Last month, Donald Trump followed up on his campaign promise of protecting American businesses by imposing a 30 percent tariff on foreign solar panels and cells, beginning next year. The so-called “safeguard tariffs” will decline each year by 5 percent before expiring in 2023.The move comes in response to a petition last year from solar panel manufacturers Suniva and SolarWorld. Together, they argued in favor of high tariffs against foreign panel makers who, they argued, were undercutting their bottom line.
Late last year, the International Trade Commission agreed that U.S. panel manufacturers were being harmed by imports and recommended a 35 percent tariff against foreign panel manufacturers.
Reactions to the Tariff So Far
Manufacturing only comprises a small portion (about 14 percent) of all jobs in the solar industry. The bulk of the industry — which includes solar installers, project development firms, and salespeople — are firmly opposed to the tariffs. The Solar Energy Industries Association, an industry group representing 1,000 companies, argued that tariffs “would damage the entire solar industry.”
Environmental groups also rallied against the tariffs, arguing that they’re a threat to a sustainable future and a step backward in the fight against climate change. Lenae Shirley, Senior Director of Technology Innovation and Market Adaptation with the Environmental Defense Fund, called the tariff an “assault on clean energy and a tax on American families, businesses, and utilities who want to go solar.”
How Will The Tariff Affect Manufacturing and Distribution?
Solar installations largely depend on low-cost imported solar panels. Raising prices on those panels — especially when solar was well on its way to matching the cost of traditional forms of energy generation — may lead to less demand, fewer installations, and an overall slowdown in the industry.
The tariffs only directly affect two pieces of the solar supply chain: solar cell makers and panel manufacturers. But the tariff on the manufacture of solar cells only goes into effect after 2.5 gigawatts’ worth of cells are imported. Last year, only 0.5 gigawatts of cells were imported, so unless the domestic industry dramatically expands in the next five years, solar cells will likely be exempt from tariffs altogether.
That leaves only the solar panel manufacturers directly affected. How will domestic manufacturers respond to the tariffs? Their fortunes are likely to rise. Since the previously affordable imported panels are now far more expensive, more installers will have to rely on more expensive American-made solar panels. This will cause prices throughout the whole supply chain to rise, resulting in higher costs for homeowners and businesses that want to install rooftop solar.
Fortunately, rooftop solar will be largely insulated from negative tariff effects. Solar panels themselves only constitute about 10 to 15 percent of the system’s total price. According to California-based solar startup PowerScout, a 30 percent tariff will therefore increase the overall system cost by a mere 3 or 4 percent. (Utility-scale solar installations, on the other hand, will fare much worse, with installation costs expected to rise by about 10 percent.)
Still, panel manufacturers stand to benefit by Trump’s decision. First Solar’s share price already rose nine percent, and the company has announced that it will expand domestic production in Ohio. Texas-based Mission Solar Energy also announced its intention to accelerate production to meet this year’s increased demand. And California’s Solaria, likewise, announced its intention to expand manufacturing facilities in the U.S. shortly ahead of the tariff decision.
Impacts to Jobs
While the White House and the solar manufacturing sector are optimistic about the impact of tariffs on American jobs, the rest of the industry remains skeptical. Last year Stellar Solar founder Kent Harle said the tariff was a “job killer, plain and simple.” Jack Ailey, CEO and founder of solar installer Ailey Solar, agreed. “I don’t think there’s any question that the tariff will cause a net loss of jobs,” Ailey said. “There’s a lot more jobs on the installation side than manufacturing.” The SEIA has pointed out that of the 38,000 jobs in solar manufacturing in 2016, only 2,000 involved cells and panels (the targets of the tariff).
GTM research estimated last summer that tariffs would lead to a 61 percent decline in installations through 2022; they’ve now stepped that figure down to 11 percent. The SEIA estimates the industry will shed 23,000 jobs this year. But last June the organization had predicted that up to 88,000 jobs would be lost. As data about the tariff’s effects begins surfacing over the next few months, analysts will most likely continue to adjust these kinds of predictions.
Implications for International Trade
The trade dispute threatens to spill into other areas of the American economy. Both China and South Korea have criticized Trump’s decision, and have suggested that they might petition the World Trade Organization to rescind or mitigate the tariffs. It’s possible that WTO pressure could lead to a withdrawal of the tariffs. This is what happened in 2003 after the Bush administration imposed taxes on steel imports.
Alternately, China might retaliate with tariffs of its own. Since China is America’s top trading partner, broad Chinese tariffs could damage several U.S. industries.
The White House has said that additional tariffs on aluminum, steel, and other products imported from China could be on the horizon. And other American companies, encouraged by the administration’s decision, might bring similar trade petitions to the ITC in an attempt to limit foreign competition in their respective industries.