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First, a correction. When I originally wrote about Congressman Blumenauer’s de minimis proposal, I said it would affect China, Vietnam, Turkmenistan, and Uzbekistan. That was wrong. The version included in the House’s America COMPETES Act would not affect the last three, and I regret the error.
Moving on to new business, last week featured two significant events in the trade world: the president’s decision on tariffs on solar panel imports and the House passage of the America COMPETES Act. The first illustrates the complexity of making trade policy in a globally integrated economy, and the second presents some modest good news about the legislative process.
The solar panel issue is the result of former president Trump’s decision to provide tariff relief to the domestic manufacturers under Section 201 of the Trade Act of 1974. Under that section, petitioners do not need to prove they are victims of unfair acts. They only need to show they have been seriously injured by imports. The idea is to provide a safeguard—an opportunity to adjust to new competitive conditions while they are sheltered from import competition. The relief, which is permitted by World Trade Organization rules, is supposed to be temporary and ideally phased down over time. In the solar panels case, the original four years of higher tariffs the president imposed expired last week, and President Biden was faced with a decision on whether to continue them.
This was a hard-fought case, and it presented the president with a dilemma: choosing between support for domestic manufacturers or cheaper imports that would accelerate the pace of solar installations and advance his climate mitigation policy. Normally, the main argument for protecting domestic manufacturing is job preservation or creation, but in this case the jobs installing the panels vastly outnumber the jobs making them. Companies installing the panels argued that continuing the tariffs would slow down the conversion to solar energy and would cost more jobs in installation than would be created in manufacturing. Domestic manufacturers also argued that much of the production of polysilicon, the major ingredient in solar cells, involves forced labor in Xinjiang and that it is important for our long-term competitiveness to rebuild a domestic manufacturing capability.
In the end, the president produced a split decision. He continued the tariffs on panels at nearly the same level but increased the volume of solar cells that could be imported without the additional tariffs, and he excluded two-sided, or bifacial, panels from the tariffs. Those are primarily used in utility-scale solar projects. As is true with most compromises, both sides were unhappy, although in the end, the domestic manufacturers may end up better off if Customs and Border Protection aggressively enforces the new forced labor rules.
This episode is a reminder that we don’t make everything we need and that trying to do so comes with costs. The main lesson is that we need to be very thoughtful about deciding what we want to make in the United States, because autarky is impossible in the twenty-first century. The solar panel decision was a compromise—we want to make some of them here but are comfortable with some imports as well. The one thing that is certain is that the president will face the same decision on many future occasions as he defines what manufacturing is essential to our security and what is not.
The House passage of the America COMPETES Act also contained some good news, and not just because of what was in it. I have previously discussed some of its substance, but today I want to look at the process. It reminded me of how the legislative process used to work, which suggests there is some hope we might be able to get back to that, although landmines abound. What happened here is that the Senate passed its bill last summer. The House, which has never believed the Senate could draft anything competently, was determined to write its own. It took House members far too long to do so—a story for another day—but last week their efforts bore fruit. In a classic move, the House left out provisions it knew were important to senators, and it included provisions that it knew would encounter strong Senate opposition, all the better to use in bargaining—so let the horse trading begin. That is what the Constitution’s framers envisioned—that the two houses would have to come together and compromise.
The House action sets the stage for that, and we should all hope that is exactly what happens. The biggest landmine, I fear, is politicians putting party above country—Republicans trying to kill the bill simply because they don’t want to give the president a victory in an election year, and Democrats on the left trying to kill the bill because it doesn’t contain everything they want. Both groups would rather have a message than a product, with the result that the country suffers and the goal of more effectively competing with China is not met. The House action last week sets the stage for doing better than that. I hope our politicians will rise to the occasion.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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