Solar Panel Tariffs Shine a Light on Fair Trade

February 28, 2018

“Protectionism.” “Tariffs.” There are few words that so powerfully conjure up regressive economics and policy, with visions of 1920s isolationism and its fallout at the end of that decade. Concerns about such a regression produced a furor over the Trump administration’s recent decision to impose tariffs on solar cells, with critics concerned not only about the policy’s possible economic effects but also about how the tariffs would slow the country’s necessary move to renewable energy. However, heeding these critics would not only worsen the United States’ transition to a clean economy but threaten the bedrock principles of fair trade that have united leaders from Barack Obama to Ronald Reagan.

 

What is fair trade? Put simply, it’s the idea that foreign companies and foreign nations should adhere to a fair and established set of rules when engaging economically, and refers especially to those standards established by trade deals like NAFTA and multinational organizations like the World Trade Organization. These regulations are meant to protect not only corporations and state governments, but also the workers at every strata of the labor force and the citizens at every level of society. In the words of former senator Byron Dorgan, “If our producers can’t compete, shame on us. But requiring our producers compete when the game is rigged is fundamentally wrong.” The ultimate goal of fair trade is to allow working people (not just corporations) across the world to increase their prosperity and protect the health of our shared planet.

 

In the solar power industry, international manufacturers have not always played fair. In 2012, producers of photovoltaic cells (the critical component of solar panels), particularly those in China, were found to have violated the United States’ own principles of fair trade, as encoded in federal law and regulations. That year, under President Obama, the Commerce Department found that Chinese importers were selling solar panels into the U.S. market at an artificially low price (also known as “dumping”), with dumping margins ranging from 18 to 250 percent. This was possible because the Chinese government subsidized these exports at a tune of 15 percent. Such immense state support would be the equivalent for U.S. government subsidies of $3,000 for every $20,000 GM or Ford car that those companies sold in Asia and Europe—something that would never be done by the U.S. government. Beyond subsidies, China’s loose handling of poisonous chemicals involved in solar panel production is another way they’ve lowered the market price of their exports, while externalizing the costs of those dangerous practices to workers and the environment.

 

The World Trade Organization is designed to allow its member countries, who, by joining, have pledged to follow principles of market capitalism, to compete on a fair playing field. When China joined the World Trade Organization in 2001 and gained permanent Most Favored Nation trading status from the United States, the country committed to reducing its lavish government subsidies of export industries, which it had set up to gain world market share from competitors. For the most part, China has maintained these subsidies, which run against WTO rules. This is just one example of how they have failed to reform their state-controlled economy to bring it in line with international norms. These policies include rules that favor domestic Chinese producers against foreign competitors in Chinese markets, as well as forced technology transfers to (and thefts of intellectual property by) Chinese competitors. Recently, a Wisconsin jury found that a Chinese company using a U.S.-owned technology to control wind turbines illegally stole the underlying code of the software, leading to a depletion in revenues that caused the U.S. company AMSC to close the Wisconsin location responsible for servicing turbines.

 

It’s fair to say that the Trump administration has not been supportive of renewable energy, and several environmental leaders have spoken out against the impact of tariffs on renewable energy adoption. But another stance taken by environmental leaders like the Blue Green Alliance is to decry the pitting of manufacturing against environmental sustainability. A green revolution of the world economy will demand a wide array of manufacturing products such as electric vehicles, green chemical products, energy-efficient appliances and recycled-content products; and with the United States’ high demand and potential production capacity for these products, there’s huge potential for sustainable products to power a revitalizing of manufacturing.

At the start of the decade, solar was eyed as a green manufacturing growth sector, especially in locations known for glass production like Toledo, Ohio. But, the rapid arrival of Chinese products (and other imports) quickly undercut solar capacity. According to the Coalition for American Solar Manufacturing, more than twenty U.S. solar producers have closed their doors since 2010. Ironically, by subsidizing installation of panels and of components in them that were imported to China, the federal actions to help the solar industry may have fueled the decline of the U.S. solar industry. It was two of these companies, Suniva and Solar World, who filed a complaint last year with the U.S. International Trade Commission, which confirmed that increased imports had damaged these U.S. producers. The Commission recommended the thirty-percent tariffs on importers from China and several other countries.

 

Will these tariffs revive the solar manufacturing industry? The obstacles are steep: China and other nations like Malaysia have developed production facilities on such a large scale that the United States could never hope to compete. But it’s suspect whether the United States should even want to invest heavily in production for this current generation of solar cells, which are very inefficient: at most, only 25 percent of the radiation produced is captured by today’s technology and converted into usable power. As chronicled by Joan Fitzgerald in the American Prospect, the question is whether U.S. companies can pioneer with R&D, production, and installation of the next generation of more efficient solar cells. Revenues from the tariff could be reinvested in scientific research and grants to support the development of these technologies in the United States.

 

Regaining market share in the next generation of solar manufacturing requires having some manufacturing foothold in the current generation. The move of the semiconductor industry to East and Southeast Asia enabled those economies to gain an expertise in thin-film production, the basis of solar cells. We need domestic production to develop the core engineering competencies and gain a testing ground for new technologies. That’s the best-case scenario of these tariffs. Indeed, outside of the two firms lodging the complaint, several foreign manufacturers have indicated that they are considering building solar manufacturing plants in anticipation of the tariffs.

Optimism aside, it’s of valid concern that the solar tariff could slow progress in solar installation. In the last decade, according to the Solar Energy Industries Association (SEIA), solar installations have grown at an average annual rate of 68 percent. The price of solar energy per kilowatt-hour, which recently reached parity with fossil fuels for the first time, has played a big role in the increase in solar installation. Luckily, solar panels only make up less 20 percent of the cost of a home installation. But these developments were possible in large part because of state and federal policies that supported them. Continued policy engagement will be crucial to sustaining demand for U.S. solar manufacturing, and to providing stability for one of the fastest-growing occupations in the country.

 

So, Congress and the states need to continue their support of solar installation. Twenty-nine states and Washington, D.C. have Renewable Portfolio Standards (RPS), laws that require a certain percent of electricity to be generated with renewable energy. The RPS require utility companies to make decisive progress toward integrating renewables into the energy grids which they respectively oversee. Proof of the success of these standards can be found in states like California, Texas, Colorado, Massachusetts, and New York, where robust incentives for the solar industry—the highest number of incentives in the country—have successfully aided capacity growth. In other good news, Congress recently preserved the incremental phase-out of the federal tax credit for wind and solar energy investments, despite attempts made to cut the program entirely in another version of the recent tax bill. In addition to supplying direct financial support, the federal government provides critical research and development support through the U.S. Office of Energy Efficiency and Renewable Energy Photovoltaics subprogram. The program works to improve the efficiency of U.S. production, and currently represents around $179 million of investments in photovoltaic technologies.

It’s critical for policymakers to do everything they can to promote the transition to a renewable energy economy. But the future leaders of America’s green economy will require tough enforcement of fair trade rules that safeguard their chances to compete. With those interests in mind, the solar tariffs initiated first by President Obama and now expanded by President Trump are steps in the right direction.

 

 

 

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