Obama, Trump, And Trade : The Indicator from Planet Money President Trump's new tariff on solar panels kicks in this week. But the story of where that tariff comes from goes back to the Obama administration.
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Obama, Trump, And Trade

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Obama, Trump, And Trade

Obama, Trump, And Trade

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CARDIFF GARCIA, HOST:

I'm Cardiff Garcia.

STACEY VANEK SMITH, HOST:

And I'm Stacey Vanek Smith. This is THE INDICATOR, Planet Money's quick take on the news.

GARCIA: About a month ago, we did an episode detailing just how busy the start of the year would be for American economic policy. And maybe no single topic demonstrates this better than trade.

VANEK SMITH: The Trump administration has been renegotiating both NAFTA and the U.S. free trade agreement with South Korea. We're about to see whether Trump will impose new tariffs on steel and aluminum. And last month, the president did impose new tariffs on washing machines and solar panels. And the solar panel tariffs kick in this week.

GARCIA: Today on the show, we zoom in on that case - the tariffs on solar panels and washing machines. And we look at what they tell us about President Trump's trade policy so far.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

GARCIA: The story of how we ended up with tariffs on solar panels actually starts a few years ago, during the Obama administration.

VANEK SMITH: Back in 2011, Obama's Commerce Department found that China had become a powerhouse in the production of solar panels because the government was subsidizing the Chinese companies that made them. This had made Chinese solar panels much cheaper to sell in the United States, and American companies couldn't keep up.

GARCIA: So the next year, 2012, the Obama administration imposed tariffs or import taxes on solar panels specifically imported from China. The idea was that these tariffs would raise their price - the price of the solar panels - and offset the unfair advantage that Chinese companies had enjoyed because they had been subsidized.

VANEK SMITH: And then Chinese companies responded to those tariffs by physically assembling their solar panels in other countries like Malaysia and South Korea so that when those solar panels were imported into the United States, they avoided the tariffs.

GARCIA: The same thing happened with washing machines. The Obama administration also imposed tariffs on washing machines specifically imported from South Korea because the administration found that those had also been unfairly subsidized by their home government.

VANEK SMITH: So Korean companies started assembling their washing machines in China to avoid the tariffs.

GARCIA: That's right. We ended up in a situation where Chinese companies were avoiding solar tariffs by assembling their products in Korea, and Korean companies were avoiding washing machine tariffs by assembling them in China.

VANEK SMITH: That's such a tidy little swap, but, you know, of course, American manufacturers complained. And then last year, the bipartisan U.S. International Trade Commission looked at the situation and said the U.S. should impose tariffs on solar panels and washing machines that are imported from pretty much anywhere. President Trump took the commission's advice and imposed the tariffs.

Now, when those tariffs were announced, a lot of the news coverage played it as here's President Trump doing his protectionist thing and we are breaking with our free trade past. But whether you think tariffs in general are good or bad, the real story about these solar panel and washing machine tariffs is that they're more of a continuation with the policy of the Obama era. Companies found loopholes in the earlier tariffs, and now, those loopholes have been closed.

GARCIA: One other thing about the tariffs on solar panels - in the first year, they're going to be 30 percent. By the way, that is today's Planet Money Indicator - 30 percent in the first year and then they fade after that. That sounds like a high number, but, in fact, these tariffs are not likely to have that much of an effect on the economy. In fact, they may not even be that big of a deal for the U.S. solar industry, at least not in the long run.

Let's go through some reasons why. Yes, the tariffs may help the U.S. solar panel manufacturers by making imports more expensive. But in the U.S., far more people work for companies that install solar panels than for companies that manufacture them.

VANEK SMITH: And when news of the tariffs broke, the solar installers pointed out that the tariffs could actually hurt employment in the overall American solar industry because if solar panels get more expensive, fewer people will get solar panels installed, and there will be fewer jobs.

GARCIA: All that said, the tariffs probably won't have that much of an effect either way. For one thing, they're temporary. They fade over time. But also, the price of the panels is only a small fraction of the price of getting solar panels installed. You pay more now for the labor, the design and for other parts of the system that go into it.

VANEK SMITH: Plus, the price of the panels is going to keep falling as the technology gets better. The tariffs can only slow that down, and maybe even then, just for a year or two. So in the long run, these tariffs just aren't likely to be a huge deal.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

GARCIA: We've been saying on the show that so far on trade, Trump has been more talk than action. Well, now there's been some action. But frankly, the ratio of talk to action is still very, very high.

VANEK SMITH: At least for now.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

GARCIA: Last word. On sources - we used a lot of them for this show. So as usual, please go to npr.org/money and click on the link to this episode if you'd like to see them.

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