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Why global trade is critical to win the battle against climate change

Why global trade is critical to win the battle against climate change
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Joe Biden will make climate change his top priority as president. At the same time, he has touted “Buy American” as an economic policy. Biden sees these two as connected. The utilization of domestic manufacturing, instead of foreign imports, to generate clean electricity would allow the country to bolster the industry while building a green grid. Forcing this connection by truncating foreign trade is misguided, however, as it will hinder both climate efforts and domestic manufacturing.

Biden has a goal of an emissions free grid by 2035. A recent study by the University of California Berkeley showed that achieving even a 90 percent emissions free grid by 2035 would, among other things, mean 25 percent of power generated by solar, well above the less than 2 percent now, or an increase by 70 gigawatts each year. In order to meet the goal, there must be a massive rise in use of solar panels at electric utilities.

But the annual manufacturing capacity of the domestic industry for solar panels last year was a mere 9 gigawatts. The data indicates that it will be impossible to meet the ambitious climate goal of the new administration with “Buy American” products. How can the new administration support both the increase of zero carbon electricity generation and “green collar” manufacturing jobs? Interference in global trade dynamics, whether with tariffs or subsidies, remains an obvious choice for policy.

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The new administration could levy tariffs on imported solar panels, with the idea that this protection will level the global industry and incentivize more domestic production. This has been done before, and the outcome was a failure. The International Trade Commission has found in favor of a “safeguard” because foreign competition injured the domestic industry. President Trump also levied 30 percent tariffs on imported solar panels, which then fell by 5 points in each of the next three years.

The products subject to tariffs included the bifacial solar panels with two sides that are at the heart of installation with electric utilities. At the time the tariffs were enacted, there was no domestic production of these solar panels at all. The current administration is nothing if not in favor of more domestic manufacturing, so let us check the record on the contributions of tariffs to a clean energy and “Buy American” strategy.

First, solar panels became much more expensive, of course for imported panels but also because the domestic producers were able to price more aggressively. Higher prices slow down, rather than accelerate, the critical installation of renewable energy. The Solar Energy Industries Association estimates that more than 10 gigawatts of solar deployment were lost as a result of the tariffs. That is not a clean energy outcome.

Second, other countries like Japan and South Korea responded with their own tariffs, making it harder to export domestic solar panels. Limiting the area of global markets and the ability of domestic producers to compete with foreign business is not a “Buy American” outcome.

Third, there was no increase for domestic manufacturing or employment, notably for the utilities industry. That is neither a clean energy nor a “Buy American” outcome. Indeed, the reduction in installations of solar panels meant fewer jobs in the business and the supply chain feeding it. Overall, the tariffs were estimated to have cost us 62,000 jobs.

Biden has an lofty goal for clean energy and domestic manufacturing, but he inherits a damaging trade policy that hinders progress toward meeting both. The first order of business should be to end the protectionist policy to provide utilities access to the technology they need. The use of global trade to the advantage of the United States will be the best road to meet this climate goal and bolster domestic manufacturing.

Douglas Holtz-Eakin is president of the American Action Forum. He served as the director for the Congressional Budget Office under President Bush.