President Trump, with a nice big push from the U.S International Trade Commission (ITC), has slapped duties on two vastly different imports, solar panels made in China and all washing machines regardless of country. And that ITC has done him – and us – wrong.
Prices for those imports will go up and, for at least one product (solar panels) there will almost certainly be a net U.S. job loss, even as the tariffs expose the U.S. to both direct and indirect retaliation as well as litigation before the World Trade Organization (WTO) that has the power to remove the duties.
The washer tariffs were higher than the harshest recommendations from the ITC members, while the solar tariffs were lower than U.S. producers had requested. But in both cases, the costs will be too high to be absorbed by the makers; prices for American consumers will rise.
Under the new order, there would be a 20% tariff on the first 1.2 million imported large residential washers in the first year, and a 50% tariff above that number. The tariffs then decline to 16% and 40% respectively in the third year. The U.S imports washing machines from at least 10 different countries.
The solar duties apply exclusively to China. Imported solar cells and modules will be slapped with a 30% tariff the first year, declining to 15% by the fourth year. With unassembled solar cells, the tariff allows 2.5 gigawatts to enter tariff-free each year.
The two U.S. solar panel companies that filed a complaint with the ITC actually expressed disappointment that the duties weren’t higher. U.S. washing machine makers like Whirlpool appeared happier, although some in Congress wanted even higher tariffs.
IT’S NOT ABOUT DUMPING
But on what basis did the ITC make its recommendations to President Trump? Unfair competition, which generally comprises a country subsidizing the cost of the exported products (also known as “dumping”?). That’s what lobbying groups want him and us to think. In celebrating the tariffs, the Alliance for American Manufacturing declared: “American manufacturers cannot compete against surging unfair imports from countries like China, which are dumping product into the United States in an attempt to put American companies out of business and control the global marketplace.”
But dumping isn’t the issue. In fact, the ITC states explicitly that its Section 201 does not require a finding of an unfair trade practice, as do the antidumping and countervailing duty laws.” Rather ITC used three criteria in recommending these tariffs:
(1) an article is being imported into the United States in increased quantities; (2) the domestic industry producing an article that is like or directly competitive with the imported article is seriously injured or threatened with serious injury; and (3) the article is being imported in such increased quantities as to be a substantial cause of serious injury or threat of serious injury to the domestic industry.
At one time, both China and Taiwan were clearly subsidizing solar panel construction. In fact, we’ve been bombarded over the last several years with articles saying that solar energy is now becoming competitive with fossil fuels. It’s not. But the hint of reality in that is that solar energy production did become far cheaper precisely because of those subsidies. Cheaper panels drop costs.
So the previous presidential administration was well within its rights to slap tariffs on the panels of both countries, tariffs that ITC concedes made a serious impact. No matter. As noted, the ITC doesn’t care about unfair trade practices. It’s pushing good old-fashioned protectionism. And indeed, we can expect to see job increases in the U.S. washing machine sector. But with solar panels, it’s lose-lose.
HEADS CHINA WINS, TAILS CHINA WINS
Now here’s a bizarre twist. One of the two companies that filed the petition with the ITC, Suniva, originated in Georgia but sold a majority stake to Hong Kong investors. Hence the title of a Bloomberg news article: “Suniva Inc., a Bankrupt U.S. Solar Manufacturer with A Chinese Majority Owner, Is Seeking Protection From Cheap Imports from China.”
Further, Suniva’s bankruptcy filing shows the vast majority of its debt is to international suppliers, including Germany, South Korea, China, and Canada. It counts seven Chinese solar suppliers among its top 30 creditors. E&E News dubbed it “The ‘Buy America’ Company that Sourced from Abroad.” The other petitioner was SolarWorld. the US arm of a German company.
This isn’t to say that some American solar panel manufacturing companies won’t be able to preserve or even increase jobs. The problem is that even as solar panel manufacturing is becoming more automated, installation is still done completely by humans.
