We’ve tried this kind of thing before. It didn’t work.
By Jeremy Deaton
Trade officials are weighing new tariffs on imported solar cells that, if passed, would send shockwaves through the industry. By blocking the influx of cheap panels from overseas, tariffs would stunt demand for solar, dealing a critical blow to U.S. installers. By one estimate one-third of the solar workforce could lose their jobs.
We’ve actually run this experiment before. It didn’t turn out well.
In 2002, George W. Bush imposed heavy tariffs on steel imports. For the president, who was otherwise a champion of free trade, this was a politically motivated decision, intended shore up support among steelworkers in battleground states like Pennsylvania, Ohio, and West Virginia. It didn’t work as intended.
The European Union threatened to retaliate by imposing sanctions on imports from other swing states—including Tropicana orange juice from Florida and Harley Davidson motorcycles from Wisconsin. And the United Steelworkers of America didn’t take the bait. They endorsed Democrat Dick Gephardt for president.
It was bad politics and even worse policy. While the tariffs gave a fleeting boost to the domestic steel industry, they dealt a blow to U.S. businesses that depend on cheap steel. Steel prices more than doubled, and U.S. manufacturers started buying parts from overseas suppliers with access to cheap steel.
“It sounds great to protect an industry like steel — certainly, it’s critical to us — but you got to think about what happens downstream, because that’s equally critical,” said Bill Gaskin, former president of the Precision Metalforming Association. “If you’re buying parts for a toaster oven in China, you might as well make the toaster oven in China.”
And, in fact, manufactures did start moving their operations overseas. According to an estimate from the Consuming Industries Trade Action Coalition (CITAC), the tariffs cost 200,000 Americans their jobs — more than the total number of people employed by the U.S. steel industry. Firms that consume steel employ far, far more people than firms that produce steel. The tariffs drew fierce criticism from manufacturers in Michigan, Minnesota, and Wisconsin, and Bush eventually reversed course on the policy.
“There was a lot of chaos in the industry because companies were worried about their cost structures, whether or not they could maintain profitability and therefore stay in business,” said Gaskin. “I think there probably are a lot of parallels with solar.”
In April, Atlanta solar manufacturer Suniva petitioned the federal government to impose a tariff and pricing requirement on imported solar panels. The measure could double the price of solar panels in the United States, according to research by ClearView Energy Partners. Federal trade officials are reviewing the petition and will make a recommendation to the president this fall.
For Trump, the Suniva petition offers an opportunity to fulfill his campaign promise to block cheap imports from China to protect American manufacturing. It also gives him the chance to slow the growth of U.S. solar, to the benefit of his allies in coal and gas industry.
A 1974 law allows the president to impose tariffs on imports that threaten U.S. manufacturers. It does not matter if foreign competitors did nothing illegal or untoward. The only consideration is whether cheap imports have inflicted “serious injury” on domestic businesses. The last time it was successfully invoked was 2002, when Bush used the law to block steel imports.
If trade officials recommend tariffs on solar imports and Trump applies those tariffs, it would be devastating for the solar industry, which depends on imports of low-cost solar panels made cheaply in China. Falling costs have spurred a boom in solar installations. The proposed tariff and pricing requirement would eliminate two-thirds of solar installations expected to come online over the next five years, according to GTM research.
“Rather than help the industry, the action would kill many thousands of American jobs and put a stop to billions of dollars in private investment,” said Abigail Ross Hopper, president of the Solar Energy Industries Association (SEIA), a D.C.-based trade organization.
Whatever gains are made by solar manufacturers would be dwarfed by losses among solar installers. Blocking imports of cheap solar panels might save a few manufacturing jobs, but it would eliminate far more jobs in sales and installation. The proposed tariff would put an estimated 88,000 solar workers out of a job, according to the SEIA. For comparison, there are only 50,000 coal miners in the United States.
A reduction in solar jobs likely wouldn’t be offset by an increase in jobs in wind, coal, or natural gas. That’s because solar is more labor-intensive than other power sources. Unlike coal- and gas-fired generators, solar panels can be distributed across homes and businesses. Solar firms need people to market and install rooftop solar arrays. Those are jobs that can’t be automated or outsourced.
Thus, while solar supplies a tiny fraction of U.S. power, it employs roughly twice as many Americans as coal. The proposed tariffs would hit workers in North Carolina, South Carolina, California, and Texas the hardest, and it would threaten the large number of veterans who fill the ranks of the solar industry.
“Protectionism doesn’t work. It always does more harm than good,” said Lewis Leibowitz, a prominent trade lawyer who worked with CITAC to oppose Bush’s steel tariffs . “Everybody gripes about how prices are too low for their products and competition is unfair… If somebody says that, they’re just like everybody else. There is nothing special about them.”
The petition is being evaluated by the International Trade Commission (ITC), a historically bipartisan panel that can have no more than three commissioners from the same party. Usually, three Republicans and three Democrats are chosen by the president and confirmed by the Senate, but they could also be independents. Trump has the opportunity to name four new commissioners to the panel. The ITC will make a decision by late September and submit a recommendation to the president by early November. Trump will then have 60 days to take action.
The ITC has a history of supporting U.S. solar manufacturers. In 2011, SolarWorld Americas, a U.S. subsidiary of a German solar manufacturer, alleged that Chinese manufacturers benefitted from government subsidies that allowed them to sell solar cells below cost. The ITC sided with SolarWorld, and the Commerce Department imposed tariffs on Chinese imports. Chinese manufacturers moved their operations to Taiwan, prompting the Commerce Department to place additional tariffs on Taiwanese imports. The U.S. solar industry continued to grow in the years that followed.
Now, SolarWorld has joined Suniva in the petition calling for steep tariffs on solar imports. Notably, these companies are not suggesting that overseas firms have violated trade laws, either by receiving government subsidies or by selling panels below cost to gain a foothold in the market. They merely contend that it’s hard to compete with foreign manufacturers.
“Politically, that story works, but it doesn’t really work logically,” said Leibowitz, who said noted the U.S. laws that address unfair competition. “If those laws aren’t enough, then you need to get better at what you do.”
One possible outcome of the proposed tariffs on solar is that Chinese manufacturers open factories in the United States. Another is that China files suit with the World Trade Organization. “The United States is going to run into a lawsuit in the WTO, and it is going to lose it,” said Leibowitz. U.S. manufactures “might get relief for a couple of years, but they are going to pay for it.”
Proposed tariffs could let Trump crush the solar industry was originally published in ThinkProgress on Medium, where people are continuing the conversation by highlighting and responding to this story.