I'm Scott. I'm Bill. And we're the Trade Guys. You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm H. Andrew Schwartz and I'm here with Scott Miller and Bill Reitch, the CSIS Trade Guys. Coming up on this episode of the Trade Guys, we'll clear up any confusion about Chinese EVs and solar panels and tariff exemptions on certain solar products all on the next episode of the Trade Guys.
Okay, Trade Guys, it is great to be back with you. I want to jump right into it. We've seen the administration be very active on climate and trade issues of late, including its recent tariff hike on Chinese EVs and solar panels. So can you explain why it followed up that announcement with the removal of tariff exemptions on certain solar products? How does that actually fit into the recent Biden administration policies? I'm a little confused. Well, there's so many pending
solar issues that I'm not surprised you're confused, Andrew. By the way, this is going to be tariff day. Fair warning to everybody out there because we're going to be talking about tariff day. It is. It's national tariff day. It's national tariff day. Actually, apparently, according to the Hill, it's national vanilla milkshake day, which is important too. It's better than national tariff day,
but we're stuck with tariffs here on the Trade Guys. There is a panoply of outstanding trade issues involving solar panels and just to run down them, there were in the beginning anti-dumping and countervailing duty tariffs against Chinese panels that go back a while, which have caused the Chinese to try to circumvent the law by shipping the panels with some modifications
in through other countries, which I'll get to in a minute. In addition to that, we also do talk about who the industry is, but the industry sought and received first from Trump and then renewed by Biden. Section 201, Safeguard tariffs against Chinese solar panel imports. That's the statue where you don't have to allege anything illegal or unfair. You just have to allege that where you're being hurt by it and the purpose of the statute is to provide temporary relief. The WTO
rules allow basically a max of eight years for the relief. We are now in the sixth year because it started in 2018. The next president will have to figure out if he wants to do anything more. They're supposed to expire now in 2026. That would relate part of Andrew's question because initially, those duties were applied to what are called monofacial panels, which is a fancy term for panels, where all the solar cells are on one side. They point in the direction of the sun, but they don't
turn around. The alternative are bifacial panels, which have solar cells on both sides, and you can manipulate the panels. One side or the other is always facing the sun, and therefore you can maintain more energy. That wasn't a big thing in 2018 when all this started, but there are much bigger things now, partly because they were exempted from the 201 tariffs, which of course, quite naturally, meant surge in the imports of those because they weren't covered by the tariffs.
What President Biden did last month was to include bifacial panels in the tariffs. I think from his standpoint, plugging in a loophole. In addition to all that, as I refer to circumvention, this stuff is like squeezing the balloon. If you squeeze the balloon in one place, in this case, you tamp down Chinese exports of this stuff, but then the balloon just shows up somewhere else. What started to happen was, first, Chinese started shipping panel components
to Vietnam, Cambodia, Malaysia, and Thailand. We started exporting panels to the United States with enough assembly in those countries to justify calling them panels from those countries rather than Chinese panels. There is a U.S. law, though, a provision in the dumping and counter-reling duty law called anti-circumvention provision that says, if you do that, and commerce decides that you've done that, they can apply the original tariffs on the Chinese panels to the ones
that come from Malaysia, Cambodia, Vietnam, and Thailand. That case is underway. The Commerce Department has found affirmatively, provenarily, on that case, Biden imposed a two-year tariff holiday on that, meaning that if commerce ultimately did find duties, they couldn't impose them for two years. That ban expires next week. There's about to be a new set of tariff-assuming,
final-dissermination from commerce if that hasn't been made yet. Then, to top all of that off, companies in those four countries, not being dummies, have figured out, why don't they just cut the Chinese out and start making their own panels that are made with solar cells that come from somewhere else, Germany or Korea or various other places. You don't get the circumvention argument because they're not Chinese panels and they're not Chinese solar cells. They started
doing that. What do you have there is promptly the American industry filed a complaint against solar panels that originated in those four countries, coming from those four countries. The first shoe dropped on that a couple of weeks ago when the ITC, the International Trade Commission, which gets the first cut in these cases, decided preliminarily that there was injury being caused to the domestic industry by virtue of panels coming from those four countries. That's not the
same panels as the ones that have Chinese ingredients that are circumventing. They're all coming from those four countries as well. It gets just layers and layers and layers. The ITC decision was not a surprise. The bar for making a preliminary affirmative injury determination is very low. I think the Commission finds affirmative about 95% of the time. In those cases, the real issue will be if the Commerce Department finds dumping or subsidization from those countries and that's
