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Blinded by the Truth: Why the Solar Tariff Is Good for Manufacturing

President Trump is at it again, putting American interests over foreign ones, this time trying to save solar manufacturing jobs. But could an America First mentality actually work in this case?

President Donald J. Trump is a lot of things to a lot of people, but for his most fervent detractors, placing a 30% tariff on fully assembled solar panels and cells has moved him to full-on cartoon villainy. Like billionaire C. Montgomery Burns on The Simpsons, apparently his lifelong obsession is to block out the free, limitless energy of the sun.

The four-year tariff only kicks in after the first 2.5 GW of imported photovoltaic (PV) cells and modules, and decreases by 5% each year. Last year America installed 12.5 GW, using 80% of imported cells, or 10 GW. As any import tax is designed to do, this is meant to make a more equitable marketplace for American manufacturers.

Nevertheless, the move is being called bad for America's working class.

Because of this tariff, about 23,000 solar sector employees "will lose their jobs, including many in manufacturing, and it will result in the delay or cancellation of billions of dollars in solar investments," according to Solar Energy Industries Association (SEIA). The organization previously reported it would be 88,000.

"It boggles my mind that this president - any president, really - would voluntarily choose to damage one of the fastest-growing segments of our economy," said Tony Clifford, chief development officer of Standard Solar. "This decision is misguided and denies the reality that bankrupt foreign companies will be the beneficiaries of an American taxpayer bailout."

Another solar insider says the move will certainly not make America great again: "There's no doubt this decision will hurt U.S. manufacturing, not help it," said Bill Vietas, president of RBI Solar in Cincinnati.

And these were just in the official SEIA press release on the matter. The Twitterverse was not so kind. But the thing that bothers me is this language of absolutism by industry experts:

  • People "will" lose their jobs
  • There's "no doubt" this decision will hurt U.S. manufacturing

Meanwhile, an economic analysis of the tariff by Mayer Brown says the tariff  "would result in a net gain in employment of at least between 114,796 and 144,298 jobs for the US solar industry, including the upstream industries that
manufacture critical components used in the production of solar cells and modules over the next five years."

Around 45,000 would be in manufacturing, and would have increasing economic impact on the rest of the economy.

This is a complex issue. Suffice to say, there are so many factors to consider. The president is more than capable of defending himself (when he's not offending others), but when someone says U.S. manufacturing will be hurt, we feel compelled to investigate.

The Trump administration, and some solar panel manufacturers, believe the tariff will help; the solar industry advocacy group think it will be a disaster.

Let's judge the tariff on its own merits, and not on any political bias.

So how did this all start? Last April, Suniva, a U.S-based solar panel manufacturer with majority Chinese stakeholders, invoked Section 201 of the Trade Act of 1974, which states "domestic industries seriously injured or threatened with serious injury by increased imports may petition the [U.S. International Trade Commission] (USITC) for import relief."

The main argument here is that China's cheap photovoltaic cells and panels, which in 2014, the U.S. Department of Commerce found were being subsidized by nearly 50%, were flooding the market and making it hard to compete. They had to close a Michigan plant and lay off 131 workers in Georgia.

At least a dozen American solar factories have shut down in the last six years. Suniva, allegedly $100 million in debt, decided to act. Atlanta-based SolarWorld (owned by a German company) joined the petition soon after.

Abigail Ross Hopper, the SEIA's president and CEO, chose some harsh language to undercut their complaint:

"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."

So solar companies that operate in America and hire American workers will cost America solar jobs? Makes perfect sense.

Wait. No, it doesn't.

The industry employed 260,000 people in 2016, a 25% increase from 2015. During this time, America doubled its installation production to 14.6 GW.

But last year, production dropped to 12.5 GW. While 2016 was an amazing year for solar, the 30% federal investment tax credit (ITC) for commercial and residential installations was set to expire in 2017. It was extended in December 2015, and although this is pure speculation, most businesses probably had their 2016 budgets completed before 2016 started. Not knowing whether the tax credit would be there in 2017, they may have opted to get it in 2016.

This chart, provided by the SEIA, shows a massive jump in 2016 Q4:

GTM Research/ SEIA

This is important to know because it raises uncertainty as to whether the solar industry's unprecedented growth is sustainable under current conditions. If 23,000 people lost their jobs in solar, can it be attributed solely to a tariff, or did the majority of buyers who would go solar already purchase their panels, and the market was already poised to see a natural decline to the technological trough of disillusionment?

