Throughout the 2016 presidential campaign, then-candidate Trump promised a bold new trade agenda for the United States. But other than withdrawing the United States from the Trans-Pacific Partnership, the Trump administration has thus far avoided shaking up the international economic order.
Apparently frustrated by this lack of tangible trade “victories” early in his administration, President Trump reportedly told senior advisers: “I want tariffs. Bring me some tariffs.” Regrettably, he may soon have an opportunity to impose steep tariffs and reward his supporters in the coal industry.
In April, two bankrupt solar firms, Suniva and SolarWorld, filed a petition at the International Trade Commission, relying on a rarely used U.S. trade law. They argued that an increase in imported solar cells is a “substantial cause” of “serious injury” to the domestic industry. In their request for protection from foreign competition, the firms proposed initial duties on solar cells of $0.40 per watt and an initial minimum price of $0.78 per solar module, both of which would decline over a period of four years.
This case is unlike standard antidumping or countervailing duty cases, which target “unfair” trade practices and typically apply tariffs or other restrictions to imports from a particular country or company. The trade remedy sought by the petitioners — known as a “safeguard” — would apply to fairly traded imports from all countries. And it would essentially double the cost of solar products. This would make solar products in the United States more expensive than virtually anywhere else in the world.
The ITC recently heard arguments in the case, and a decision is expected in late September. If the ITC finds that a rise in imports is causing Suniva and SolarWorld serious injury, it would then propose remedies to President Donald Trump. In consultation with the Office of the U.S. Trade Representative, the president would be asked to make a final determination on an appropriate remedy, with broad powers to determine what that remedy should be.
There are a number of reasons the ITC, USTR, and the White House should avoid imposing stiff tariffs or other import restrictions on imported solar cells. The last time the United States imposed safeguard measures on imports was in 2002, when the Bush administration acquiesced to the steel industry’s demands for higher tariffs on imported steel products. That caused a significant spike in domestic steel prices, with one analysis finding those higher prices led to nearly 200,000 job losses in the United States in 2002, particularly concentrated in steel-using industries. It’s worth noting that, at the time, domestic steel producers employed less than 200,000 Americans in total. Not only did the tariffs kill more jobs than they possibly could have saved, but they failed to revive the ailing steel industry, as proponents claimed they would.
In response to the steel tariffs, the European Union threatened retaliation against U.S. exports and joined Japan, China, and others to challenge the safeguards at the WTO. The United States lost that case. By 2003, the steel tariffs were withdrawn, but not before significant damage was done to domestic manufacturers as a result of the higher prices.
There are similarities and differences between the steel industry in 2002 and the solar industry today. The bankrupt firms clamoring for solar tariffs employ about 1,000 Americans. Meanwhile, the rest of the solar industry, who would bear the brunt of the solar tariffs, employs nearly 260,000 Americans. Like the downstream users of steel in 2002, domestic solar manufacturers who rely on imported solar cells as component parts would see the costs of production skyrocket, which would surely cause industry contraction. Likewise, the administration should expect retaliation and a challenge at the WTO if it moves forward with the tariffs.
Unlike the steel industry of the early 2000s, today’s U.S. solar industry today is booming, albeit with too many government subsidies. Its electricity generation is has seen a twentyfold increase since 2010 and the industry added more than 50,000 jobs in 2016. Solar has experienced a sharp cost decline, with photovoltaic costs falling more than 50 percent since 2011. Moreover, policymakers already have predicated the negotiated phase-down of domestic subsidies on continued declines. Artificially upending the solar industry at this stage would create calls to ramp up domestic subsidies, further entrenching a subsidy regime this administration should instead be trying to unwind.
Not only would solar tariffs benefit a small slice of the domestic industry at the expense of the larger industry, but it would also be a disaster for clean energy deployment. An abrupt increase in costs would shock the investment community, rendering some planned projects economically inefficient overnight. Costs would escalate rapidly, as the domestic supply chain readjusts. After it does, the shift would stunt long-term solar deployment, as investment would shift to alternative technologies. Costs to consumers would escalate substantially, especially in states with solar procurement requirements.
Notwithstanding such short-term pain, a solar tariff would undermine the long-term vision of a low-cost, subsidy-free clean energy future. This vision requires a predictable and stable investment climate to drive innovation. Tariffs have a history of stifling innovation, and applying them in this context would disrupt the solar industry during a critical phase of economic and policy development. While the Trump administration may be tempted to reward its friends in the coal industry, who would love to see drastic increases in solar prices, imposing tariffs also would hurt domestic manufacturing — which the president has vowed to promote as the heart of his economic agenda.
Clark Packard is a trade policy analyst and Devin Hartman is a senior fellow at the R Street Institute.