Industrial Policy Follies: Solar-Power Edition

Bidenomics is fast becoming a study in the contortions of industrial policy. Consider the Commerce Department’s decision late last week to slap tariffs on solar imports from Southeast Asia, raising the costs of U.S. solar-energy projects that the White House says are the vital future of U.S. energy.

After a 17-month investigation, Commerce concluded that five Chinese solar manufacturers were circumventing U.S. anti-dumping tariffs by doing minor assembly of solar components in Vietnam, Thailand and Cambodia for export. The costs for U.S. solar-power developers will rise with the new tariffs, which will run as high as 254%.

“The U.S. Department of Commerce is out of step with the administration’s clean energy goals, and we fundamentally disagree with their decision,” the Solar Energy Industries Association said. “It will take at least three to five years to ramp up domestic solar manufacturing capacity and the global supply chain will be vital in the short-term.”

This intra-solar trade brawl goes back more than a decade. After the 2008-2009 recession, Democrats showered solar manufacturers with subsidies, which they claimed would revive U.S. manufacturing. Former New York Gov. Andrew Cuomo anchored his “Buffalo Billion” project to revitalize the Rust Belt city on a solar-panel factory. It’s been a Buffalo bust.

Yet the Chinese quickly figured out how to produce inexpensive solar panels at scale, driving down global prices by 80% between 2008 and 2013. U.S. manufacturers said they couldn’t compete with Chinese manufacturers benefitting from government support. The Obama Administration then imposed tariffs on Chinese imports.

Chinese manufacturers responded by shifting final assembly of solar cells and modules to Malaysia, Vietnam, Thailand and Cambodia. Many manufacturers including Apple are shifting production out of China to reduce supply-chain risk, but Commerce claims Chinese solar manufacturers are violating U.S. trade law by doing so.

Commerce’s complaints about Chinese subsidies are rich with hypocrisy, since the Inflation Reduction Act (IRA) provides hefty handouts for U.S. solar-panel manufacturers. First Solar expects to pocket as much as $710 million this year in tax credits—nearly 90% of forecast operating profit. European leaders say U.S. subsidies are pillaging green-energy investment from their countries.

U.S. panel makers also can’t meet increasing demand from solar-power projects, which are also heavily subsidized. That means solar-power developers will have to pay the tariffs, some of which will be passed on to taxpayers. The value of IRA tax credits increase along with project costs. They can offset 50% of project costs.

Utility customers will also get stuck paying for the tariffs in states where renewable mandates require increasing solar and wind power. Higher project costs would normally reduce solar’s share of the electricity mix, but green-energy mandates limit competition from cheaper fossil fuels. So why are solar-power producers whining?

Probably because tariffs could scramble supply chains, delay projects and reduce profits. Time has an economic value. Some developers may decide to import solar cells and modules directly from China instead of Southeast Asia since they will get slammed with tariffs either way. China may ironically benefit from tariffs targeting it.

The solar follies reveal the contradictions of the Biden Administration’s industrial policy. Its labor, climate and anti-China agendas conflict in their combination of subsidies, mandates, bans and taxes. Subsidies lead to tariffs, which lead to more subsidies as government becomes the allocator of capital and decides which companies win or lose. The biggest losers, as usual, will be American taxpayers.