probably another 45 or 60 days down the road before we'll see that. But the other element that's important here is to answer the question of who is the industry? This is an unusually industry because it consists of two parts that are at odds with each other. There's the people that make them in the United States who are the primary victims of everything I've just been talking about because the panels that come in compete with domestic producers, most of whom have gone out of business,
because of all the competition, but there's still some left. The point of the 201 tariffs was to save them and provide four or eight years of relief to allow the industry to rebuild and become more competitive. The other part of the industry, which is a larger part, are the people that install these things. They've installed them on rooftops. They install them in large enterprises. If you ever driven past these things, there'll be acres and acres of these panels out there that
are creating electricity for commercial consumption. We have a place on Eastern Shore. Every time I go there, I drive past one of these fields. A lot of panels out there collecting sunlight. The people that install all these, they're not really interested in all these duties because they buy Chinese panels or they buy panels from these other four countries and they want to install the cheapest ones possible and the tariffs make them less cheap. The industry is divided. In job terms,
the installing part is far larger than the production part. A lot more jobs at risk here. On the other hand, if you want to have a US industry, it's obvious you need to do something to protect it, which is what the abide illustration is trying to do. But then again, on the third hand, I think we're only on three hands at this point. If you want to accelerate the transition to solar and the transition to green, you want to have the cheapest products possible. Then you've got to let
in the Chinese and the Vietnamese, Cambodians, Ties and Malaysians. But if you do that, you destroy the domestic producers. That's the dilemma. Scott is going to solve all this. It is a nest of snakes. These strands of it are quite complicated. In some ways, that's the problem because what you have, Annapley, of mostly temporary trade actions. The anti-dumping and subsidy cases, finance departments of companies would do the misstep, certainly anything from Section 201,
safeguards are by definition temporary in nature. They come on, they expire. This whole notion of all these trade measures, though, complicates investment, which is probably the big problem in alternative energy at the moment. So let's wind the clock back a couple years and look at the inflation reduction act, ironically named, but containing a lot of incentives and subsidies to build a clean energy infrastructure of various sorts and supply the country with clean energy.
That was approved by the Congress, signed by the president, implemented, and was intended to create more renewable energy sources on the ground in the United States. That all makes sense. However, what we've learned is investment in alternative energy as a sector is highly sensitive to interest rates when it comes to rate of return. So when the inflation reduction act was passed, that old reserve was close to the zero-bound. The interest rates were very low. They've moved up
substantially since that. The first casually, frankly, was the offshore wind industry. Most offshore wind projects look pretty good in the early days of low interest rates as interest rates rose to their current levels. Almost every single east coast offshore wind project has either been postponed or canceled. So that gives you an idea of the sensitivity and the degree to which renewal investment doesn't like uncertainty. Interest rate uncertainty killed the offshore wind.
What's happening in the land-based industry where all these panels might be installed is these temporary trade measures give investors less and less confidence about their return on their investment because they can't predict the outcome of all these cases. So what's an investor do? Usually sits on the sidelines. So ultimately, I think the big problem and Bill Gates at a very good point about there's a lot more installers than there are panel builders. And so figuring out who
the industry is some of the things that the government has to sort out. But as I see it, the core issue here is with lack of predictability on the trade measures side, investors are going to sit on the sidelines. We're not going to build the infrastructure and the supply that was intended the first place. You're going to either build alternative energy infrastructure or you can be tough on China, but doing both the same time is really hard. The sad thing about this is that we
kind of dropped the ball on this in some respects. If we were going to save this industry, the domestic producers, that is we should have started some of these measures a long time ago and we didn't. And so here we are now in the situation that Scott just described, pressure to let more of these things in to accelerate the green transition at the expense of the producers. There aren't that many producers left. They're fighting valiantly. The administration wants to save them. And in a way
the policy question is kind of is it too late? I mean, if it's too late, it's our bad. It's something that we probably could have done something about and didn't. But here we are. Is it possible at this point to construct a domestic industry that's going to be competitive with foreign producers? I don't know. I mean, the only way to, I guess, find out is get rid of the tariffs. Some of them
are temporary. Scott said the dumping and counter railing duty ones may not be because the way that law works, they have to be reviewed at a minimum every five years because if they're not, they sunset by law, but they keep getting examined. But if the government comes to the same conclusion, i.e. they're still dumping going on or they're still benefiting from subsidies. And if the ITC concludes the domestics are still being injured, then they get continued.