Thus The Solar Energy Industries Association estimates that because of the price hike for solar panels and hence fewer purchases, the new tax will cost about 23,000 jobs in 2018. The losses could include solar panel installers, manufacturers who make metal racks for holding the cells, and companies that supply add-on parts such as those that track the sun.
We can presume they’re using a worst-case scenario because that’s what lobbyists do. But consider that according to a US Bureau of Labor Statistics analysis from October, solar photovoltaic installer was ranked the fastest-growing occupation, with an estimated growth rate of 105% between 2016 and 2026. Not anymore!
You’d think that supporters of increased solar energy use in the U.S. would certainly oppose a move that will clearly slow the pace of panel installation in the U.S. You’d think wrong – at least with former Vice President Al Gore.
Saying he didn’t typically support Trump, he added,
“[...] But I will say in this case it really did not start with him. This was a trade action brought by private companies. They chose a kind of midpoint in the range of alternatives. [...] It could have been handled differently, should have been handled differently but it's not an utter catastrophe."
But then he wrongly added,
“The large subsidies from China for exporting solar panels has put some other companies in the world at a disadvantage."
No. To repeat: The ITC made its recommendation independent of any evidence of dumping.
The myriad countries affected by the steep washing machine tariffs, plus China (which is also a major exporter of washing machines to the U.S.) can strike back in three different ways.
First, they can impose duties on any American products they wish. In anticipation of a trade war with the U.S., a Chinese newspaper suggested in 2016 that China could take a tit-for-tat approach: “Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted.”
Second, they can slam us without any announced actions. Rather they can just find non-U.S. suppliers. For example Mexico exported $240 million of washers to the United States in 2016, and is understandably a bit unhappy about the tariffs. Mexico also currently imports lots of corn and soybeans from the U.S. But it's already been importing more of those from Argentina and Brazil and could simply increase those, again clobbering U.S. farmers.
Third, all these countries will have excellent grounds to complain to the WTO, which exists to encourage free trade worldwide. Both China and South Korea have indicated they plan to do just that. The WTO doesn’t take lightly to unilateral tariffs, especially if the two countries have granted each other “most favored nation status.” Which indeed the U.S. has with China and several of the countries that export washing machines to the U.S.
Despite talk of a “trade war,” these two actions alone will almost surely not lead to them. The danger is the precedent they’re setting. If the U.S. continues to apply duties against products that are not unfairly competing, we could indeed have such a war and it would be disastrous. The Smoot-Hawley Tariff Act of 1930 is widely credited with deepening and extending the U.S. Great Depression.
So what’s the bottom line here? There’s nothing wrong with an “America First” policy. In fact, any nation that doesn’t put itself first isn’t very smart. But as a general rule, free trade benefits all parties. Indeed, even when one country “cheats” by subsidizing its manufacturers, it means cheaper products for the importing country. Would you particularly mind if the people of South Korea paid for part of that new Samsung 4K TV you’re considering buying?
Tariffs do the opposite; imported washing machine prices will definitely increase and domestic makers quite possibly will take advantage of that to raise their own prices. Goldman Sachs forecasts an 8 percent to 20 percent increase in the price of a new washing machine, thanks to new tariffs. Meanwhile, expect other American industries to get slammed by official tariffs or simply shifts in in import providers. Thus on the whole, American employment may decline even as consumers pay more.
Fact is, the U.S. has run a trade deficit every year since 1976. And it’s a myth that all advanced nations do: Canada usually runs trade surpluses or small deficits; Germany consistently runs significant trade surpluses. This prompted the Obama Administration to issue a pathetic public whine that Germans work too hard and aren’t obsessed with consumerism. And never mind that the U.S. already has tariffs against some German products such as a 25% duty on light trucks called “the chicken tax.” (Don’t ask!)
Except as retaliatory measures against other tariffs, duties are essentially bad news. Sometimes disastrous. We can’t blame or punish other countries; rather we must look to ourselves to make our products more competitive.