Will new tariffs on EVs, solar, and other cleantech help Americans?

It’s tariff month in Washington, D.C. The Biden administration announced a flurry of trade rulings in May aimed at activating American manufacturing while warding off Chinese and Russian influence in clean technology supply chains. 

President Joe Biden is ratcheting up existing tariffs on $18 billion worth of annual imports from China — paying particular attention to electric vehicles, solar panels, and critical materials — on top of maintaining Trump-era tariffs on $300 billion worth of annual imports. Most of the tariff increases will take effect this year, with a few to be phased in through 2025 and 2026. Additionally, Biden is banning imports from Russia of the uranium fuel that’s used in American nuclear reactors, on national security grounds.

The United States has been imposing tariffs on energy products imported from China since Obama’s first presidential term. It’s one of the few policies that garners enthusiastic support from Democrats and Republicans alike, despite the questionable effectiveness of a tariff-based trade policy. 

Biden’s latest round of trade actions against China was spurred by long-simmering economic tensions between the two nations as well as clashes over human rights. Biden accuses China of unfair trade practices concerning technology transfer and intellectual property as well as ​“flooding global markets with artificially low-priced exports.” (The U.S. is not alone; the European Union as well as India and other nations are making similar complaints about China dumping clean energy commodities.)

It’s tricky trying to find a balance between deploying clean energy hardware as quickly as possible (despite it being sourced from a global rival) and cultivating an industrial base to build that hardware at home. There’s friction between project developers seeking the cheapest solar or battery technology and domestic manufacturers seeking fair market prices. Tariffs are also causing sparks to fly between incumbent manufacturers and new entrants. Add in national security considerations and the stage is set for continuing trade conflict and drama. 

Tariff tension over EVs and solar

It’s still early days in the global battle for EV production hegemony, but the Biden administration is intent on keeping Chinese EVs out of the U.S. market. 

It’s raising tariffs on Chinese EVs imported into the U.S. from 25 to 100 percent — largely a symbolic gesture, as the current number of Chinese EVs imported into the U.S. is negligible. China earned more export revenue from wheeled toys and scooters than from EVs last year. Still, the Chinese EV market is expanding; its exports grew by 70 percent from 2022 to 2023, while the U.S. EV business is going through growing pains.

But even a 100 percent tariff might not be enough to discourage consumers from purchasing a Chinese-made BYD Seagull EV, which will be priced at around $20,000 after the tariff is applied — while Western carmakers are having trouble getting EVs to market at under $30,000 even with the help of incentives. 

The more mature solar supply chain has a much different landscape. China already utterly dominates the market for materials used in manufacturing solar panels, controlling a daunting 99 percent of the global production of silicon wafers, according to polysilicon market expert Johannes Bernreuter.

China will add hundreds of gigawatts of production capacity in the coming years, and that overcapacity will further drive its own market consolidation, negative margins, and pricing that will run counter to America’s efforts to regain market share.

This dynamic has impelled the Biden administration to confront the trade challenge with tariffs meant to stave off China’s manufacturing might and give American solar-panel producers respite from products dumped in the U.S. at below-market prices. 

The administration is raising the tariff rate on Chinese solar cells from 25 to 50 percent this year. It’s also about to reinstate the paused tariffs from the Auxin Solar suit on solar modules built by China-linked companies in Southeast Asia. And Biden is ditching a Trump-era exemption that spared two-sided, or ​“bifacial,” panels from tariffs. 

Meanwhile, the U.S Department of Commerce is weighing further trade sanctions on solar panels manufactured by Chinese-owned companies in Southeast Asia. Earlier this month it agreed to investigate an anti-dumping claim filed by solar module manufacturers operating in the U.S., including Qcells and First Solar. The Commerce Department will take up to a year to issue a final determination. If it agrees to impose new duties, they could be significant; the petitioners are asking for tariffs of 70 to 271 percent of the price of a module. The Commerce Department has a long history of siding with the petitioner in these types of cases. 

But not all U.S.-based solar manufacturers support the trade sanctions on Chinese solar exports. Some of them — especially newer entrants to the field — use Chinese-made solar cells in their U.S. factories that produce completed solar panels. 

“We’ve seen numerous tariffs implemented in the past which have provided little, if any, positive results relative to new domestic manufacturing,” said Art Fletcher, executive VP and head of domestic content at Invenergy’s Illuminate USA business unit in Ohio, a joint panel-manufacturing venture with China’s Longi. He argued that the petition for cell tariffs from Qcells, First Solar, and other well-established manufacturers is meant to ​“choke off and crush new manufacturing facilities before a viable domestic cell supply can be established.” That would undercut emerging and innovative competition while ​“protecting the margins and market share” of incumbents, he said, running contrary to the objectives of the Inflation Reduction Act, which aims to spur domestic manufacturing. 

The Biden administration is also increasing tariffs on Chinese-made lithium-ion batteries, used in EVs and grid storage, as well as on battery parts and critical minerals. Tariffs on steel and aluminum from China are going up too.

Tariff sticks or IRA incentive carrots?

The president can earn political capital in states with a manufacturing base by levying tariffs on Chinese goods, while issuing exemptions and waivers to prevent immediate disruptions in supply. The Biden team is likely calculating that you can’t be too anti-China in an election year. 

Although tariffs could provide a political boost, the societal benefits of restricted trade are elusive. Think tanks from the center-left to the right come to similar conclusions about tariffs.

“American firms and consumers paid the vast majority of the cost of Trump’s tariffs,” according to Brookings. The George W. Bush Institute finds that ​“tariff barriers weaken the middle class.” The Council on Foreign Relations finds that tariffs ​“often lead to reduced trade, higher prices for consumers, and retaliation from abroad.” The Tax Foundation estimates that the Trump-era tariffs that are still in effect ​“will reduce long-run GDP by 0.21 percent, wages by 0.14 percent, and employment by 166,000 full-time equivalent jobs.” 

Biden’s own Office of the U.S. Trade Representative reviewed the impact of tariffs on Chinese goods over the last four years and found that the duties have had ​“small negative effects on U.S. aggregate economic welfare,” although they did produce ​“positive impacts on U.S. production in the ten sectors most directly affected by the duties.”

A dozen years of tariffs on Chinese solar modules have failed to catalyze a viable domestic manufacturing sector and supply chain. The U.S. falls far short of producing the hardware needed for its own solar market and still relies heavily on Asian imports. 

The U.S. grew its solar module production capacity to 16 gigawatts in 2023, according to a report by the Solar Energy Industries Association and Wood Mackenzie. That same year, China’s annual production capacity for solar modules reached 861 gigawatts, according to the China Photovoltaic Industry Association.

Tariffs have not prevented the U.S. from losing this market to China and have only served to raise prices for American consumers.

In stark comparison, incentives actually produce results. In the nearly two years since the Inflation Reduction Act was passed, American solar manufacturers have announced nearly $17 billion in planned investment, according to the White House. The act’s incentives have driven unprecedented expansion of domestic clean energy manufacturing. 

Despite its uninspiring appellation, the Inflation Reduction Act rivals the New Deal and the Great Society in its grand scale and scope. Its loan programs and supply-side tax incentives are poised to jump-start hundreds of billions in investments in clean energy factories and infrastructure, sparking hope of a U.S. manufacturing renaissance. That’s a lot more than has been achieved by over a decade of tariffs.