hsiungbrandon+earhtsys247 oped
TRANSCRIPT
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7/31/2019 HsiungBrandon+Earhtsys247 OpEd
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EARTHSYS 247 Brandon Hsiung
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Solar tariffs may harm the Industry theyre trying protectIn a matter of 14 days on May 17th, the US Department of Commerce (DOC) is expected to
make a ruling implementing additional solar import tariffs that will have a large negative impact
on the nascent solar energy. The proponents of this tariff argue that China is participating in
illegal dumping of solar panels (i.e., subsidized selling below cost) and that a tariff will protect
US solar jobs against this activity. While I recognize that a tariff can protect some parts of the
industry, I also realize that the short and long term negative ramifications outweigh that slim
benefit. In the short term, tariffs would raise prices on a growing but fragile solar industry
causing reduced demand and overall job loss. In the long term, we could see a variety of
negative impacts such as a US-China trade war or a coddled US solar industry become even less
competitive. Based on this imbalance of negative to positive impact, I firmly believe that the
DOC should stay away from imposing any tariffs that could cause irreparable harm to the solar
industry, the economy, and our environment.
Before we dive into the issues with tariffs, lets first examine whether China is in fact guilty of
dumping. Dumping is defined as the act of selling a product below cost, or selling a product in a
foreign market for substantially less than its domestic pricei. The US media and DOC claim that
Chinas large subsidies, in the form of low cost loans, have in fact depressed prices below costs.
Theyre right, but only about the loans. Chinese solar companies have been given access to
loans worth over $30 billion USD.ii
Yet access to loans does not imply a low interest rate or that
the companies are in fact drawing down on these loans. Both are necessary to arbitrarily
depress prices. If we take China manufacturer Suntech, the worlds largest producer of solar
panels, as a proxy, we see that neither of these cases is trueiii
. First, Suntechs interest rate iscloser to 6% and is actually variable (i.e., it change with the market rate). Second, the company
has only drawn down 10% of its $7 Billion credit facility (i.e., $700 million). In contrast,
domestically, we have Solyndra, a company which leveraged its Department of Energys loan
guarantee to secure $535 million at a 1% interest rate.iv
To me it sounds like China is offering
regular business loans, while the DOE seems to be offering loan guarantees that smell an awful
lot like the subsidization that China is accused of. Even if China is dumping, wont tariffs help
domestic industry compete with the low-cost of labor in China?
Yes and no. Creating a tariff will raise the price of imports and help the solar panel
manufacturing in the short term but there is a high cost paid by the rest of the solar value chain.
As solar panels become more and more like commodities, the bulk of the jobs and value
captured in the US are downstream in installation, maintenance, and financing.v
This overall
price increase would decrease the demand for solar in general, thus harming all of the
downstream jobs. This would lead to fewer consumers with money in the market, ultimately
costing the overall economy. In the long term, the hope is that the protection afforded by the
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EARTHSYS 247 Brandon Hsiung
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tariffs will help the struggling solar manufacturing industry become more competitive. There
has been no proof that protected industries become more efficient. In fact, we should expect
the opposite.Because the domestic industry is price protected by the tariff, they have no
incentive to optimize for efficiency, but instead optimize for asset growth. Eventually when the
industry is large enough to export beyond the US, it will find that it cannot compete againstplayers which have survived a free market.
vi
All of the negative effects I listed above pale in comparison to the worst case scenario of a trade
war. If China feels slighted by onerous solar tariffs, they may retaliate with tariffs of their own.
The US would have no other recourse except to raise more tariffs. This escalation would start a
trade war where everybody would lose out.vii
China would lose its largest consumer and the US
would lose its low cost manufacturer. Suffice it to say, both countries would suffer greatly. An
industry like solar, which is viewed as non-essential by many, would simply be priced out of
competitiveness.
Whether China is dumping or not, the negative short term and long term effects of tariffs would
weaken an already fragile solar industry and should serve as reason for the US DOC to not pass
tariffs against Chinas solar exports. The US government should instead heed advice from Lord
Sterns highly regarded Economics ofClimate Change paper In order to mitigate the
potentially disastrous effects of climate change, countries need to transition to low-carbon
economies. Greater international co-operation to accelerate technological innovation and
support for the development of low-carbon, highly-efficient technologies can act as accelerants
in this transition. While this transition will bring challenges for competitiveness, it will also bring
opportunities for growth.
viii
In short, the US government should stop thinking about importtariffs and start thinking about mechanisms to accelerate investment in domestic renewable
energy.
iFeenstra, Roberta. Advanced International Trade: Theory and Evidence Princeton Press 2003
iiWesoff, Eric. The Reality of Chinas Billions in Solar Loans Greentechmedia, September 28, 2011
iiiSuntech Annual Report 2011
ivMiosk, Matthew & Greene, Ronnie. 'Connected' Energy Firm Got Lowest Interest Rate on Government Loan
ABC News Sept 7, 2011vBessinger, Ken. U.S. tariffs on Chinese solar cells fuel debate about green jobs Los Angeles Times, April 23, 2012
viFalck et. al Industrial Policy for National Champion MIT Press July 22, 2011.
vii
Coneybeare, John. Trade Wars: The Theory and Practice of International Commercial Rivalry. ColumbiaUniversity Press 1987viii
Stern, N. (2006). "Stern Review on The Economics of Climate Change (pre-publication edition). Executive
Summary". HM Treasury, London.