Shining a Light on the New Solar Tariffs

On January 22nd, 2018 President Donald Trump authorized tariffs on solar cell and module imports beginning at 30 percent and gradually reducing to 15 percent over four years. These tariffs took effect on February 7th. The United States solar industry including its lead trade group, the Solar Energy Industries Association, and senators on both sides of the aisle fervently fought against the decision due to the impact on jobs and the potential for retaliation.

The imposition of these tariffs is the result of International Trade Commission recommendations in a crystalline silicon photovoltaic cells and modules trade protection case brought by two bankrupt foreign-owned manufacturers in the United States, Suniva Inc. and SolarWorld Americas, Inc. The safeguard tariffs allow World Trade Organization (WTO) members to protect domestic producers from surges of competing imported products with temporary trade restrictions.

Many solar panel manufacturers were preparing for much harsher tariffs and were, therefore, relieved to learn that they would only be at 30 percent. JinkoSolar Holding Co., China’s biggest exporter of solar panels and the world’s largest producer, stated that the tariff was “better than expected” and JA Solar Holdings Co., the second largest manufacturer, agreed, in reference to the phase out after four years. The tariffs appear to have had some early victories including their influence on JinkoSolar’s decision to open a new $410 million plant in Jacksonville, Florida. In addition, the tariffs have provided a financial boost to companies such as First Solar Inc. whose products are exempted from the fees.

Even so, the tariffs are a large threat to the $28 billion industry that has 80 percent of its product parts supplied from out of the country. The tariffs are anticipated to lower installations by 13 percent through 2022 due to an increased cost of installation of between $0.10 and $0.12 per watt. The states that will likely be hit hardest by the tariffs are California and Texas in terms of overall megawatts and Montana and Idaho with percentage declines. One of the rationales for the implementation of the tariffs was the anticipated increase in U.S. production and “a lot of workers, lot of jobs.” However, photovoltaic solar installation workers, who currently represent the fastest growing workforce in the country, are mostly employed by installation companies using foreign sourced panels. While more than 260,000 Americans work in the solar energy sector, fewer than 2,000 are employed in manufacturing. As a result, the solar industry has already lost about 9,800 jobs in preparation for the tariffs and the job market is anticipated to be reduced by as much as 23,000. With the rising cost of solar, it will be more expensive for states to meet their renewable energy targets.

There is also skepticism about whether the tariff enactment is sufficient to meet other goals including increasing U.S. manufacturing and solar technology innovation. The tariffs may also have some unanticipated consequences such as steering developers towards funding projects in European and Asian emerging markets. The WTO is also concerned that these tariffs, along with the ones on steel and aluminum, will trigger a global trade war. WTO Director General Roberto Azevedo made a statement that “once we start down this path it will be very difficult to reverse direction. An eye for an eye will leave us all blind and the world in a deep recession.”

Some U.S.-based solar companies, such as Enphase Energy Inc., are seeking exemptions from the tariffs. Enphase is a California-based company that creates microinverters that convert photovoltaic panel energy from a direct to an alternating current. Enphase ships these microinverters to Asia to be attached to solar panels before they are ultimately sold in the United States and is, therefore, subjected to tariffs. Another California-based solar company, SunPower, which manufactures its next-generation panels in the Philippines and Mexico, has also requested an exemption after already experiencing negative effects from the tariffs including delaying or eliminating manufacturing investments and projects and reducing its workforce by 150-250 employees by mid-2019.

WTO rules dictate that the U.S. must allow substantially impacted WTO members to consult with them about possible trade concessions to compensate for the safeguard measures. The Eurean Union (EU), China, South Korea, and Taiwan have already made requests to consult with the U.S. about potential compensation. In addition, South Korea is filing a dispute at the WTO regarding the tariffs, questioning whether the justification satisfies the safeguard’s requirement of “unforeseen developments.” South Korea is hoping the WTO will authorize its use of retaliatory sanctions against the U.S. The EU, Japan, and China have also brought challenges seeking this authorization. South Korea has successfully won WTO cases against the U.S. in the past involving, among others, steel safeguards (2002), washing machines (2013), and oil country tubular goods (2014). South Korea has offered to use their experience with these cases to help other affected countries such as China and Mexico. In addition, the Canadian government is arguing that, unless Canada is exempted from the safeguard restrictions, the U.S. would also be violating the North American Free Trade Agreement.

While countries are turning to the WTO, companies are suing in U.S. courts, claiming that the tariffs are an illegitimate use of Section 232 as the national security rationale is inconsistent with Trump’s protectionist public statements, that Section 232 delegates too much Constitutional power to the president, or that the process of creating the tariffs was flawed. To be successful in blocking the tariffs, the companies need to convince a judge that they are both likely to win and would otherwise suffer irreparable harm. This is going to be a challenge given that judges will give deference to the president’s views on national security.

Executives and politicians alike will be carefully monitoring these cases, as their outcome will provide an early bellwether regarding the future of the solar industry across the globe.

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