Solar Industry Battle Shows How Protectionism Spares No One
The current fight in the U.S solar industry over the International Trade Commission finding of injury to domestic panel producers from imports demonstrates that protectionism does not just hurt the ultimate consumers for whom a product is made. It hurts everyone who adds value along the chain, including domestic businesses and their employees.
Ignoring the arguments of the vast majority of players in the industry, including some manufacturers, the ITC last month ruled on behalf of two companies that brought action against China-based solar panel producers. The ruling set the stage for tariffs, quotas, or minimum prices, with follow-up hearings regarding remedial actions held this week. President Trump is expected to make a final decision later this year or in early 2018.
But one look at the battle lines over this decision demonstrates that the opportunity to import bolsters producers as well as consumers. In fact, as is the case in every industry, producers are also consumers. Every time an intermediate producer adds value to the product, their efficiency and final price depends largely on the cost of their inputs. And those costs depend on how wide a supplier network they can draw upon. Try to freeze out foreign suppliers, and all of their domestic importers – and their importers’ employees – find themselves out in the cold.
So it is actually not so surprising that the vast majority of solar industry participants, including the national trade group the Solar Energy Industries Association (SEIA), opposed the ruling. They point out that trade restrictions on solar panels would artificially drive up the price of panels, reducing sales and harming downstream companies, including those engaged in marketing, installation, construction, financing, and servicing.
While the trade action was initiated by two solar panel manufacturers, Suniva and SolarWorld – both of which have filed for restructuring – several other solar manufacturing companies filed briefs warning the ITC that any trade remedy to limit cell imports would undermine their own viability.
This internal battle within the solar industry illustrates the fact that protectionist measures do not just harm the interests of end-use consumers. But as usual, consumers would be the ultimate and biggest victims. If President Trump ends up embracing the proposals of the two failed panel companies, customers could see a price increase of 10 to 15 percent, the CEO of Austin-based panel installer Freedom Solar Power has warned. Americans would pay more for solar power than any country in the world, according to analysts with GTM Research. Utility-scale projects would be particularly hard hit. An estimated tens of gigawatts of solar installations could be wiped out, eroding billions of dollars in investment, the research firm has said.
Any trade action would also undermine downstream producers and service firms, such as installers, who say that thin profit margins would leave them with little choice but to pass on any price increase. To get a sense of the damage the industry faces, consider that the ITC decision was followed by an immediate sharp spike in stock price by thin-film solar panel manufacturer First Solar of Tempe, Arizona – whose technology is exempt from tariffs.
Obviously, any damage to solar companies will also be felt by their employees. Tariffs threaten to cost as many as 88,000 jobs in installation, sales and technical support, according to estimates by the SEIA, whose membership includes manufacturing companies with tens of thousands of employees. Moreover, ripple effects could hurt industries that are part of the solar industry supply chain, including steel, glass and aluminum.
The irony is that while trade actions are supposedly used to protect struggling industries, the U.S. solar power industry is actually booming. In fact, it’s the dramatic growth of solar sales that has made competition intense. As technologies have improved over the past few years and the price of panels and cells has declined, the amount of solar generation in the United States has experienced exponential growth, increasing over 70 percent among utility-scale installations between 2010 and 2016.
Unfortunately, any trade action could undermine this growth – hurting not just consumers, but the vast majority of producers and their employees. Drive up the price of imports, and the cost is paid by domestic importers, as well as consumers.