Strategic Avoidance and Welfare Impacts of U.S. Solar Panel Tariffs

• Environmental and Energy Economics Workshop

Date and Location

Wednesday, May 11, 2022, 11:30 AM - 12:50 PM
Online Meeting, Zoom

Abstract

This study examines the effects of a series of tariffs imposed by the United States on imported solar panels in 2012, 2014, and 2018. To do so, we bring together data on solar panel manufacturing, imports, and pricing. We first present evidence of tariff avoidance behavior by solar panel manufacturers, including strategic offshoring of production. We develop a ``strategic tariff'' measure that accounts for this tariff avoidance behavior, and we find that strategic tariff rates differ substantially from statutory tariff rates. In particular, they are much lower than statutory rates in 2012 and 2014. In contrast, avoidance of the 2018 tariffs was more difficult due to their broad-based nature, and this is reflected in higher strategic tariff rates. We embed these strategic tariff rates in a Cournot model of manufacturer competition that appears to match the market, and include a dynamic model of solar demand to quantify the real impacts of tariffs on solar panel prices, solar panel adoption, and heterogeneity in manufacturers' responses. We find strong evidence that firms relocated production due to the tariffs. We further show that the tariffs produce small gains--on the order of $2 billion--for firms with domestic manufacturing, but this comes at the cost of large losses for consumers and installers on the order of $25 billion.