed the jobs created, especially in the near term.  This does not achieve the goal of creating net economic or social benefit.  In addition, it is not impossible that the 30% import tariff could start, or contribute to the start of, a trade war; similar policies have done this in the past.  We live in a global economy where the exchange of goods and services between specialized individuals or groups are designed to produce a net benefit for all involved.  In this trade case, beating down international product competitiveness will punish US businesses and consumers, more than it helps.

A Domestic Manufacturing Strategy

The administration wants to fight the low import prices of solar cells and modules from other countries.  This could be done in ways that would create job growth, rather than job recession.

  • Extend the 30% federal tax credit beyond 2020 for systems that use domestically produced solar components
  • Expand government targets for procuring solar installations on government properties
  • Redirect current import duties on foreign products to support domestic manufacturing
  • Provide low-cost loan support or guarantees for US companies
  • Provide subsidies for industries in the US that supply the solar manufacturing industry
    • This would be copying the strategy used by China, which included low cost loans, R&D funding, low cost land and other non-monetary assistance
  • Increase solar workforce education

Incentives like these would lower the cost of domestically produced solar components, rather than driving up the cost of imported solar products.  

In general, this type of strategy could be applied as part of broad based domestic manufacturing strategy that would lift up American workers and their products rather than attempting to stamp down those that are made outside our borders. 

Ultimately, companies that are protected by policy that disincentives innovation will ultimately loose to companies that hold more advanced product technology and manufacturing techniques. 

Why the 30% Solar Import Tariff Won’t Cripple Solar

Independent of the pros, the cons, or the administration’s motivation for implementing the 201 Trade Case recommendations, this import policy will not cripple the solar industry in the USA.  Over the history of solar, there have been major ups and downs as administrations, policy, energy prices, etc. have changed.  One pattern has held true the whole time; prices have trended down, precipitously.

The case for solar is strong and unforgiving.  Power plants typically require three investments, upfront capital cost, maintenance cost, and fuel cost.  Coal, gas, oil, etc. experience all three.  Wind, tidal, and any renewable that has mechanical movement have upfront costs and maintenance.  Solar only has one real cost – the upfront cost of installation.  By running on free fuel and not having moving parts that need maintenance, solar is growing exponentially and ultimately will drive fossil fuel power plants out of business.

Jules Kortenhorst, the CEO of the Rocky Mountain Institute puts it all in perspective:

“… and from that perspective, it is really hard to understand why the Trump administration did this, right?  In some ways the analogy that comes to mind is the beginning of the twentieth century when the Model-T Ford and the internal combustion engine were rapidly taking over the horse and buggy.  Why would you put a solar tariff in place?  It’s sort of like putting a tariff on the automobile in order to try to save the horse and buggy industry.  And I don’t know about president Trump, but I prefer my car over horse and buggy…  And certainly from a competitiveness point of view, subsidizing those technologies of the past and putting tariffs on the technologies of the future does not make any sense.” – Jules Kortenhorst, Rocky Mountain Institute CEO

Summary

Though the 30% Solar Import Tariff is advertised as method for saving American jobs, reality is far more complicated.  In general, it appears that the import tariff is backwards looking policy from a technology perspective.  Though there could be modest job creation from manufacturing within two years, the immediate negative impact on the jobs market is unlikely to be offset by these manufacturing gains.  Though the 30% import tariff will have a limited impact on the success and long term viability of the solar industry, it does not represent positive movement for the American job market, American technological competitiveness, nor the health of the American environment.  

 

This article was collaboratively researched and written by Newport Solar employees, Angela Tuoni and Eric Martin.

Sources:

Rocky Mountain Institute Facebook Video Blog

https://www.youtube.com/watch?v=7zPUiBKbZoo&feature=youtu.be

Green Tech Media

https://www.greentechmedia.com/articles/read/breaking-trump-admin-issues-a-30-solar-tariff

https://www.greentechmedia.com/articles/read/5-ways-to-encourage-us-solar-manufacturing-without-import-duties

Official Section 201 Trade Case Fact Sheet

https://ustr.gov/sites/default/files/files/Press/fs/201%20Cases%20Fact%20Sheet.pdf