The renewable energy industry has been one of the fastest growing energy sector in the United States. The sector employs around 260,000 people in the US and has seen average growth of around 20% for the past several years. So why did the White House throw a wrench in its gears?
What trade case?
Suniva and SolarWorld Americas, two solar panel manufacturing companies, filed a trade complaint with the US International Trade Commission (ITC). Both companies are bankrupt. The two companies stated that the reason they failed is because foreign solar panels were too inexpensive. The ITC found that cheap foreign panels were hurting domestic manufacturing.
Donald Trump has been looking for a way to follow through on a campaign promise to “get tough on China.” Trump chose to invoke a tariff on imported solar modules and washing machines. The tariff would start at 30% and scale down over four years.
As a result, every $1.00 spent on foreign solar modules will cost $1.30. The tariff will scale down over four years. 2.5 gigawatts will be exempted from the tariff.
“The President’s action makes clear again that the Trump Administration will always defend American workers, farmers, ranchers, and businesses in this regard,” – Robert Lighthizer, US Trade Representative (CNN Money).
Trump logic says that the foreign governments are giving massive subsidies to companies manufacturing these solar panels. That allows the companies to operate at much lower (if any) profit margins, because – hey, the government is going to pay us to build this stuff anyway.
By imposing a tariff, Trump believes he is leveling the playing field for US companies. The tariff is meant to negate the subsidies received.
The rationale is that US solar manufacturers will hire more workers, open more factories, and sell more panels.
Economics Lesson: Tariffs
You run a lemonade stand. Each cup of lemonade costs $.25 to make. You sell each cup for $.30. That results in a profit of $.05 on every cup.
But foreign Company X opens a lemonade stand and they get money from the government (a subsidy). So each cup costs them $.25, but the government pays them $.05 for every cup. Company X can sell the lemonade for $.25 and also make $.05 of profit on every cup.
So who is going to sell more cups? You or the less expensive, Company X?
Now let’s introduce a tariff. The White House steps in and says Company X isn’t from the US, so they need to pay a $.05/cup tariff to sell their lemonade. Now the two prices are equal. Suddenly there’s competition.
Opposition to Tariff Rationale:
Opposition to the tariffs are broad. Moreover, conservatives and liberals have aligned in their opposition – albeit for different reasons.
The solar industry is a $23 billion/year industry in the US. Currently, 260,000 people are employed in the solar industry – this includes manufacturers, salespeople, engineers, finance teams, and more working in all 50 states.
Solar companies (and their trade groups) oppose tariffs because they rely on foreign panels to sell their product. Solar has boomed because homeowners and businesses can save money on electricity by using panels in many parts of the country. If the equipment now costs 30% more, the sales pitch becomes a lot more difficult to make.
Utilities oppose it because they have been investing in their own large solar projects. The tariffs have suddenly increased their costs to carry out these projects.
Free trade groups, like The Heritage Foundation, oppose tariffs because it represents government interference in the market place. Tariffs have a ripple effect and can cause damage to other industries. Tariffs also harm one of the fastest growing industries in the US.
Environmentalists oppose the tariffs because it slows the adoption of clean energy. From an environmental perspective, the planet is running out of time to delay vast adoption of solar and wind.
Domestic solar manufacturer, Tesla – Yes, even one of the prime beneficiaries opposes the tariff. Why? One reason is that Tesla’s solar panel manufacturing can not meet demand. Therefore they still need to go outside the US to fill that demand. Another reason is that while Tesla manufactures solar panels, they still purchase key materials (“solar cells”) from Asia. Those materials are being taxed. And yet another reason is that Tesla does best when their industry is booming. Hurting the solar industry is bad for business.
You can see there’s a few more variables than running a lemonade stand would lead you to believe. Support for the tariffs has been muted.
What can I do?
If you align with one of the groups opposed to the tariffs, you should take action. If you align with Donald Trump, then sit back and let things take their course.
As with most renewable issues, progress is taking place at the state and city level. State and local politicians should be prime targets to develop policies to balance this tariff. They also have the added incentive of saving jobs in their district.
Contact your state Representatives – Let them know you want to see the state (or city) take independent action. State Reps are usually pretty easy to get ahold of because their districts are so localized. Note: Don’t confuse this with your US Representative. They might release a statement supporting or condemning the tariffs, but they won’t put any meaningful legislation forward if its passage depends on Trump’s signature.
If you’re unsure who your state Representative is, Google “Find (your state) state representative.” Each state has its own database to help you locate this information.
The Solar Energy Industries Association may also launch action. They have a generalized action page, which you can view here.
Let us know what your local representatives are saying.