President Trump’s decision to impose sweeping tariffs on imports of solar panels and components is the opening salvo of his America First campaign to protect domestic manufacturers from Chinese competition. The stakes are high: Solar is the world’s fastest-growing energy industry, attracting over $160 billion in investment in 2017.
Yet these tariffs will do little to make American manufacturers competitive with dominant Chinese ones. Instead, they might actually discourage domestic investments in innovation, crucial to an American solar manufacturing revival. On top of this, the tariffs will cause collateral damage by slowing down the installation of solar panels in the United States, destroying more jobs than they create, and provoking trade disputes and retaliation.
The United States enacted tariffs on solar imports from China in 2012 (they were expanded to include Taiwan in 2014), when the Obama administration concluded that China had lavished generous subsidies on its domestic manufacturers, which dumped below-cost solar panels on global markets.
But by that point, established manufacturers as well as Silicon Valley start-ups developing solar technologies had already been washed away by a flood of cheap Chinese panels based on conventional silicon technology. American manufacturers’ share of global solar-components production had plunged below 5 percent by 2011, down from over a quarter a decade earlier. What remained after the carnage was a hollowed-out American industry in no shape to compete with the huge scale of Asian producers.
Against this backdrop, the Trump administration hopes to breathe new life into the enfeebled domestic solar industry with tariffs of 30 percent on solar imports from nearly every country. This approach comes at the behest of two manufacturers, which complained that they couldn’t compete with cheap solar panel imports.
Yet if the old tariffs represented closing the barn door after the horse has bolted, the new measures amount to putting a lock on the door. True, Chinese subsidies to its solar manufacturers clearly played an important role in driving American producers to ruin. But the low cost of Asian solar exports no longer depends as much on government largess. Producers there have wrung costs out of their factories to survive in a brutally competitive market. Those that couldn’t keep up collapsed when the Chinese government stopped propping them up.
Because Asian manufacturers are now so far ahead, Mr. Trump’s tariffs are unlikely to stimulate much investment in domestic production. These tariffs are set to ramp down gradually and expire within four years — with no guarantee of extension — leaving a vanishing window for businesses to recoup investments in expensive factories (which would be highly automated and create few jobs).
Overall, the tariffs will likely destroy more jobs than they create. That’s because most solar jobs in the United States are in the installation of solar panels, 80 percent of which are produced abroad. By raising prices, tariffs could shave American demand for panels by over 10 percent over the next five years. That would not only cost solar panel installer jobs, the fastest-growing job category in the country, but also set back progress on reducing carbon emissions.
Moreover, the tariffs could set off trade disputes. South Korea has already announced it will appeal the tariffs to the World Trade Organization. And China may well retaliate by imposing its own tariffs on American exports, including airplanes and agricultural products.
Tariffs also threaten to erode the one advantage the United States does have: technological superiority. The most efficient solar panels in the world are still made by American companies serious about research and development. But even before the news of the tariffs, the chief executive of one such company — which produces panels abroad that would be subject to the new tariffs when sold in the United States — told me that any hit to short-term cash flow would force cuts in research-and-development spending.
Yet innovation is the only hope for the American solar manufacturing industry to wrest back market share from Asian giants. New solar technologies have recently made astounding strides in the laboratory. A front-runner, a material known as perovskite, could be printed in dirt-cheap rolls and achieve far higher efficiencies than today’s solar panels. The Trump administration should redouble government investment in solar research to seed the pipeline with breakthrough technologies and should also provide facilities and funding to support American companies.
Tariffs might be satisfying and flashy, but they won’t promote the innovation that the solar industry in the United States desperately needs to get back on its feet.
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