Responding to pressure from solar developers, on June 6, President Biden used his executive order powers to pause the Commerce investigation into Southeast Asian suppliers for 24 months and evoked the Defense Production Act to spur domestic manufacturing.

Both FERC and the North American Electric Reliability Corporation recently warned of likely unreliability in electricity supply. Declaring an emergency in electricity supply, Biden used a section of the 1930 Tariff Act that allows the president to suspend tariffs on certain products to address emergencies.

From President Biden’s Statement:

“NOW, THEREFORE, I, JOSEPH R. BIDEN JR., President of the United States, by the authority vested in me by the Constitution and the laws of the United States of America, including by section 318(a) of the Tariff Act of 1930, as amended, 19 U.S.C. 1318(a), do hereby declare an emergency to exist with respect to the threats to the availability of sufficient electricity generation capacity to meet expected customer demand.  Pursuant to this declaration, I hereby direct as follows:

     Section 1.  Emergency Authority.  (a)  To provide additional authority to the Secretary of Commerce (Secretary) to respond to the emergency herein declared, the authority under section 1318(a) of title 19, United States Code, is invoked and made available, according to its terms, to the Secretary.

     (b)  To provide relief from the emergency, the Secretary shall consider taking appropriate action under section 1318(a) of title 19, United States Code, to permit, until 24 months after the date of this proclamation or until the emergency declared herein has terminated, whichever occurs first, under such regulations and under such conditions as the Secretary may prescribe, the importation, free of the collection of duties and estimated duties, if applicable, under sections 1671, 1673, 1675, and 1677j of title 19, United States Code, of certain solar cells and modules, exported from the Kingdom of Cambodia, Malaysia, the Kingdom of Thailand, and the Socialist Republic of Vietnam, and that are not already subject to an antidumping or countervailing duty order as of the date of this proclamation, and to temporarily extend during the course of the emergency the time therein prescribed for the performance of any act related to such imports.   

     (c)  The Secretary shall consult with the Secretary of the Treasury and the Secretary of Homeland Security, or their designees, before exercising, as invoked and made available under this proclamation, any of the authorities set forth in section 1318(a) of title 19, United States Code.”

To address the ongoing energy problem, President Biden authorized the use of the Defense Production Act (DPA) to accelerate domestic production of :

  • Solar Panel Components
  • Building insulation
  • Heat pumps
  • Equipment for using clean electricity generated fuels such as electrolyzers and fuel cells
  • Critical grid infrastructure components such as transformers

The use of DPA goes hand in hand with the Make More in America action in which the US Export/Import Bank (EXIM) looks to prioritize investments in clean energy manufacturing.

President Biden also gave domestically solar modules super preference status for federal projects and directed the development of master supply agreements to indicate the preference status. Theoretically, master supply agreements speed the procurement process by making it more efficient. The administration plans to open discussions with key stakeholders to discuss using DPA to increase domestic clean energy manufacturing.

Recently the administration enacted its Permitting Action Plan. In collaboration with five agencies, the Department of the Interior will work to expedite reviews of clean energy projects on public lands with the goal of permitting 25-GWp by 2025. The administration also reduced rents and fees for projects on public lands by up to 50%.

Comment: President Biden buoyed the spirits of US developers and installers with a respite from new tariffs while also angering Auxin and others claiming unfair labor practices.

Following the president’s action, the spigot opened, and suppliers began responding to queries about product availability. The move didn’t completely solve supply problems, and it certainly won’t lower prices or ameliorate painful contract terms, but it eased the supply situation – at least until June 21.

The far stricter Uyghur Forced Labor Prevention Act (UFLPA) kicks in on June 21 and will likely slam the door on some imports while slowing progress for others. The bar for WRO enforcement was lowered after its implementation caused chaos – there is no option to lower the bar for UFLPA enforcement.

Tariffs have done little to spur solar cell manufacturing in the US. Buyers want the lower price and typically need incentives to buy higher-priced domestic production.

It’s possible that buyers – stung by two years of broken contracts and unstable prices – will pay a bit more for reliability (actually getting what they contracted for at the agreed-upon price).

Auxin is likely to appeal.

Biden’s use of DPA to spur manufacturing is unlikely to encourage cell manufacturing in the US without grants, loans, and manufacturing incentives such as those in stuck-in-limbo SEMA.

A lesson in tariff history follows – the lesson is that tariffs almost always fail to produce the desired result.

Lesson: A Short History of US Tariffs

As a preamble, the 2012, 2014, and 2022 (Auxin) tariffs were based on the US Tariff Act of 1930. The US Tariff Act of 1930 is widely viewed as the most protectionist in the history of US protectionist acts and is believed to have helped lead to WW2 by isolating the US from Europe at a particularly fragile time. The 2018 201 Tariffs were based on the 1974 Trade Act.

Once upon a time, in a country that rebelled against taxes, tariffs were used to fund the government.

The Tariff Act of 1789 was signed into law by George Washington to protect trade and raise revenues. Along with the collection act of 1789, this law set up US trade policy. His Secretary of State, Alexander Hamilton, supported it, arguing that it would encourage the development of domestic industries by protecting them against more mature subsidized foreign competitors (Infant Industry Theory).

