Solar Tariffs On The Horizon



James Bacchus and Gabriella Beaumont‐​Smith | CATO Institute

Unsurprisingly (and disappointingly), President Joe Biden has extended the tariffs former President Donald Trump imposed on imported solar cells and panels. These Trump tariffs, which started out at 30 percent in 2018 and decreased to 18 percent in 2021, were set to expire this past Sunday, February 6. Instead, the tariffs will remain in place and will be slightly reduced annually during an extended period of four years.

President Biden has made “some tweaks” to these tariffs on imported crystalline silicon solar products. For example, an annual tariff‐​rate quota (TRQ) for solar cells—the principal component of solar panels— that was set at 2.5 GW by the Trump administration will be doubled to 5.0 GW. This means that twice as many of these products can be imported into the country duty-free—without payment of the tariffs.

He has also decided to exempt the two‐​sided solar panels called “bifacial” panels from the tariffs. These large doubled‐​sided panels are used in major utilities projects and are key ingredients of the domestic industrial transformation sought by the Biden administration in response to what the president and his allies see as the urgency of addressing climate change. Bifacial panels are not available at scale in the United States and are more energy efficient than traditional monofacial panels, not only because they are double‐​sided, but also because they tend to be more resilient to weather elements.

Although much of the debate about the wisdom of extending these Trump‐​era tariffs has centered on the sizeable role of China in the global solar industry, currently the leading exporter of the covered solar products to the United States is Vietnam, followed by Malaysia, South Korea, and Thailand. As result of other U.S. restrictions on Chinese imports, imports from China are not currently a major factor in the U.S. solar energy market.

The solar tariffs were originally imposed under Section 201 of the Trade Act of 1974 as a “safeguard” measure to “prevent or remedy serious injury to the U.S. industry.” It is important to note that safeguard measures do not require the allegation of any unfair trade practice by a foreign supplier, and none has been made here. There has, therefore, been no legal finding that the affected imports are examples of unfair trade.

The aim of this measure has been to provide the U.S. solar manufacturing industry with a period in which it can adjust to the pressures of foreign competition, with the objective especially of creating more U.S. jobs in solar manufacturing. However, not only have these tariffs failed to achieve this aim, they have actually caused job loss. The Solar Energy Industry Association (SEIA), which represents companies that install and use solar panels, has estimated a loss of 6,000 jobs even though the U.S. solar manufacturers that requested the safeguards promised creation of 45,000 jobs.

So, why would President Biden extend these tariffs that have already failed?

It is baffling that solar cells could even qualify legally for a safeguard given that, as noted by one official, “the U.S. does not produce solar cells.” Thus, it might reasonably be asked, what is there to safeguard? Further, there is a tacit admission in his proclamation that the president understands that these tariffs are harmful, because he instructs the United States Trade Representative to enter into negotiations with Canada and Mexico to free up imports of these products in North America.

Moreover, President Biden has continually emphasized the importance of helping the climate in his agenda. Maintaining these tariffs will do little to achieve that goal. Continuing to impose the artificial expense caused by the tariffs only adds to the prices of renewable alternatives such as solar energy, making them less appealing. Further, these restrictions on imports of solar cells, which convert sunlight to electricity, affect businesses’ investment decisions. Limiting how much they can import, regardless of whether their imports are currently below the bounds of the duty‐​free quota, causes a “chicken and egg problem.” Is a business importing less because that is all it requires or because it knows there are limits to what it can import? In fact, the U.S. International Trade Commission (USITC), in a 2020 report, found that the safeguard tariffs did nothing to increase investment in the U.S. solar cell industry.

Fortunately, U.S. demand for solar energy is projected to increase. Americans want solar energy. However, the new TRQ will likely cause problems for the American consumers that want solar energy. According to the National Renewable Energy Laboratory, U.S. solar cell capacity is projected to be only 1.8 GW in the best‐​case scenario. With module production at 7.5 GW, there is a gap of 5.7 GW for cells. Therefore, the 5 GW quota would be exceeded by 0.7 GW, meaning tariffs would need to be paid on the excess, which would likely spillover to consumers.

Additional bad news for U.S. solar manufacturers is that this scenario assumes that only domestic demand is met. Although the president “doubled the quota,” his decision not to restore freer trade in these products could have significant implications for Americans looking to expand their consumption of solar energy and, therefore, solar energy products. Making those products more expensive and more difficult to obtain is nonsensical as a matter of public policy.

The U.S. solar industry has not benefitted from these tariffs, and they are jeopardizing relations with our allies. Under WTO rules, because there is no allegation of unfair trade here, U.S. trading partners whose exports are affected by these tariffs are entitled to compensation in other sectors of trade in an amount equivalent to the trade losses they suffer from them. At last count, ten WTO members were waiting in line for this compensation and holding off in hopes that Biden would not extend these tariffs. Now that he has extended the solar tariffs, other U.S. industries should prepare for billions of dollars in higher tariffs on their exports—all perfectly legal under international law.

Given that the Biden administration has chosen the extension path, we reiterate our other points from our previous blog imploring the president to reconsider and eliminate these restrictions on solar trade altogether. The Biden administration should at the same time:

  • remove tariffs on steel and aluminum, which are vital components to producing solar panels,
  • remove tariffs on Chinese goods,
  • remove antidumping and countervailing duties on imports of solar cells and modules from China and Taiwan, and
  • remove all tariffs on environmental goods.

If President Biden does all that, it might just make up for extending this mistake by Trump that is now a mistake of his own.

James Bacchus is a member of the Herbert A. Stiefel Center for Trade Policy Studies, the Distinguished University Professor of Global Affairs and director of the Center for Global Economic and Environmental Opportunity at the University of Central Florida.

Gabriella Beaumont‐​Smith is a policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.

To read the piece of legislation proposed to repeal the solar tariffs, please click here.

To read the full commentary from the CATO Institute, please click here