And there's some, these duties have been in effect for 40 years, not solar panels, but in some other areas. They do come up for review, but some of them tend to last a very long time. Well, let me just thank the Congress for adopting the Dalabé check day. And let me point out that the Dalabé check is this because of retrave. The Dalabé is a product of, I think, Madagascar and some other African nations near the equator. And there would be no vanilla in the United States
where not for imports of an LB. It comes in on fairly certain duty free, which is a good story for pre-trade. And I myself love a good vanilla milkshake. I'm more in kind to go with strawberry myself, which I can say is can be a wholly domestic process because we do grow strawberries in the United States, just not vanilla. But this does remind me when I teach this stuff, we do a supply chain
unit. And of course, I've got the slide on the Boeing supply chain and a slide on the auto-embele supply chain that uses a chassis of a Chevy Equinox, I believe, as the example of how complicated the supply chain is. But then just to demonstrate that people always think the supply chains, it's all these sophisticated manufacturing complex products, I actually have a slide of the Nutella supply chain. And it turns out there is a Nutella supply chain, which is for a complicated
Oh, yes, hazelnuts are a very specific crop. Yes, mainly in Turkey. And we don't grow a lot of hazelnuts in the United States. And we don't grow cocoa beans in the United States either. The Nutella supply chain, Nutella's headquartered in Italy, but there's a link to a number of African countries for the cocoa and to Turkey for the hazelnuts to East Asian nations for palm oil, which is an ingredient in Nutella, which may be a pollen to some of you that worry about things like that.
Particularly, we're worried about the environmental consequences of palm oil plantations. And then, of course, there's sugar, which comes from all over. So it's up there with the national milkshake day. There's probably a Nutella day somewhere, but not today. I like a min chocolate chip milkshake. There you go. That would be good. That's a really good milkshake because it's a delicious
milkshake. It's very good. Yes, but I go with strawberry. Okay, I don't want to like get off the milkshake thing totally, but let's switch the ongoing ITC and Commerce Department investigations. Why are they important and what should we expect from them? Well, they're important and I think in deciding whether or not you want to save this industry or not. We've talked about that. It's a complicated question. My colleague, Emily Benson, and I did a point counterpoint on this actually
a couple years ago before there were this many cases when it was simpler. And I defended the rule of trade law argument. They're cheating. The Chinese are dumping and subsidizing. And we have a law against that. The WTO has rules against it. We ought to stick up for the law and the rules. And Emily took the environmental side and argued, no, no, no. Green transition is important. We need to move away from fossil fuels. We need to move into renewables. And this is one good way
to do it. And we don't need to insist on the letter of the law in order to facilitate the transition. And so it was a nice point counterpoint. We ended up disagreeing. And I think we still disagree. And that's why this case is complicated. There's good arguments on both sides. In today's case, we have not just the USITC involved in the unfair trade allegations, but we have the Europeans who have made unfair trade allegations against Chinese for their low-cost electric
battery electric cars and vehicles imported into the European Union. We have new tariffs from the European Commission. As Bill has mentioned in past programs, there have been tariffs on Chinese vehicles of all sorts, electric and internal combustion, since the Trump era section 301 tariffs were levied. So it's a separate project here in the United States. There are not many Chinese vehicles on the streets here because of the 301 tariffs. The Europe has now taken an action
against low-cost EVs from China into Europe. Which raises a number of questions. The European tariffs, because they're using a different statute than we are, they're using their dumping and subsidy statute, which is a lot like ours in many respects. And what they came out with was a provisional finding, which is what we do. So there will be an adjustment later on. And one of the things that the companies that are affected can do is go into the EU and argue that their tariffs
should be lower. And I think some of them are going to do that. The highest tariff was 38.1%. And there were some, I think the BIOID one was 17%. One of the questions in Europe has been, is that high enough? The answer to that question first is, it depends on what you're trying to do. And the European Commission was clear in its statement on this that says, we're not trying to
keep the amount of the market. We're trying to ensure that they're not dumped or subsidized and that the playing field is level and that these tariffs are intended to reflect the amount of the subsidy or the amount of dumping. Which is the way the law is supposed to work. They've got that right. People who analyze the industry are inclined to say, the price gap between Chinese electric vehicles and the European product produced in Europe is so great that even a tariff of
38.1% isn't going to be enough to knock the Chinese out of the market. The European Commission's response is, that's okay. We weren't trying to knock the bottom of the market. We're trying to level the playing field. We'll see what happens on that. But what we're already seeing is the same squeezing the balloon phenomenon that we talked about in the solar context. So what is happening? BIOID is announced they're going to build a plant in Hungary. They won't be Chinese EVs. They'll
be Hungarian BIOIDs. Hungary is in the EU. Hungary is welcoming this plant and it's not too excited about the tariffs. Other Chinese companies are thinking about putting plants also in Europe to overcome the tariffs. At the same time, the same conversation is going on with the same companies about plants in Mexico to get around the Biden tariff. Now Biden used a different statute. He used 301, which allowed him to produce a tariff that doesn't have anything to do with the amount of
subsidy. So it's 100%. I guess technically it's 102.5% because there's a normal 2.5% tariff. The loophole there, which is not yet been plugged, but I'm sure will be, is that if the Chinese go to Mexico and build an EV in Mexico, it probably won't qualify for the tax credits, the US inflation reduction at tax credits. Because they'll probably be using the Chinese battery. It may not qualify for the USMCA tariff retreatment because it probably won't have enough North American content.
