Tag: duty

Washington Post Sees Solar Panel Duties for What They Are: Self-Flagellation

The Washington Post was channeling the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies in this morning’s succinct and insightful editorial about the foolishness of taxing imports of Chinese solar panels.

The editorial picks up a few of the themes and draws very similar policy conclusions to those we have been advocating for many years and, without stating it explicitly, presents a compelling case for major reform, if not repeal, of the trade remedies laws.

For context, last week the U.S. Commerce Department published the final rates of duty calculated in both antidumping and countervailing duty (anti-subsidy) investigations of imports of Chinese solar panels, which were initiated in October 2011. (Here are some earlier thoughts on the matter.)

Formal antidumping and countervailing duty orders will take effect, probably, next month following a final determination by the U.S. International Trade Commission that the U.S. solar panel industry has been materially injured by these Chinese imports.

The thrust of the editorial is that the antidumping and countervailing duties, which are “calculated” by Commerce using an absurdly inaccurate, punitive methodology, will hurt other U.S. companies that are downstream and upstream of the solar panel producers in the production supply chain.

Noting the transnational nature of solar panel production, the editorial states:

U.S. firms that export polysilicon, a key material in the panels’ manufacture, or machinery to Chinese solar-panel makers could lose – if not because of the direct influence of the tariffs themselves, then because of the Chinese government’s likely reaction. Analysts worry that the Chinese will retaliate by slapping duties on U.S. polysilicon. Also at risk is the U.S. solar installation business, which has thrived during this period of low-cost panels.

This is one of the critical defects of the AD/CVD regime. It focuses like a laser on assisting industries seeking protection from competition while systematically—indeed statutorily—ignoring the adverse impacts of that “assistance” on downstream U.S. industries. (Bastiat points out that people tend to err by focusing on what is immediately seen, while failing to consider the ripple effects of actions that are less readily observed; U.S. trade remedy law demands that we commit that error!)

Much more often than not (80% of AD measures in the last decade), the foreign product subject to duties is an intermediate good required by downstream U.S. industries. And these downstream firms—the overwhelming victims of AD/CVD duties—have no legal standing in the proceedings that lead to the imposition of duties that raise their costs of production and drive them offshore or out of business. Under the statutes, the U.S. International Trade Commission is forbidden from considering the likely impact on downstream firms. In this age of globalized production and transnational supply chains, nothing could be more absurd.

About the so-called non-market economy methodology used to calculate margins of dumping and, ultimately, duty rates in Chinese (and Vietnamese) antidumping cases, the editorial asks:

But how much should a Chinese-made solar panel cost? The answer isn’t obvious. Commerce’s estimating methods—using Thailand’s economy as a surrogate for China’s—don’t inspire confidence.

These Cato papers (here and here) provide the dirty details of the capriciousness inherent in NME antidumping methodology. This brand new Cato analysis from Scott Lincicome, which documents—among other things—the global green energy subsidies race, explains how the U.S. countervailing duty law does not redress foreign subsidization, but rather punishes U.S. consuming industries and end-users. Getting tough on China means America’s wealth and jobs creators take it on the chin.

In closing, the editorial states:

And if the Chinese want to subsidize U.S. solar-panel buyers for the time being, there’s a good case to let them.

This is just another example of the administration’s policies working at cross purposes. To the fanfare of the Sierra Club and other environmental groups, President Obama has rhetorically championed the idea of greening our energy consumption profile. Of course, one of the biggest obstacles to that goal has been that the costs don’t justify the benefits. Hasn’t Chinese dumping and subsidization helped to reduce that obstacle? And aren’t duties on Chinese solar panels anathema to that goal?

Duties on solar panels, wind towers, and presidential interventions to block foreign investments in U.S. wind farms suggest that industrial policy—and not environmental policy—explains the president’s interest in green energy.

