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February 5, 2018

Summary

New tariffs on imported solar panels and modules and on washing machines, announced by the Trump administration on January 22, will come into effect on February 7.  The tariffs are among the first unilateral trade restrictions imposed by the administration as part of a broader protectionist strategy that treats “unfair trade practices” as a threat to national security. LEARN MORE.

Trump imposed a 30% tariff on crystalline silicon photovoltaic (CSPV) solar panels and modules, which will step down incrementally over four years to 15%. For finished washing machines, a tariff beginning at 20% on the first 1.2 million imported units and raised on subsequent imports to 50% — the maximum allowed by law — will step down incrementally to a maximum of 40% over three years. Both of these import safeguards include options to continue beyond their specified timeframes. The tariffs will affect all but General System of Preference (GSP) nations as per World Trade Organization (WTO) obligations, allowing GPS nations up to 3% of imports or a combined total of 9%.

Action against solar imports began when two financially-embattled US-based solar equipment manufacturers, Suniva and SolarWorld, petitioned the US International Trade Commission (ITC) in May of last year for protection against imports using Section 201 of the 1974 Trade Act. This action was followed by a Section 201 petition from Whirlpool seeking import relief for washers, specifically targeting two Korean companies, Samsung and LG.

Under Section 201, the ITC is charged with investigating whether domestic industries are “seriously injured or threatened with serious injury” that is substantially caused by import competition. If the ITC concludes no such injury exists, the case is thrown out, as recently occurred in a dispute between Boeing and Canadian aircraft manufacturer Bombardier over jets imported by Delta Air Lines. If the ITC concurs that serious injury does in fact exist, that gives the president authority to implement a policy response. Section 201 is rarely employed: the last affirmative investigation occurred in 2001, resulting in a disastrous, short-lived steel tariff imposed by the Bush administration. Since the Trade Law came into effect, previous presidents have erected trade barriers in only 19 of the 40 cases given an affirmative or tie vote by the ITC, as import safeguards may negatively impact US industrial development and jobs, raise consumer prices, result in trade diversion, and/or bring about retaliation in the form of trade barriers and restrictions or formal WTO complaints against the US. LEARN MORE.

Within thirty days of the new tariff proclamations (by February 22), the US Trade Representative (USTR) is required to publish procedures in the Federal Register for companies wishing to request exclusion. For now, it is unclear what the terms of exclusion will be or how quickly exclusion requests will be reviewed. This leaves some companies, like California-based SunPower Corp., which has already said it will request exclusion and has put plans to invest and expand on hold after the tariffs were announced, with a great level of uncertainty as to what the future will bring.

Analysis

The unusual employment of Section 201 under the Trump administration is highly politicized, if somewhat misaimed. The US Trade Representative (USTR) makes it clear that these actions prove Trump will “defend American workers, farmers, ranchers, and businesses.”  Farmers and ranchers? Clearly, the intention is to set the stage for imposition of more trade barriers in unrelated, hoped-for future cases. The USTR also ruminates on how these actions will curb Chinese imports, though in the relevant cases here the ITC found “serious injury” — in both the solar and washer petitions — from imports out of South Korea and Mexico. One cannot miss the irony in the fact that two of the petitioning companies — Suniva and Whirlpool — are Chinese-owned, while SolarWorld is also foreign-owned as the US subsidiary of a German company, SolarWorld AG.

The obvious intent of these “safeguards” against solar and washer imports is clear: rattle a saber at China; cripple the solar industry; and serve crony capitalism.

It’s no secret that Trump thinks climate change is a Chinese conspiracy. That combined with a mandate to cut 72% of the budget for DOE renewable energy research makes his move to provide “relief” for the domestic solar industry seem dubious at best. Given the negative consequences of Bush’s steel tariff, Trump the deal-maker had to have gauged what the outcome of solar tariffs would likely be. It seems no coincidence that a week after announcing the tariffs, Trump proclaimed in his State of the Union address that he has ended “the war on beautiful, clean coal.”

As for the tariff on washers, it seems little more than crony capitalism that supports a pattern of anti-competitive behavior by Whirlpool. Samsung and LG, the targets of Whirlpool’s complaints, are both currently investing hundreds of millions of dollars in plants on US soil which would provide some 1,600 accompanying American jobs. Samsung is converting a Caterpillar Inc. factory in South Carolina, while LG is building a new plant in Tennessee: Foreign-owned, yes, but so is Whirlpool. When Whirlpool merged with Maytag ten years ago, it argued that imports from Samsung and LG would provide sufficient competition to protect consumers in the market for washers. Now it’s using those same imports to claim unfair competition. The new tariff seems more a windfall for Whirlpool than it is relief to the domestic industry at large. Perhaps Whirlpool gained Trump’s favor over two other foreign-owned American manufacturers when Jeff Fettig, Chairman and former CEO at Whirlpool, served on Trump’s business advisory council, which disbanded after many executives quit in response to Trump’s comments on a Neo-Nazi rally in Charlottesville, where counter-protester Heather Heyer was killed.

Response to the tariffs has been for the most part uncertain and disapproving. China, the world’s largest solar panel producer, called it an “overreaction” and “an abuse of trade remedy measures,” while Korea has already filed a dispute with the WTO. This is not the first time Korea has appealed to the WTO in trade disputes with the US over washing machines. Morgan Stanley suggests that these protectionist moves leave investors unsure that the US will adhere to free trade agreements and may chill investment in US business generally. Goldman Sachs has estimated a 3% increase in solar utility costs and a 7% rise in residential costs. While residential installations tend to serve clients deliberately choosing renewable energy even if it costs a bit more, the biggest impact is expected in utility-scale solar, which could lose half its projected installations in a worst-case scenario. Many fear that in addition to increased consumer prices, Trump’s move could trigger massive layoffs in an industry that employs roughly 260,000 American workers.

We can expect more protectionist moves from the Trump administration in the weeks and months ahead — along with more uncertainty and retaliation against the United States.

Engagement Resources

  • The Peterson Institute for International Economics (PIIE) is a private, nonpartisan nonprofit institution for rigorous, intellectually open, and in depth study and discussion of international economic policy.
  • The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI has helped change the nature of public debates over international trade agreements by underscoring their effects on workers and the importance of putting enforceable labor standards in trade agreements.
  • The Solar Energy Industry Association (SEIA) works with member companies to promote pro-solar policies and advocate for the growth of solar nationwide.

This brief was compiled by Jennifer Chesworth. If you have comments or want to add the name of your organization to this brief please contact jennifer@usresistnews.org.


 

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