On Monday, the Trump administration announced the imposition of a 30% tariff on foreign solar panel equipment (cells and modules), and a 20% tariff on a number of washing machines.
Here’s how the tariffs will work. The 30% solar tariff will will drop to 25% after the first year, then it will continue to drop before eventually “phasing out entirely,” reports The Hill. Additionally, “the first 2.5 gigawatts of imports each year are exempt.”
As for washing machines, NPR writes that the first 1.2 million imported will see a 20% tariff. Above 1.2 million, washing machines will be subject to a 50% tariff. This too will “phase out after three years,” according to ABC News.
The impetus for the tariffs is a U.S. International Trade Commission (USITC) decision made in September which found that imports of solar equipment from other countries were harming domestic producers.
In May 2017, after filing for Chapter 11 bankruptcy in April 2017, Georgia-based solar company Suniva filed a complaint with the ITC under section 202 of the Trade Act of 1974, claiming that foreign imports of solar equipment were doing substantial harm to the domestic solar industry.
According to the official USITC website:
Under section 201, domestic industries seriously injured or threatened with serious injury by increased imports may petition the USITC for import relief. The USITC determines whether an article is being imported in such increased quantities that it is a substantial cause of serious injury, or threat thereof, to the U.S. industry producing an article like or directly competitive with the imported article. If the Commission makes an affirmative determination, it recommends to the President relief that would prevent or remedy the injury and facilitate industry adjustment to import competition. The President makes the final decision whether to provide relief and the amount of relief.
Shortly after Suniva filed its complaint, another solar company, SolarWorld Americas, joined them. In May, Whirlpool filed a complaint regarding competitors Samsung and LG, both South Korean companies, under section 201. The complaint pertained to washing machines.
SolarWorld Americas CEO Juergen Stein praised Trump’s decision, saying:
SolarWorld Americas appreciates the hard work of President Trump, the U.S. Trade Representative, and this administration in reaching today’s decision, and the President’s recognition of the importance of solar manufacturing to America’s economic and national security. We are still reviewing these remedies, and are hopeful they will be enough to address the import surge and to rebuild solar manufacturing in the United States.
Others are troubled by the tariffs, claiming they will “handicap” the industry, which, according to Bloomberg, “relies on parts made abroad for 80 percent of its supply.”
Abigail Ross Hopper, the CEO of the Solar Energy Industries Association, said:
While tariffs in this case will not create adequate cell or module manufacturing to meet U.S. demand, or keep foreign-owned Suniva and SolarWorld afloat, they will create a crisis in a part of our economy that has been thriving, which will ultimately cost tens of thousands of hard-working, blue-collar Americans their jobs.
According to the National Solar Jobs Census from 2016, the solar energy industry employs more than 260,000 Americans.
Bill Vietas, president of RBI Solar in Cincinnati, said, “There’s no doubt this decision will hurt U.S. manufacturing, not help it.” He added, “The U.S. solar manufacturing sector has been growing as our industry has surged over the past five years. Government tariffs will increase the cost of solar and depress demand, which will reduce the orders we’re getting and cost manufacturing workers their jobs.”
CNN Money reports that Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies, said that it would be unwise to make too much hay of Trump’s tariffs. The outlet adds that the United States already has “more than 150 other U.S. trade measures in place against various Chinese products.”
Many conservatives oppose tariffs as a rule because they have the capacity to negatively impact the economy, merely shifting expenses and jobs around rather than saving them.
A chapter in Henry Hazlitt’s 1946 book, “Economics in One Lesson,” focuses on the negative effect tariffs can have. He uses “foreign knit goods” as an example.
Now let us look at the effect of imposing a tariff. Suppose that there had been no tariff on foreign knit goods, that Americans were accustomed to buying foreign sweaters without duty, and that the argument were then put forward that we could bring a domestic sweater industry into existence by imposing a duty of $5 on sweaters.
There would be nothing logically wrong with this argument so far as it went. The cost of British sweaters to the American consumer might thereby be forced so high that American manufacturers would find it profitable to enter the sweater business. But American consumers would be forced to subsidize this industry. On every American sweater they bought they would be forced in effect to pay a tax of $5 which would be collected from them in a higher price by the new sweater industry.
Americans would be employed in a sweater industry who had not previously been employed in a sweater industry. That much is true. But there would be no net addition to the country’s industry or the country’s employment. Because the American consumer had to pay $5 more for the same quality of sweater he would have just that much less left over to buy anything else. He would have to reduce his expenditures by $5 somewhere else. In order that one industry might grow or come into existence, a hundred other industries would have to shrink. In order that 20,000 persons might be employed in a sweater industry, 20,000 fewer persons would be employed elsewhere.
But the new industry would be visible. The number of its employees, the capital invested in it, the market value of its product in terms of dollars, could be easily counted. The neighbors could see the sweater workers going to and from the factory every day. The results would be palpable and direct. But the shrinkage of a hundred other industries, the loss of 20,000 other jobs somewhere else, would not be so easily noticed.
… And this brings us to the real effect of a tariff. It is not merely that all its visible gains are offset by less obvious but no less real losses. It results, in fact, in a net loss to the country.
… as a result of the artificial barrier erected against foreign goods, American labor, capital and land are deflected from what they can do more efficiently to what they do less efficiently. Therefore, as a result of the tariff, the average productivity of American labor and capital is reduced.
… The effect of a tariff, therefore, is to change the structure of American production. It changes the number of occupations, the kind of occupations, and the relative size of one industry as compared with another. It makes the industries in which we are comparatively inefficient larger, and the industries in which we are comparatively efficient smaller. Its net effect, therefore, is to reduce American efficiency, as well as to reduce efficiency in the countries with which we would otherwise have traded more largely.
Time will tell what impact President Trump’s new tariffs will have on the solar industry. How that will, in turn, ripple out into the rest of the American economy remains to be seen as well.
LG Electronics USA has responded to the news of tariffs, saying, “Consumers should be the ones to decide what washers they want to buy based upon their own preferences, not because of unjustified trade penalties imposed on products by the U.S. government.”