With the stroke of his pen next January, President Trump may deal a savage blow to the solar-power industry, electricity customers, and the nation’s economy. On September 22, the U.S. International Trade Commission decided to recommend to the president that tariffs be imposed on imported solar panels. The story leading to this disaster reads more like a thriller than what one might expect from an international trade case. The consequences will be immediate, deplorable, and felt by us all for years to come. If you have been considering solar panels on your roof, get them installed before January or see the price skyrocket.
It began when two bankrupt domestic solar panel manufacturers, Suniva and SolarWorld Americas, filed a “global safeguard” case under an obscure provision of U.S. trade law complaining that foreign imports of solar panels created an environment in which U.S. manufacturers couldn’t compete. Interestingly, unlike most trade cases, this one doesn’t assert that there was any wrongdoing by foreign manufacturers or governments, such as dumping or illegal subsidies. It simply contends that without protection, America can’t produce solar panels at competitive prices.
It seems important to note at this point that while the case is ostensibly about protecting American manufacturers, Suniva and SolarWorld are actually owned by Chinese and German companies, respectively.
The case was initially put forward by Suniva (SolarWorld joined later), which at the time of filing was already in bankruptcy proceedings. How does a company in bankruptcy fund a very expensive and risky trade suit? It gets bankrolled by the hedge fund, SQN Capital Management, which had previously loaned it over $50 million for a manufacturing facility and was desperate to recover that investment. In a twist that seems pulled straight from a Grisham novel, SQN then wrote a letter to the Chinese Chamber of Commerce, whose members are some of the largest vendors of photovoltaic panels to the U.S., informing that chamber that should Suniva’s equipment be purchased and SQN made whole, the trade case taking aim at an entire industry would be withdrawn. While SQN’s attempt at extortion has failed, the International Trade Commission apparently saw no cause for hesitation on the legitimacy of a case formulated for blackmail, even when this letter was uncovered and entered into evidence.
With the Trade Commission’s decision in favor of the petitioners, President Trump now has the ability to slap tariffs on the solar industry (long in his crosshairs as part of the “hoax” of climate change) in the name of protecting domestic manufacturing. Here thriller turns to tragedy as misguided trade policy damages both our economy and environment. Suniva and SolarWorld are asking for a tariff that would just about double the price of solar panels in the U.S. This tariff would be immediate and unappealable after Trump’s likely decision in January. The net result would be an estimated 88,000 jobs lost in the solar industry (not including those from upstream suppliers of steel, machinery, parts, etc.), 18,000 of them right here in California. The tariff would reduce solar installation in the country by around 47 gigawatts over the next five years, which is more than all the solar capacity currently installed, at a loss of about $50 billion in investment.
Even those outside the industry are going to get hit in their pocketbooks. The irony of any criticism of importing cheap solar panels from abroad is that, consequently, those inexpensive panels mean we all pay lower electricity prices. While solar energy is a relatively small portion of domestic electricity supply, it is the fastest growing. Increasingly, its downward pricing effect is being felt on peak power prices across the country and nowhere more so than in California. Any tariff that artificially inflates the price of solar panels will certainly impact our electricity prices, either from more expensive panels on our roofs or more expensive power plants that drive up wholesale rates.
What’s worse than all this is that there will be no meaningful offset by the creation of domestic solar panel manufacturing jobs. More than 90 percent of the solar panels deployed in the U.S. are manufactured abroad. There is no conceivable path to ramping up the scale of domestic manufacturing over the next five or 10 years to make up this gap, even if a tariff were to prop up prices to make it profitable. The protectionist argument is flawed: Even if the capabilities could be rolled out at scale in such a short time, economic law holds that if prices are forced to rise, demand, and thus supply, will fall, meaning that jobs must be lost as the industry contracts. The reality is that solar panels are a commodity, and economies like China’s and Mexico’s are just better at producing that type of good than ours. In fact, we derive great benefits from free trade in circumstances like this, as it subsidizes our low electric rates and environmental protection. Given President Trump’s blind obsession with tariffs and dangerous position on climate change, it really is sad that the machinations of a hedge fund and foreign companies masquerading as domestic manufacturers have delivered him the opportunity to indulge his delusions.
Elliott MacDougall is CEO of Weymouth Development Group, an energy real estate development company based in Santa Barbara.