Recognizing in an editorial that duties imposed to benefit one industry or one firm (as is often the case with trade remedies measures) cause collateral damage to other industries is a laudable development for the Washington Post.  We look forward to the follow-up editorial calling for explicit repeal of the self-flagellating U.S. antidumping law.

Solar Panels Trade Case Mocks Washington’s Ways

Later today the U.S. Department of Commerce is expected to announce preliminary antidumping duties on solar panels from China. This case might normally be met with an exasperated sigh and chalked up as just another example of myopic, self-flagellating, capricious U.S. antidumping policy toward China.

But in this instance the absurdity is magnified by the fact that Washington has already devoted billions of dollars in production subsidies and consumption tax credits in an effort to invent a non-trivial market for solar energy in the United States.  Imposing duties only undermines that objective. With brand new levies on imports to add to the duties already being imposed on the same products to “countervail” the lower prices afforded U.S. consumers by the Chinese government’s production subsidies, the administration’s already-expensive mission will become even more so – perhaps prohibitively so.

It’s not that President Obama and the Congress woke up one morning and agreed to craft policies that simultaneously promote and deter U.S. solar energy consumption. But that’s what Washington – with its meddling ethos and self-righteous politicians – has wrought: policies working at cross-purposes.

The Economic Report of the President in 2010 (published before Solyndra became a household name) boasts of the administration’s tens of billions of dollars in subsidies for production and tax credits for consumption of solar panels. This industrial policy continues to this day and there is no greater cheerleader for solar than the president himself. In this year’s State of the Union address, President Obama said:

I’m directing my administration to allow the development of clean energy on enough public land to power three million homes.

One month later, noting that 16 solar projects have been approved on public land since he took office, the president said:

[Solar] is an industry on the rise. It’s a source of energy that’s becoming cheaper. And more and more businesses are starting to take notice.

The president has couched his support for solar in terms of what he sees as the environmental imperative of reducing carbon emissions and slowing global warming. Thus his policy aim is to encourage consumption by making solar less expensive to retail consumers with production subsidies and consumption tax credits. (Of course, lower-cost solar is a mirage – accounting smoke and mirrors – because the subsidies come from current taxpayers and the tax credits deprive the Treasury of revenues already earmarked, forcing the government to borrow, burdening future taxpayers with principle and interest debt, which is paid with higher taxes down the road).

However, the president also sees solar and other green technologies as industries that will create great value, spawn new ideas and technologies, keep the United States at the top of the global value chain, and serve as reliable jobs creators going forward. And he seems to think that realization of that objective requires his running interference on behalf of U.S. producers.  He says:

Countries like China are moving even faster… . I’m not going to settle for a situation where the United States comes in second place or third place or fourth place in what will be the most important economic engine in the future.

There is nothing incompatible about holding the simultanous beliefs that greater use of solar power could reduce carbon emissions and that a solar industry has great potential to spur innovation, create value, and support good-paying jobs.  But promoting the realization of both premises simultaneously through policy intervention is a fools errand, and we are caught in its midst.

Efforts to protect and nurture these chosen industries by keeping foreign competitors at bay is incompatible with the president’s environmentally-driven objective of increasing retail demand for solar energy.  Intervening to reduce the supply of solar panels will cause prices to rise and rising prices (particularly in light of abundant cheap alternatives like natural gas) will cause demand to fall.  Sure, we may be left with some protected producers in the short-run, but how will they endure without customers.

That question is, apparently, far from minds of perennial interventionist Senator Chuck Schumer (D-NY) and arch-protectionist Senator Sherrod Brown (D-OH).  Just this week, the duo released a proposal that would make ineligible for the 30% tax credit, solar panels made outside of the United States, claiming that “Chinese solar panel producers’ eligibility for tax credit undercuts Amercian companies and jobs.”  The senators should tell that to the American business owners and employees in the much larger and more economically significant downstream industries that install and service solar panels in the United States.  The proposal would cause a dramtic increase in the retail price of solar panels and imperil livelihoods in these downstream industries.

This Cato video should be required viewing for Washington’s meddling policymakers.