But blaming an unpopular president and "foreign-owned" companies would be a good way to explain impending job losses.

Despite the SEIA's indignation, the Obama administration used solar tariffs, such as a 31% one in 2012 specifically on China. This new tariff is different because it charges a duty on all imported panels and cells. Half now come from South Korea and Malaysia, which may still effectively be Chinese-owned and the factories built to get around the Obama tariff.

Getty Images

President Obama visiting solar panel manufacturer Solyndra in 2010. The company went out of business the following year. Chinese panel manufacturers settled claims of price-fixing with the company in excess of $52 million, or less than 10% of what the government loaned  Solyndra.

In a free market, businesses often fail. Ideally, this should happen due to controllable forces, like a product's craftsmanship or marketing, and not a massive foreign industrial complex undercutting you. That's the root of this. 

Are inexpensive imported solar panels are so vital to the health of the overall U.S. solar industry that they should be protected at the expense of some domestic manufacturers?

According to the SEIA, only 2,000 out of 38,000 U.S. solar manufacturing employees produced PV cells and panels in 2016. That's 5% of all US solar manufacturing – the rest make metal racking systems, inverters, and other parts.

But those ancillary component makers are the ones who benefit from cheap panels, as the effectiveness of the panel is irrelevant to their function. Just as a phone case maker cares not if it's an iPhone X or a burner it's protecting, these companies only care if you buy their product.

Maybe this tariff, which may increase residential costs 3% and commercial by 8%, will cost fewer than one out of every 10 solar jobs. But what jobs will be lost, and what will be gained?

The panel itself is inherently more important than the bracket. The more efficiently it converts solar rays into DC current, the more likely people will choose to use it. Prior to 2010, it cost more electricity to make a panel than it could produce, so people didn't invest in them.

Now they are more efficient, and the industry takes off. But now we are conceding innovation and dominance in a market that's admittedly thriving to our greatest trade competitor. We save temporary PV installer jobs and lose higher paying, more secure manufacturing jobs. And if one manufacturing job creates more than three other jobs, you could argue it also has more value.

Therefore, a manufacturing job that creates solar panels would have the most value.

Aside from the fact the silicon PV cell was invented in New Jersey in 1954 at Bell Labs, innovation plays a huge part in solar's current success and should be given preference.

According to Bloomberg, China accounts for 125 GW of the world's production capacity of PV cells; America produces a paltry 2 GW. By not supporting domestic manufacturers, and accepting the cheapest bid, we'll lose out even more.

"It's a losing battle for U.S. solar manufacturers to try to compete on producing low-cost equipment," said IBISWorld analyst Sean Windle at the time. "This allows them to play to their strengths; to focus on R&D and on producing more high-tech and energy efficient solar panels. That is ultimately what will set U.S. manufacturers apart from low-cost importers."

So what Windle is saying is that cheaper is not always better. China's innovative breakthroughs have been in scaling and mass-production, playing to their obvious strengths. And cheap solar panels are useful, just like hitting McDonald's drive-thru can be in a pinch. If solar energy is this magic bullet to kill global warming, can we aim for a higher standard than inexpensive and convenient?

Look at what Tesla has done with its Solar Roof. It looks like a regular roof, but creates energy with invisible solar cells. And they are more durable than regular roof tiles. That's the type of innovation that deserves to be protected. This tariff at least promises to do that. And if successful, maybe China would even want to buy cells made in America.

Tesla

Tesla's Solar Roof is coming out this year.

This isn't 1920s isolationism policy here; it's giving American manufacturing a fair shot to flourish or flounder on its own merits, like a capitalism-based economy is wont to do. Give U.S. companies like First Solar and SolarCity a chance to survive against an industrial complex subsidized by one billion taxpayers.

It's betting on America, and it's a trend that might even catch on.

Big Steel is already on board. This is a statement from United States Steel Corporation:

We are pleased to see the President's action on products critical to American manufacturing and energy production. We are hopeful the President will similarly use his authority to establish a broad Section 232 remedy targeting steel imports that threaten U.S. national security by undermining our industry, economic competitiveness and the industrial foundation on which our manufacturing sector rests.  We believe broad and decisive action against the multitude of foreign producers is fundamental to protecting our national security and American jobs.

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