Setting Sun: The Impacts of Trump’s Solar Panel Tariff

 /  Feb. 18, 2018, 8:40 p.m.

Solar panels

Three weeks ago, President Trump took perhaps his largest step towards the protectionist trade policy that he touted so often during his presidential campaign, announcing a 30 percent tariff of imports of solar panels and solar equipment. Although the decision has been met with stern criticism from lawmakers on both sides of the aisle, as well as representatives of the US domestic solar panel industry, there are still some who seek to gain from Trump’s new brand of commercial isolationism.

Despite its reputation as a fossil fuel-oriented economy, the United States has seen a very large increase in solar panel usage over the past five years, putting it among the highest in the world when it comes to total installed capacity. Over the past two years, the United States has more than tripled its solar panel usage to the point where approximately 39 percent  of all new electricity generation in the country comes from solar energy. That’s more than any other source, including natural gas.

Of course, a large part of this growth in the solar industry can be attributed to government support, which was rampant throughout the latter stages of the Obama administration. While drastic failures such as Solyndra were quick to draw the ire of political opponents, there were also a number of successes that arose from both federal and state government support for renewable energy. By the end of Obama’s second term, the solar industry had grown to become the largest energy industry in the United States, employing some 260,000 people throughout the country.

Now though, it seems as if Trump believes he can improve the industry even more. Concerned about manufacturing competition from China, the Trump administration has drafted a set of regulations that aim to bolster American solar panel manufacturers while also forcing Chinese companies to shift their production to America. According to the new law, the first 2.5 gigawatts of imported solar cells will be exempt from the tariff, although this will account for just over 6 percent of the United States’ yearly imports. Any additional import will incur the 30 percent tariff, which will supposedly be lowered to 15 present over the next four years as domestic manufacturing begins to rise. According to Trump’s Trade Representative Robert Lighthizer, these policies are yet another example of Trump’s promise to “defend American workers, farmers, ranchers and businesses” when it comes to trade.

However, there have been a recent slew of reports that have contradicted this assertion, stating that Trump’s tariffs will actually cause more harm than good. The most glaring of these comes from the Solar Energy Industries Association (SEIA), one of the nation’s leading solar energy advocate groups. They state that the higher cost of production due to higher prices on solar panel components will lead to a minimum loss of twenty-three thousand manufacturing jobs over the next two years. Additional layoffs, they claim, could take place in auxiliary industries such as “metal racking systems, high-tech inverters … and other electrical products” that are vital for solar panel manufacturing. On a macro level, there could also be significant job losses in the installation and sales aspects of the industry, which make up a much larger portion of the solar panel industry than do manufacturing. In terms of long-run impacts, a report from Greentech Media stated that the drop in production among domestic solar companies could reduce solar panel installation by close to 11 percent through 2022.

After Trump’s decision to pull out of the Paris Accord as well as slash Obama-era regulations concerning on power plant emissions, many see the solar tariff as Trump’s next step in undermining the economics of renewable energy. Meanwhile, some view the new regulations as just another example of the kind of power special interest groups can have over international trade policy. Nine months ago, Sunvia Inc., a US solar panel manufacturer on the brink of bankruptcy, reported that it had been repeatedly suffering “serious injury” from scores of cheap panels produced in China. They, along with another panel manufacturer named SolarWorld, publicly requested some action be taken by the Trump administration to curb the decline in American manufacturing. Now, it seems as if their request has been answered. Shares for many domestic panel manufacturers rose considerably in after-hours trading on Monday, with many investors believing that they stand to benefit from reduced competition abroad.

So far, the response from the Chinese government has been muted. Many at the recent World Economic Forum in Davos, Switzerland, were fearful that Trump’s decision marked the beginning of the long-awaited trade war between China and the United States. While nothing much has materialized, most experts believe China and other APEC countries will try and challenge the tariffs at the World Trade Organization—a body that has been highly critical similar US tariffs in the past. If the dispute begins to spiral out of control, there is no telling what kind of economic impact a reduction in US-China trade relations could have on the international community. Judging by views from most analysts, however, the quick answer is nothing positive.

As with most of Trump’s recent foreign policy initiatives, we will have to wait and see what their impact is over the next few months. In a recent victory for the administration, a Chinese solar panel manufacturer named JinkoSolar stated that it planned to build a new factory in Florida, citing the new tariffs as a major reason behind the move. While further details of the move were not discussed, the company did say in a statement that it “continues to closely monitor treatment of imports and solar cells and modules under US trade law.” Although this move is undoubtedly good for American workers and its burgeoning solar industry, it remains to be seen whether or not others will follow suit.

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Ajay Chopra