The Impact of the Trump Administration's Solar Tariff
Posted on 04-19-2018
By Huiru (Ruth) Kang
In 2012, the Obama administration imposed tariffs on solar cells and panels imported from China. The move did not lead to a resurgence of American solar manufacturing. Instead, by 2017, 25 US manufacturers went out of business, only two solar cell and panel manufacturers remained viable, while eight others produced panels using imported cells. At the same time, imports grew by nearly 500% from 2012 to 2016. To protect domestic manufacturers, President Trump pledges to levy tariffs on all solar cell and panel imports from nearly every country in the world. Will the new tariff revive solar panel manufacturers in the US so that they could compete globally? Specifically, will the US manufacturers be able to compete with Chinese peers, which produce 60% of the global solar cells?
The answer is no for both questions. The US cannot revive its solar panel manufacturing by trying to protect firms competing against Chinese peers, as global manufacturers have been struggling with already thin margins. China’s production cost was $0.50 per watt in late 2012, and U.S. manufacturers were not competitive then. The production cost for Chinese manufacturers was estimated to fall to $0.36 per watt by the end of 2017. Will the new tariff close the price gap between Chinese and the US manufacturers? Probably not, at least in the short term. It is difficult to predict how the new tariff would change the solar panel manufacturing in the long term due to policy uncertainty. A couple manufacturers already announced their plans to ramp up production, but new capacity takes time. In fact, as the new tariffs are reduced and expire over four years, investors may be reluctant to bet big to fund new production facilities now in the US. The impact of the tariff in the first year is estimated to be between $0.10 to $0.12 per watt, and will decrease to $0.04 to $0.05 per watt in the fourth year.
Meanwhile, the new tariff is not sufficient to alter the market position of Chinese solar panel manufacturers. On one hand, China’s solar manufacturing has long benefitted from its domestic stable and favorable policy environment, enabling manufactures to scale up production to sell high volume with low profit margin. For example, the Chinese government announced in 2013 that distributed photovoltaic power generation projects would be given a standard subsidy, and such financial support is granted for period of 20 years. On the other hand, the overall competitiveness of Chinese solar panel manufacturing comes from a combination of several factors, rather than state subsidies alone. One factor that has been overlooked is that most solar manufacturers in China are privately-owned companies and they are facing intense completion at home. Suntec, one of China’s largest solar panel manufacturers, was bankrupt in 2013. Another two major manufacturers, Chaori Energy and LDK Solar also went bankrupt in 2014 and in 2015 respectively. Those that remain have learned to be profitable, especially considering that Chinese government plans to phase out subsidies to support deployment of renewable electricity generation systems. Indeed, those tariffs imposed by the US and other countries, which will squeeze the margins of Chinese manufacturers, are forcing them to innovate to survive. As a result, China now has a stronger solar panel manufacturing industry compared with 2012.
Instead of reviving the solar manufacturing in the US, the new tariff may undermine the panel assembly, installation and maintenance in the short-term. By artificially raising the price of imports, the tariffs make it easier for U.S. manufacturers to compete. However, these potential manufacturing job gains are probably offset by the job losses from other sectors of solar industry, such as the installation. Although up to 6,400 jobs could be created in solar manufacturing, the Solar Energy Industries Association predicts that the industry will lose 23,000 jobs this year alone. The likely solar panel costs increase may represent a 3% to 4% increase in the cost of a solar installation for American homeowners. This clearly shows that the cost of the new tariff is not limited to those jobs directly affected.
The actual impacts of the new tariffs on both the US and global solar industry remain to be seen. Following South Korea, the European Union and China separately filed complaints with the World Trade Organization to seek consultation with over the US solar tariffs. If history is any indication, then it is possible that the WTO will overturn the US import tariffs. Indeed, the US tried to protect domestic steel mills with import tariffs in 2002, but this case was overturned by the WTO in 2003 and those tariffs were lifted in the same year. Before such action happens, the US solar industry will suffer in the short term.
Huiru (Ruth) Kang is a Master of Public Administration student at the University of Pittsburgh, Graduate School of Public and International Affairs. Her research interests include international cooperation on clean energy, energy poverty alleviation, and climate change.
About the blog: The GSPIA Energy and Environment blog provides commentary and analysis that furthers understanding of E&E issues of public interest. Its primary contributors are GSPIA faculty and students.