But if it's got 51% Mexican content, it qualifies as a Mexican car. It's MFN at 2.5%. Exactly. It's MFN at 2.5%. That's the price gap that they can overcome. So you already seen calls in Congress to plug that hole by imposing probably 100% tariff on Mexican EVs in addition to Chinese EVs. That's a theoretical problem today. They're not doing that. And those plants are not, I think, even under construction at this point. But it's coming.
And then we'll see how quickly, if at all, the Biden administration acts on it. Well, I know this is a podcast. It's called The Trade Guys. And I know we talk about geopolitics on occasion. But I'd like to step away from both trade policy and geopolitics and talk about where the innovation in electric vehicles is happening and how we might benefit or cut ourselves off from it with these decisions. And I'm going to refer to the IEA report, International Energy
Agency's very thorough analysis of the electric vehicle market. And they note the following. The first the big challenge worldwide is affordability for these vehicles. The focus of the consumer and the sales is in China. So there's roughly 80 million passenger vehicles, cars and my truck, sold worldwide. Of that 80 million, 14 million, we're battered electric vehicles. So that's no, call it 18%. And out of those 14 million electric vehicles, 8.5 million or 60% were sold in China.
The consumers for electric vehicles are in China. That's the biggest lump. Not surprisingly, China has become the motor city for electric vehicles. That's where the cars are being built, that's where the problems are being solved, that's where the innovation is happening. On the factory floor, it suppliers all throughout the production networks. And as a result, the Chinese manufacturers have figured out how to deliver a vehicle with roughly the same
features at roughly the same cost as an internal combustion engine vehicle. The United States and other markets are nowhere close to that. The report IA points out that in the United States, the least expensive battered electric vehicles, the Nissan Leaf, relatively old technology, it was about a $30,000 vehicle. But an internal combustion engine vehicle with the same size and rough specifications would cost somewhere in the 20s. So the Leaf, despite being a little priced relative to other
offerings, is more expensive than its internal combustion counterpart. The only place that problem of affordability versus internal combustion cars has been solved is China. By blocking Chinese vehicles from the market, we're missing out on that innovation and the competitive pressure
that comes with it. And the risk is over the long haul that electric vehicles become a niche, become something that's large and expensive and found in affluent neighborhoods with where families own multiple vehicles and throw in the fact that moderate temperatures in the winter also have an effect on whether people buy these cars or not. So if you don't want the thing to turn into a niche, you've got to be able with affordability. That's the IA's starting point. And China
has managed to do that because that's where the customers are. So as we think through the trade issues and what's unfair and what's not. And we think through the geopolitical issues, it's important that with Reactious, serious about an energy can transition and a transition to affordable electric vehicles, we probably need the know-how that's being created in China right now. Just a thought. You know, that's a really interesting approach. It fits in with what I've been
thinking about this, which has to do with the demand side of the equation. If 100% tariff will probably keep the Chinese EVs out of the country, which Scott has said this would not be a good thing. But the question then is, does that effectively tamp down domestic demand? If people don't want to buy
the product piece or too expensive, you know, we get into this kind of destructive loop. I mean, the point of the tariff, I think, from Biden's point of view is to save American jobs, jobs in the American automobile industry, which happens to be in some states that are pretty critical in the forthcoming election, beginning with Michigan, although it's not the only one. So we're trying to save jobs. On the other hand, if the consequence of saving jobs is to produce cars that are expensive,
that nobody wants, are we really saving the jobs? Well, yeah, but on the other side of all this, in addition to the jobs issue that's very real, is any politician these days isn't going to want the optics of having the American market flooded with Chinese EVs? It's just simple math. We said this to our listeners that they do something called the electrify expo. Electrify expo. This is a trade show basically opened in the public. It's touring major American
cities. Last month, it was in Long Beach, California. In July, it will be in Denver, Colorado. So it's coming to a city near you where manufacturers all around the world are demonstrating electric mobility. And go to the expo. See what's all about on offer. See how many of those are sold in the US. This is a very interesting market as remarkable potential. And America is such an innovative country. It's full of entrepreneurs. It's full of creative people. The inventors are kind of our
value added to the world. And I want to see American invention and creativity and entrepreneurship turned loose in this sector. And this is just a way to tease what's out there. And who knows what's possible. I hope we have flinked bigger, but the expo may help. Well, let's leave it today with thinking bigger guys. This is a terrific discussion. I'm sure we're going to be revisiting this. And we didn't even get to the drama in the ITC yet, but we will. One announcement before we go, Andrew,
Congresswoman Del Mani is back and we'll be our guest next week. Terrific. Terrific. We keep trying. So fingers crossed on that one. Fingers crossed. All right, guys, appreciate it. Thanks. To our listeners, if you have a question for the trade guys, write us at tradeguys at csis.org. We'll read some of your emails and have the trade guys react to it. You've been listening to the trade guys, the csis podcast.