US ELECTIONS: Biden, Trump each expected to continue commitment to solar tariffs in own way

As US President Joe Biden and former President Donald Trump attempt to draw distinctions between their policies in the run-up to the presidential election in November, keeping tariffs on imported solar equipment appears to be one they can both agree on.

Imported solar equipment has now been subject to new tariffs in three successive presidential administrations, beginning under President Barack Obama in 2012 and since expanded by both Trump and Biden, who are to meet in their first debate June 27. Economists generally agreed that either contender for the White House would likely continue to implement solar tariffs if elected, though their motivations for doing so differ. The continuation or expansion of these tariffs is expected to impact US domestic manufacturing and, more broadly, US clean energy goals.

The rare area of bipartisan agreement could provide hope for the prospects of domestic solar suppliers but could also bake in higher costs given that about 85% of solar module production capacity is in China or Southeast Asia.

"The rationale behind the tariff on solar cells is similar across both administrations, with a focus on harm to US industry as a result of unfair policies in China," Sanjay Patnaik, director of the Center on Regulation and Markets at the Brookings Institution, told S&P Global Commodity Insights. "That said, the Biden administration's approach to tariffs generally differs from that of the Trump administration by focusing on coordination with allies and domestic investment."

Although experts predict either administration would continue solar tariffs, they see several differences that could affect domestic renewable energy growth.

"The significant difference is that with a Biden administration, there's no doubt that the domestic production will continue to receive support from the Inflation Reduction Act," Ilaria Mazzocco, a senior fellow with the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies, said in an interview. "I think there's more question marks about what happens during a Trump administration."

While using tariffs, the Biden administration has also bolstered domestic manufacturing through the IRA with its subsidies and incentives tied to using domestic solar panels, Mazzocco said. "What the Biden administration is doing right now on solar is relatively classic industrial policy."

Beyond the IRA, tariffs can be another tool to protect domestic industry but with mixed success as Scott Lincicome, vice president of general economics and the Stiefel Center for Trade Policy Studies at the Cato Institute, said tariffs do not fix a company's fundamentals and "investors and governments don't stand still after you impose a tariff."

Patnaik pointed out that Trump does not share the same clean energy and domestic manufacturing goals as Biden. Instead, Trump's emphasis on tariffs has been more focused on broad protectionism.

"Trump would likely be less interested in protecting the US solar industry for the purposes of creating homegrown clean energy," he said. "However, he may still choose to levy aggressive solar tariffs for purely protectionist reasons."

The impact of tariffs

Continued use of tariffs will lead to higher costs, Mazzocco said. "The US already has higher costs compared to all other countries because of existing tariffs."

Patnaik cited research by the Tax Foundation, which has estimated that the solar tariffs represented a $200 million tax increase based on 2018 import values and quantities.

For the clean energy industry, the election of Trump would mean an "immediate deceleration" in support for decarbonization, according to Wood Mackenzie in its May Horizons analysis.

If Trump were to regain the Oval Office, solar tariffs could be structured to slow down investment in zero-emission generation under a "delayed transition" scenario, according to Wood Mackenzie.

The analysis predicts that trade policy — no matter if it is Biden or Trump — would continue to restrict imports, primarily through the Section 201 and 232 tariffs on crystalline photovoltaic cells and modules.

Section 201 of the Trade Act of 1974 — used most prominently by Trump — allows the president to impose temporary duties and other trade measures if the US International Trade Commission determines a threat exists from imports. Biden has extended the measure, primarily targeting imports from China. Section 232 of the Trade Expansion Act of 1962 allows the president to adjust imports if the Commerce Department determines a national security threat.

This delay would cause total US wind, solar and energy storage capacity to reach 500 GW by 2050, 25% lower than the Wood Mackenzie report's base case.

The analysis also concludes that a second Biden term could present challenges for the solar industry given both administrations' embrace of "economic nationalism."

Although Biden has shown more restraint in continuing the Section 201 solar tariffs, he recently launched a set of tariff actions under Section 301 of the Trade Act of 1974 against a range of electrical and clean energy components from China.

Section 301 authority allows the US trade representative to suspend trade agreement concessions or impose import restrictions if it determines that a trading partner is engaging in discriminatory practices that burden the US economy.

The National Electrical Manufacturers Association said in May that Biden's actions would add nearly $3 billion in costs for companies looking to import batteries, semiconductors, solar cells, steel and other key electrical goods. This would harm the $12 billion investment manufacturers have made to increase their capacity over the last two years.

Alternatives to tariffs

At the same time, there is some indication that the Trump campaign may be looking at other trade policies that could be used as an alternative to tariffs. A long-time Trump confidant, Senator Kevin Cramer, Republican-North Dakota, spoke with the presumptive GOP nominee earlier in the year to float one such alternative called the Prove It Act.

The bill, which is progressing through the Senate and is expected to be introduced in the House, would act to counter carbon border adjustment fees that the EU has begun to implement.

Cramer told Commodity Insights that Robert Lighthizer, Trump's former trade representative and current adviser on trade, appears to favor the idea.

"Lighthizer says he loves it, so, I wanted to make sure [Trump] ... knows I am working on it," he said.

Aligning with global carbon markets to benefit US solar exports is not an idea that Trump would likely enact, but a defensive tool to counter the effects of the EU's carbon fees could be, Cramer explained. The measure would direct the US Energy Department to create a database that compares and contrasts the carbon benefits of US-made products versus those from other countries.

Trump told Cramer that he is still very much in favor of tariffs and that doing anything to address carbon would be very difficult. But Cramer said in the interview that the goal was to "plant a seed" with the former president as he molds his trade policy in the run-up to the Republican convention later this summer.

Six Democrats, five Republicans and one Independent sponsored the bill when it was introduced. It passed the Senate Environment and Public Works Committee in a 14-5 vote in January.

Senator Chris Coons of Delaware, the Democrat who co-sponsored the measure with Cramer, in a statement, called the bill is truly a bipartisan measure "that's needed to quantify the climate benefits of the United States' investments in cleaner, more efficient manufacturing practices and to hold nations like China accountable for their emissions-heavy production of goods like steel."