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President Trump wants protectionist measures against Chinese solar power. That’s going to hurt U.S. firms.

- September 25, 2017
A worker walks past a rooftop solar farm at the BYD Co. headquarters in Shenzhen, China. (Qilai Shen/Bloomberg News)

On Friday, the U.S. International Trade Commission, a federal body, ruled that U.S. solar manufacturers are being injured by solar product imports. This gives the Trump administration an opportunity to increase duties on imported solar equipment, which would raise the costs of solar energy for companies and households in the United States.

The decision to grant relief to domestic manufacturers will hamper climate mitigation. It also ignores the fact that many U.S. firms benefit from participating in global supply chains that govern the production of solar panels. The U.S. government — like other governments — is making trade policy on the basis of outdated assumptions about how products are made.

Protectionism has consequences for energy policy

The decision comes at a time when the United States is making important advances in solar energy. The Energy Department recently announced that the nation reached its 2020 target for the price competitiveness of large-scale solar power three years ahead of schedule. The cost of utility-scale solar in the United States has fallen to 6 cents per kilowatt hour and the cost of household solar power is also falling rapidly. This makes solar energy increasingly competitive with more traditional fossil-fuel-based sources of power, such as coal and natural gas.

The Energy Department’s SunShot Initiative, a successful example of green industrial policy, played an important role in this. The latest data shows that solar photovoltaics contributed close to half of the renewable energy capacity installed globally in 2016. In the United States, installations almost doubled in 2016 from the previous year, and more than $30 billion in capital was invested. The integration of large volumes of renewable energy into electricity systems creates challenges, but it also is encouraging dynamism and innovation in the United States and the international electricity industry.

Protectionism may slow down progress

Now, a different type of policy — trade protection — threatens to undermine these advances. China’s rise as a global manufacturing hub has contributed to the increased competitiveness of solar power. But China’s emergence as a major producer of renewable energy technologies is causing problems in trade policy, which helps explain the decision of the commission.

The United States — and Europe — have imposed trade sanctions on companies producing solar cells and modules made in China, and later Taiwan, in an attempt to protect domestic jobs and investment. This first round of trade fights was troublesome. But it did not seriously undermine the competitiveness of solar power in the United States, even as producers of polysilicon, a key raw material for solar cells, continue to face retaliatory tariffs in China.

This new round is potentially more serious. Suniva, a bankrupt U.S. solar manufacturer with factories in Georgia and Michigan, made a complaint under Section 201 of the Trade Act of 1974. Unlike the previous instances of renewable trade protectionism, Section 201 cases do not require a determination of unfair trade. Crucially, remedies can be applied against all imports, regardless of where they are manufactured. Suniva has requested a steep minimum import price of $0.78 per watt for modules and $0.40 for cells. The U.S. International Trade Commission will recommend tariffs levels to the White House by Nov. 13.

The case presents a political opportunity for President Trump to follow through on his threat to get tough with China on trade. It also gives him a chance to undermine the competitiveness of a key source of renewable energy. For a president who touts the benefits of “energy dominance” centered on fossil fuels, this may be too tempting to pass up.

This protectionism is based on a basic economic error

Trade protection in renewable industries such as solar power misses the fact that the fortunes of U.S. firms, like European and Japanese firms, are tied to the Chinese solar industry through global supply chains. In the United States, the low cost of Chinese solar modules directly benefits companies developing and installing solar projects. Analysis suggests the Suniva petition would increase solar system prices in the United States, probably slowing deployment. Little wonder the Solar Energy Industries Association estimates that 88,000 jobs may be at risk.

But the problem is broader than political polarization over climate change. The previous trade cases occurred during the Obama administration. Europe has implemented similar measures, although it is moving to reduce duties on imports.

U.S. trade law is part of the explanation. It is relatively easy for companies threatened by imports to shape policy. Those that benefit have fewer tools of influence. The solar fights suggest that in a world of globalized manufacturing, policymakers and institutions are not necessarily guided by benefits to the economy as a whole. Today, big parts of the thriving solar industry are under threat, as is the progress made toward cleaner electric power in the United States.