Trump’s Solar Panel Tariff Impacts

 

In 2015, one hundred and ninety-five heads of state singed the Paris Climate Agreement, effectively pledging to mitigate their impact on global warming by reducing fossil fuel consumption and shifting toward alternate forms of energy. Two years later president Trump withdrew from the agreement, citing economic considerations. On January 21st, 2018, Trump went a step further and imposed a 30% tariff on imported solar panels. The president supported his decision by stating that this tariff “will help to create jobs in America for Americans” (1). However, a stakeholder analysis of the policy reveals that the imposition of this tariff will likely result in significant job loss and slow down a growing and profitable industry. In this paper, I will analyze the impact Trump’s solar panel tariff will have on the relevant parties involved. I will then use my findings to determine key reasons for the passage of the tax.

Solar energy currently accounts for only two percent of all energy production in the U.S., but it has been one of the fastest growing industries in the twenty-first century (2). According to the Solar Energy Industries Association (SEIA), solar has experienced an average growth rate of sixty eight percent in the last decade (2). This tremendous growth can be attributed to falling costs within the industry. The cost of installation has dropped by more than seventy percent since 2010, leading the industry to expand into new markets nationwide (2). “Nearly 260,000 Americans now work in solar, in over 9,000 companies operating in every state” (1). Most of these jobs involve maintenance and installation, since the panels themselves are imported from countries such as China and South Korea (1).

The tariff would significantly increase the cost of solar energy, making it less competitive than coal and slowing its adoption in the U.S. Solar Energy Industries Association estimated that “the president’s action would result in the loss of roughly 23,000 jobs in the solar industry this year, as well as the delay or cancellation of billions of dollars in investments” (1). Energy experts say that low-wage countries will continue to have the competitive edge in solar manufacturing, so it is unlikely that the tariff will stimulate lasting job growth in the U.S. Furthermore, the tariff would lead energy companies to slow their transition to renewable energy sources and delay investments. Duke Energy, which had planned to build and buy more than 300-megawatts of solar power generating capacity, is now “carefully reevaluating the economics of each of its projects” (1).

The unfortunate consequences of implementing a tariff on solar panels lead us to ask: “Why is the administration pursuing such a policy”? Some insights into that question can be gained by examining the relevant stakeholders. The most obvious beneficiaries of the tax are U.S. coal and natural gas companies.  These companies are stakeholders that are both proximate and powerful, because their profits depend directly on competitiveness with solar, and the lobbyists these companies employ can sway governmental decisions in their favor. A tariff would raise the cost of solar energy in the U.S. and delay the inevitable shift from fossil fuels to renewable energy sources, thus benefiting natural gas companies in the short term. In addition to supporting natural gas, the tax may also benefit the president politically, as it can be seen as an effort to support domestic manufacturing and promote economic growth.

However, when we examine the interests of less influential stakeholders, it becomes evident that a solar panel tariff is not the preferable option for most U.S. citizens. First of all, it is clear that the tariff hurts the interests of the American public by raising the cost of solar energy in the short term (1). Secondly, the tax harms companies engaged in the installation and maintenance of panels, as well as companies considering expanding their solar energy portfolio (1). Finally, the tariff exacerbates the disastrous consequences of global warming by delaying the shift away from fossil fuels. Unfortunately, the stakeholders that opposed the tariff were not able to stop its passage, primarily due to the president’s unwavering commitment to fossil fuels.

The introduction of the tariff is best explained by the elite theory framework. This theory holds that political policy lies at the mercy of societal elites, and rarely serves to benefit the common good (3). It is most likely that Trump’s personal beliefs, such as strong support of coal and natural gas and a commitment to “be tough on China,” are the primary factors that influenced the passage of the tariff. In this case, the president is the “elite” that influences policy decisions, even though these decisions may not make political or economic sense for the vast majority of Americans. If the elite theory framework continues to explain the actions of the Trump administration in the future, the American public could be harmed further by policies that impose unreasonable costs and discourage innovation. It is therefore imperative to support leaders that better understand the interests of the American people in the next election cycle.

 

 

 

 

 

 

 

 

Honor Code: I have not violated the honor code in any way, and am unaware of any violation of the honor code by others.

Bibliography:

 

  1. Swanson, Ana, and Brad Plumer. 2018. “Trump’s Solar Tariffs Are Clouding the Industry’s Future.” The New York Times. https://www.nytimes.com/2018/01/23/us/politics/trump-solar-tariffs.html (February 2, 2018).
  2. “Solar Industry Data.” SEIA. https://www.seia.org/solar-industry-data (February 2, 2018).
  3. Kraft, Michael E., and Scott R. Furlong. 2018. Public policy: politics, analysis, and alternatives. Thousand Oaks, CA: CQ Press, an imprint of SAGE Publications.
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About Artem Khrapko

I am an economics major at Davidson College and have an interest in pursuing environmental policy research and law.

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