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The Trump Decision on US Tariffs and the Trolley Problem

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As a reminder: The Trolley Problem is a set of ethical dilemma scenarios developed by British philosopher Philippa Foot in 1967.  Assume you are the driver of an out of control train. Ahead of you on the main track there are five people tied up and unable to move to safety. If you pull a lever the train will barrel down an alternate track to which one person is tied, unable to move. No matter what you choose you will be safe. What do you choose? In the world imposed by the Trolley Problem doing nothing causes the most pain while doing something also causes pain, but less pain than doing nothing.

Flaws in the moral quandary presented by the Trolley Problem thought experiment include:

A)  The fact that it is a thought experiment means that any response is purely theoretical that is, any ethical and moral conflict can ultimately be resolved by the fact that no one is really hurt. This does not render the Trolley Problem a useless exercise, as in business and in life people are presented with ethical dilemmas on a daily-basis where someone or a group of someone-s will be hurt. CEOs are often faced with Trolley Problem decisions and the ramifications of these decisions.

B)   The fact that the choices are limited to the people tied to the track ahead of the train, which puts the driver in the position of deciding between one person and five people without being in physical danger his/herself that is, self-sacrifice is not an option.  In real life, self-sacrifice is almost always an option. The lack of self-sacrifice as an option does not render the Trolley Problem useless as an ethical thought problem, but it severely limits it because though using the traditional parameters offers a useful exercise in making ethical choices, it forces decision making at a remove from personal outcomes. On one hand, the consequences of such a decision would be lifelong in a moral sense, on the other hand, with personal safety removed we do not have the opportunity to fully consider outcomes — call it the what-if-it-were me mode of ethical decision making. Using the CEO example, executives make decisions quite often that may not immediately affect them personally, but may eventually do so.  Executives are directly and indirectly affected by which trolley switch they choose to throw. 

Much government and bureaucratic decision making is made in a vacuum, that is, the effect of the decision on the decision maker is small or nonexistent. In terms of the final tariff decision, the U.S. International Trade Commission (ITC) made recommendations based on biased arguments with no personal knowledge of the complexity of the solar industry, nor would the outcome of their decision affect them personally. 

In this regard, the U.S. 201 tariff recommendations provide good examples of the Trolley Problem and its flaws. In the classic sense, the commissioners and the Trump Administration were faced with a trolley barreling down the tracks with U.S. demand side participants (those who buy cells and modules including module assemblers, installers, developers and others) tied to one track and the petitioners tied to the other track. 

In the flawed sense, the make up of the ITC panel was entirely independent of the effects of imposing tariffs, that is, the commissioners had no skin in the U.S. solar game and were operating theoretically based on the information presented but with little context in which to understand it fully. 

In the end, the commissioners threw the switch, ran over the U.S. demand side participants and tried to mitigate the damage by offering several not-completely-compatible scenarios.

Trump was faced with his own Trolley Problem. Under the 201 process, Trump was supposed to make and announce a decision by January 26. He delivered ahead of schedule with punitive measures that are 5 percent better than the expected 35 percent. The Trolley Problem that Trump faced assumed on his understanding of a complex industry, who will be hurt the most, benefit the most, whether the health of the U.S. solar industry is, to any degree, meaningful to him and whether he wants to make a political statement to China that has nothing to do with the U.S. solar industry. 

In terms of his decision, the Trolley Problem’s most significant flaws were revealed: self-sacrifice of any sort is not a variable in the decision making, there is no personal risk and the moral conundrum of the pain felt by the U.S. solar industry may not matter.

The U.S. does not have enough supply to meet its demand, and its demand has boomed in recent years, while its capacity to manufacture PV modules has shrunk. In 1997, the U.S. had a 42 percent share of PV shipments (supply), and in 2017 it is expected to have a shipment share below 1 percent. 

The U.S. has very little domestic cell manufacturing and the reasons for this are more complex than inexpensive imports. Poor government support for manufacturing is certainly one reason. However, poor choices of government support (Solyndra for example) has been equally damaging. Simply, if you have limited money to spend, use it wisely. Many good arguments are made that it is important to invest in innovation and in risk, but the innovation must be feasible.

Figure 1 offers U.S. demand and supply from 2001 through 2016. 

Figure 1: U.S. Supply and Demand 2001 through 2016

Figure 2 offers a history of the U.S. shipment (domestically manufactured cells and modules) market share from 1997 through 2017.

Figure 2: US Share of Global PV Shipments 1997 through 2017

Will Tariffs Help Stabilize the U.S. Demand/Supply Imbalance?

The short and absolutely correct answer is no. An increase in module assembly capacity will not help because the cells will still need to be imported. An increase in cell manufacturing is unlikely in the near term because this requires a significant investment and years-long-to-establish commitment by manufacturers.

The imposition of tariffs in 2012 and 2014 did not encourage cell manufacturing start up in the U.S. The current 201 trade case is unlikely to encourage cell manufacturing start up in the U.S. Suniva is unlikely to be resurrected and SolarWorld US — which is looking for a buyer — does not have enough capacity to serve the U.S. market.

And Now That the Decision Has Come Down…

On Jan. 22, the Trump Administration delivered its decision on the section 201 solar trade case. As the government’s announcement did not include detail on when the imposition of tariffs would begin, the tariffs are assumed to take effect in 30 days. The Trump Administration decision includes 15 percent tariffs in year four. This is likely unworkable as the World Trade Organization allows compensation for safeguard tariffs after three years if it can be shown that the importing country has been damaged. For example, if in year four $7 billion in cells/modules are purchased, the retaliation rights to other countries would be $1.05 billion. 

Table 1 offers detail on the decision. The tariffs only affect crystalline cells and modules.

Table 1: 201 Tariff Decisions

Table 2 breaks down the impact of the decision in terms of module and cell availability.

Table 2: 201 Tariff Decisions

Cell Capacity and Module assembly: The U.S. has 900-MWp of thin film and crystalline capacity and a total (including manufacturers with cell capacity) of 1.4-GWp of module assembly capacity. That is, the U.S. has 500-MWp of module assembly capacity for which cells would be imported. This means the U.S. can add 2-GWp of module assembly capacity and import 2-GWp (over and above what it already has) from cell manufacturers free of tariffs. It also means that cell manufacturers outside of the U.S. can raise prices.

Exempt Countries: Singapore is exempt, so crystalline manufacturer REC, which has been adding capacity, can choose to focus on the U.S. at a higher price point. REC has ~1.4-GWp of available commercial capacity. The U.S. is already a market focus for REC’s multicrystalline modules, but expect the company to raise prices.

The Trump Administration made its decision and the U.S. solar industry will feel its effects for several years without enjoying any benefits. A little understanding of market dynamics might have led to a different outcome. At the very least the Trump Administration could have considered its decision in light of a more empathetic Trolley Problem.  Instead it drove headlong down the track that had the entire U.S. solar industry tied to it.  

Don't miss Paula Mints' latest report, available at a discounted price through Renewable Energy World: SPV Market Research Solar Flare Report – Current Issue

Lead image credit: CC0 Creative Commons, Modified | Pixabay

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