Wednesday, June 29, 2022

Biden Administration Freezes Potential Tariffs on Solar Imports

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And invokes the Defense Production Act to encourage domestic solar production.

The Biden administration announced today a two-year freeze on tariffs that could potentially affect solar panels imported from southeast Asia. At the same time, it announced it was invoking the Defense Production Act (DPA) to “accelerate” domestic solar manufacturing, as well as other energy-related products like heat pumps and critical power grid components.

All the latter is indeed a big deal. But really, this is about imported solar panels. Just say imported solar panels. This is being done because a U.S. Commerce Department investigation into them caused the solar installation industry to freak out.

Just say “imported solar panels!”

So what was this all about?

Commerce is investigating an allegation, brought by a small California solar manufacturer, that many solar imports from a handful of specific countries in Asia are essentially Chinese-made and rerouted to avoid U.S. anti-dumping duties put up during the Obama administration.

In spite of those duties and because of dedicated state support the Chinese solar industry has only become larger in the years since, while U.S. solar manufacturing atrophied. We’re very dependent on solar imports in the United States, and the bulk of them come from four countries neighboring China – the same ones that are now being investigated by this Commerce probe. That probe can – or could have, until today’s announcement – result in tariffs.

The potential for tariffs threw a wrench in solar development projects in the U.S., which outraged developers enough that they tried weakening established trade law. And so the case, and the backlash to it, presented the administration with a question:

Would it side with the developers and allow the imports to keep coming? It’s not at all clear that this would have caused a real hiccup in U.S. solar deployment, but President Biden has set a lot of climate energy goals that he wants to meet. Or would it side with the small domestic manufacturing industry trying to get off the ground? This case was fairly brought. And if these imports are unfairly traded, that should be addressed appropriately. There’s nothing clean about the Chinese solar industry, and it has serious problems with slave labor in its supply lines.

Today’s announcement – the tariff freeze and the invocation of the DPA – is the administration’s attempt to cut this political knot and keep everyone happy.

So is everyone happy?

Well, the installation industry is thrilled by this announcement, and specifically about that tariff freeze. This is more or less what it wanted; since the investigation was first announced, through its trade association it has called it “meritless,” “a surrender on the president’s climate goals,” and “the downfall of (President Biden’s) clean energy vision.” It led a campaign to kill it outright, and as mentioned before even pushed an effort to amend trade enforcement rules so that importers could more easily override future enforcement probes they don’t like.

And while this campaign wasn’t entirely successful – the investigation will continue and a determination is due later this year – there won’t be any penalties stemming from its results, at least not until the summer of 2024. It’s kinda been defanged until then.

The domestic manufacturing industry, meanwhile, is a more muted. That’s partly because there really isn’t much solar manufacturing in the United States, yes, but the companies that are here and working at it are a little more wary because nothing is certain yet.

The DPA lets the federal government direct the production of stuff for national defense; the Trump administration used it to spur the manufacture of medical equipment when the Covid-19 pandemic kicked off, and President Biden recently used it to secure more supplies of baby formula.

But while the removal of potential tariffs is concrete – it was done Monday the administration’s plans to ramp up domestic production of solar panels are not. That makes it a solid win for importers that are potential trade cheats and an incomplete for domestic solar manufacturers. And so the devil will be in the numerous plans and details of this new DPA-rooted solar production push that will now kick off, which an executive with First Solar Inc, a manufacturer based in Ohio, said “falls well short of a durable solar industrial policy.”

Sounds great.

Yeah, well. We hope it amounts to something! The import advocates have used this exercise to pick at long-established trade rules, and not because they weren’t fair enough – but because they aren’t easy enough for well-funded lobbying campaigns to override. It will be a real bummer if that’s the result of this entire episode.

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