UNINTENDED CONSEQUENCES

Trump’s “America First” policy on solar panels will likely benefit… China

Panels everywhere.
Panels everywhere.
Image: Reuters
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A year after he took office, Donald Trump has delivered on a major “America First” protectionist policy. The US administration will levy a 30% tariff on imported solar panels, which will fall to about 15% over a period of four years.

The tariffs are in response to the claims of US solar-panel makers who find it tough to compete with Asian manufacturers. They are being levied to safeguard the domestic industry, promote innovation, and increase US jobs. But Trump’s move could also come back to bite him.

In 2012, his predecessor Barack Obama also levied tariffs on Chinese solar panels. His worry was that Chinese government was subsidizing its solar panels, dumping them in the US, and thus slowly choking American manufacturing.

Policy experts warned Obama that the tariffs were too little and too late. China’s unprecedented growth had led to an increase in wages, and companies were already looking to move manufacturing outside the country. Obama’s tariffs merely accelerated Chinese solar-panel makers’ moves to other Asian countries, such as Malaysia and Vietnam—from where they continued to export cheap solar panels to the US. In the end, China further entrenched itself as the world leader in making solar panels.

Obama’s move did not lead to resurgence of American manufacturing or innovation. Though Trump corrected Obama’s mistake and levied tariffs on all solar-panel imports, his tariffs will likely produce similar results.

Trump’s move helps US solar-panel manufacturers, such as FirstSolar, Tesla, Suniva, and SolarWorld. But manufacturing only makes up about 14% of jobs in the US solar industry, and it is increasingly becoming more automated.

Meanwhile, foreign panel makers say that Trump’s tariffs are better than expected. The companies were already planning for even higher tariffs by hoarding panels, and thus won’t see an effect immediately. Even if we factor in the full effect, ClearView Energy Partners estimates that the cost increase to consumers wouldn’t be too bad: about 4% for residential rooftop and about 10% for utility-scale solar farms.

The companies that will benefit from Trump’s tariffs are mostly not American, although they manufacture in the US. Suniva is majority-owned by a Chinese investor. SolarWorld is the US arm of a German company. Better still, three Chinese companies—JinkoSolar, JA Solar, and Longi Green Energy Technologies—were already planning to build factories in the US, which will allow them to remain in the US market.

So Chinese owners will benefit most, even if some jobs are added. In effect, Trump’s move will likely do little to decrease China’s huge advantage in solar-panel manufacturing, and might even increase it.

Trump’s stance could also open up options for China and its Asian neighbors to retaliate. They could complain to the World Trade Organization, which has in the past rebuffed US import tariffs. And, anticipating a trade war after Trump’s election in 2016, a Chinese newspaper suggested that China could take a tit-for-tat approach:

Boeing orders will be replaced by Airbus. US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the US.

“Chinese think-tanks are likely scrambling to identify the industries in the President’s support base that will lose out the most should it come down to a bare-knuckle fight,” Pauline Loong, managing director at research firm Asia-Analytica, told Bloomberg.

If Trump is serious about supporting the solar industry in the US, tariffs are the wrong tool. “Deployed recklessly, [tariffs] can provoke trade wars that might stymie US chances of taking the helm of an innovative industry with a global supply chain along which goods, services, and capital can flow efficiently across borders,” says solar expert Varun Sivaram of the Council on Foreign Relations in his forthcoming book Taming the SunInstead Sivaram says the US should leapfrog through innovation. Chinese solar-panel makers invest less than 1% of annual revenues in research and development, which is tiny compared to any advanced industry, say semiconductors or pharmaceuticals.

The trouble is Trump is not thinking on these lines, either. After a year in office, the White House still hasn’t hired a science adviser.