In 1816, an overtly protectionist tariff of 25% on textiles and up to 30% on manufactured goods was enacted. In 1821 these tariffs were extended to goods manufactured from wool, iron, hemp, lead, glass, and other products.

In 1828 this period of significant protectionism peaked with the Tariff of Abominations (named by US Southern State objectors, particularly South Carolina), during which tariffs were >50% on many goods. The 1828 tariffs, designed to protect goods manufactured in the Northern US states from imports, angered the states of the south, the economies of which were primarily agriculture using free slave labor. The southern states objected to the increase in prices.

The US experienced a recession from 1828 to 1829 as England and the United States conducted a trade war.

Tariffs were scaled back in 1832 and, by 1857, averaged 20%.

In 1861, the US threw protectionist caution to the wind. The Morrill Tariff was enacted, initiating a period of steadily rising tariffs and all the discontent that went with them from Southern State detractors who viewed the increases as impacting their economies. In 1861 the Southern US States seceded from the Union. The Morrill Tariff was one of several factors that incited the Southern States to secede and, by any standard, the least important historically. The Southern states were reliant on an unpaid workforce consisting of enslaved people, a practice that had become abhorrent to many – well, to some.

Following the Civil War, in 1888, new tariffs were enacted to protect domestic industry. It was also argued that tariffs were needed to reduce the Treasury’s surplus.

In 1909, the Payne Aldrich Tariff (Representative Sereno Payne and Senator Nelson, both Republicans) lowered 650 tariffs, raised 220, and left 1150 tariffs unchanged.

Under President Woodrow Wilson, the Underwood Act of 1913 was passed, establishing a Federal income tax with the goal of lowering tariffs and raising revenue from domestic sources (taxpayers). The result was a decrease in the average tariff from ~40% to ~20%.

From 1914 through 1918, the world was busy with World War I; following World War I, the Fordney-McCumber Tariff of 1922, passed to protect US farms and manufacturers, returned the US to a policy of higher tariffs.

The US Tariff Act of 1930 – is the basis of much US solar industry angst. In 1930, Smoot-Hawley, the descendant of many protectionist tariff laws and far surpassing most of them, was enacted, leading to the highest tariffs in 100 years (between 50% and 100%) on ~900 products and a global trade war. It likely exacerbated the great depression from 1929 to 1939 and many feel, was a factor leading to WW2. Though Smoot-Hawley was not the first US tariff, it is viewed as the granddaddy of bad trade policy.

In 1934 President Roosevelt signed the Reciprocal Trade Agreements Act, which reduced tariffs, liberalized trade, and promoted cooperation with other countries. The Reciprocal Trade Agreements Act established reductions in tariffs based on most-favored-nation status and was a forerunner of GATT. 

From 1939 to 1945, trade dysfunction was interrupted by World War II.

In 1944, recognizing the need for global cooperation, the World Bank and IMF were created by the Bretton Woods Agreement. In 1947, the ITO was created, out of which GATT arose with the goal of progressively lowering tariffs. In 1995, the WTO was formed to resolve trade differences because, frankly, people interacting in global markets will act in their own best interests, sometimes leading to actions against everyone’s best interests.

President John F Kennedy signed the Trade Expansion Act of 1962 to give the US President stronger negotiating power with partner nations. In signing it, he wrote: “This act recognizes, fully and completely, that we cannot protect our economy by stagnating behind tariff walls, but that the best protection possible is a mutual lowering of tariff barriers among friendly nations so that all may benefit from a free flow of goods.”

Though the Trade Expansion Act may not have been intended as a tool to impose new tariffs, the law of unintended consequences will almost always rise up and slap down a few consequences just for kicks and giggles. In the case of the Trade Expansion Act, it granted the president heretofore unprecedented power to negotiate tariffs up to 80%. The act may have been intended as a negotiating tool, but it is often used as a cudgel.

A lesson from the Trade Expansion Act is that though the direr use of a political policy may not be foreseen, it will eventually be used, and its use justified.

The Trade Act of 1974, in theory, was designed to expand US manufacturing participation in global markets and reduce trade barriers. It also – and this is important – gave the US President broad fast-track authority. Under it, the US president can provide temporary relief to an industry. Gerald Ford, who became the 38th president after the resignation of Richard Nixon, was president at the time. The Trade Act of 1974 was deemed necessary because it gave the president a stronger negotiating position during the Tokyo multilateral trade negotiations.

Section 201 of the 1974 Trade Act theoretically sets a high bar for petitioners. But unfortunately, theory and practice often fail to intersect, and once the door is open for interpretation based on personal bias and agenda, it is challenging to close it.

In 2002, having learned nothing from history, President Bush moved to protect the US domestic steel industry by using Section 201 of the 1974 Trade Act to enact protectionist tariffs. In 2003, announcing the tariffs a success, they were canceled. The 2002 steel tariffs led to the successful loss of ~200,000 jobs as prices for steel rose.