Trade Protection and the Dynamics of Innovation: Evidence from U.S. Solar Tariffs

• In Event: Solar Policy — Investment, Diffusion, and Local Governance

Abstract

Trade protection is increasingly used to support domestic clean energy industries, yet whether it stimulates innovation and whether such responses persist across successive interventions remain unclear. This paper examines the innovation effects of U.S. solar tariffs introduced in 2012, expanded in 2014, and followed by safeguard measures in 2018. Combining firm-level financial data with patent records, I employ a propensity-score-matched difference-in-differences framework to compare solar-related firms with observationally similar firms across policy regimes. The results reveal substantial variation in innovation responses over time. R&D investment increases by approximately 71% during 2014–2017, with no statistically detectable effects in the earlier or later policy periods. Poisson estimates indicate that patent filings among observed patenting firm-years increase by approximately 16% and 18% during the first two policy periods, respectively. Neither R&D nor patenting exhibits a statistically significant increase after 2018. Complementary county-industry evidence shows limited signs of industrial upgrading, with no significant increase in the share of college-educated workers or the number of business establishments. A dynamic model highlights how expected net protection shapes firms’ incentives to innovate. Together, these findings suggest that successive trade protection measures do not necessarily translate into sustained innovation or broader industrial upgrading in clean energy industries.

Author

• Zhenle Duan, University of Maryland, College Park
  Presenting Author