US President Confirms Hefty Tariffs on Solar Products, Washing Machines

25 January 2018

In a landmark trade move, US President Donald Trump has approved the imposition of global safeguard tariffs on imported solar cells or modules, as well as large washing machines for home use, with a few exceptions for countries that met certain requirements.

The news was confirmed on Monday 22 January, following investigations conducted by the US International Trade Commission (US ITC) which began during the middle of last year. In both cases, the tariffs are being imposed under a section of the US Trade Act of 1974 known as Section 201, which has been used sparingly in the decades since it was enacted, and allows for imposing “import relief” in response to “serious injury” from an import surge.

“When we do this, a lot of manufacturers will be coming to the United States to build washing machines and also solar. For both solar and washing machines, these executive actions uphold the principle of fair trade and demonstrate to the world that the United States will not be taken advantage of anymore. Our companies will not be taken advantage of anymore,” said Trump upon signing the presidential proclamations enacting these tariffs.

“The President’s action makes clear again that the Trump Administration will always defend American workers, farmers, ranchers, and businesses in this regard,” said US Trade Representative Robert Lighthizer in a statement confirming the tariffs.

Trump and his administration officials have spent their first year in office focusing largely on addressing trade practices by foreign partners that they allege are unfair, along with pushing for the renegotiation of existing accords to tackle trade deficits. Trump has also threatened to terminate some of those pacts should negotiation efforts fail – an approach which has fuelled controversy both at home and abroad.

While the decision to enact these safeguard tariffs is up to the president, it must be preceded by an investigation under the US ITC to determine if such serious injury exists. Notably, this type of probe does not require that the agency find evidence of “unfair trading practice,” but is instead focused on the level of injury to domestic products from import surges.

These probes were launched last year in response to complaints from certain industry players – Suniva and SolarWorld in solar, Whirlpool in the case of washers. While Suniva and SolarWorld have US-based plants, they are majority-owned by Chinese and German companies, respectively. Whirlpool is an American company with various branches abroad.

Tariff levels, country exclusions

For solar modules and cells, the tariffs would start at 30 percent for the first year, and progressively decrease to 15 percent by the fourth year. There is an exception, however, for the first 2.5 gigawatts of imported solar cells, which according to the Office of the US Trade Representative (USTR) would not be subject to these charges.

Meanwhile, washing machines will face a tariff-rate quota over a three-year period, with the first 1.2 million units of “finished” machines being imported at a 20 percent tariff, with anything about that threshold being imported at a 50 percent tariff. During the second year, those numbers will fall to 18 percent and 45 percent, respectively, with the final year seeing tariffs of 16 percent and 40 percent.

According to a USTR factsheet, Washington will be excluding some countries from the safeguard tariffs, citing legally-mandated thresholds of import share and injury to domestic producers which must be met to qualify.

Canada and Mexico, the US’ two partners in the North American Free Trade Agreement (NAFTA), will both be subject to the solar safeguard tariffs. Mexico will also be facing the tariff-rate quota on washing machines, although the US has decided not to impose that remedy on Canada, citing the above-mentioned thresholds. Another major US trading partner, South Korea, will also face both the solar and washing machine safeguards.

The US is in negotiations with its NAFTA partners to modify the long-standing trade accord, with the sixth round of talks underway this week in Montreal, Canada. Washington is also negotiating amendments to its trade accord with Seoul, with the deal referred to commonly as KORUS.

What the tariffs could mean for these trade processes, as well as the US’ wider trading relationships, remains to be seen. Other decisions in national security-focused trade investigations on steel and aluminium are also expected in the coming weeks. (See Bridges Weekly, 18 January 2018)

Covered by the new tariffs on solar cells or modules are Thailand and the Philippines, despite being beneficiaries of the US Generalised System of Preferences (GSP), which would otherwise exclude them from the tariffs. The reason for their inclusion is that both make up over three percent of global imports of these products. Thailand is also subject to the tariffs on washers, for the same reason, according to the Office of the USTR. All other GSP countries are excluded from these charges.

Solar industry, trade officials react

Trade tensions on solar products are far from new, both within the US and across different countries. The US, the EU, India, and China have all engaged in high-profile cases on the subject in recent years, either through domestic investigations or at the WTO, examining whether their trading partners are abiding by global trade rules.

Trade experts have noted that the growing application of trade remedies in this sector can have a dampening effect on investment in renewables, along with raising production costs across the solar supply chain. (Editor’s note: this research was released by ICTSD, the publisher of Bridges)

“This is a typical case of trade policy misuse. The real losers are US workers, given that 260,000 are employed today in clean energy. It also sets back global efforts to transition to low-carbon energy solutions and thus tackle the climate challenge. These ‘protections’ being imposed on solar imports are using a provision crafted over 40 years ago, which was designed for economies of the past,” said Ricardo Meléndez-Ortiz, ICTSD Chief Executive Officer.

News of the tariffs has already prompted criticism from US trading partners, with Wang Hejun, an official who heads a department on trade remedies and relief at China’s Ministry of Commerce (MOFCOM), noting Beijing’s “strong dissatisfaction” with the safeguards in both washing machines and solar products. Wang also noted that the US was acting on its own, and cautioned that such tariffs could have a chilling effect on “the global trade environment” in these sectors, according to an unofficial translation of his remarks.

South Korean, Mexican, and EU officials have also spoken publicly about their concerns, with hints from Seoul that the tariffs could potentially lead to legal action at the World Trade Organization, according to comments reported by the Reuters news agency.

On solar, the US has previously conducted anti-dumping and countervailing duty investigations focused on China, a top global producer of solar components. Washington referred repeatedly to the Asian economy in its announcement of the new safeguard tariffs this week.

However, the new tariffs on solar cells or modules have raised concerns that they could actually hurt the US solar industry, affecting downstream producers who use these goods as inputs into their production processes. Some industry players and lawmakers have also suggested that the tariffs are not high enough to spur increased domestic production in the United States.

“While tariffs in this case will not create adequate cell or module manufacturing to meet US demand, or keep foreign-owned Suniva and SolarWorld afloat, they will create a crisis in a part of our economy that has been thriving, which will ultimately cost tens of thousands of hard-working, blue-collar Americans their jobs,” said Abigail Ross Hopper, President and CEO of the Solar Energy Industries Association (SEIA).

The SEIA has over 1000 member companies, describing itself as the “national trade association of the US solar energy industry,” which it notes is responsible for over one-quarter of a million American jobs. The coalition also notes that only a small portion of the 38,000 US jobs devoted specifically to manufacturing solar products are focused on making cells and panels.

Meanwhile, some high-ranking US trade lawmakers have suggested that the actions may not go far enough. Senator Ron Wyden, the Oregon Democrat who serves as the ranking member of the Senate Finance Committee, said this week that he was “concerned that the administration did not follow the bipartisan International Trade Commission’s recommendations, and instead offered weaker relief” than what is needed to stem the influx of imported solar products.

Some other lawmakers warned instead that imposing these tariffs could actually backfire by raising costs on US consumers.

“Here’s something Republicans used to understand: Tariffs are taxes on families. Moms and dads shopping on a budget for a new washing machine will pay for this - not big companies. You don't fix eight years of bad energy policy with bad trade policy,” said Senator Ben Sasse, a Republican from the US state of Nebraska.

Among US lawmakers, opinions on the tariffs are not split on party lines. Senators Sherrod Brown and Rob Portman, both of Ohio, publicly backed the washing machine tariffs. While Brown is a Democrat, Portman is a Republican.

ICTSD reporting; “Asia protests at U.S. solar, washer tariffs, fears more to come,” REUTERS, 23 January 2018.

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