When former President Barack Obama first imposed tariffs on solar cells and panels imported from China in 2012, he vowed to create a “level playing field” for American workers and businesses to combat unfair trade practices.
Twelve years later, successive tariffs have done little to dent China’s dominance in the solar supply chain: According to the IEA, China is set to nearly double its solar manufacturing capacity in 2023 alone, and will have activated as much capacity as the entire world in 2022.
As the United States prepares to lift a two-year tariff exemption on solar power imports from Southeast Asian countries on Thursday, U.S. imports are rising faster than ever. The U.S. will buy a record 54 gigawatts of solar panel capacity in 2023, up 82% from the previous year, according to data from S&P Global Market Intelligence.
“The U.S. is currently trying to catch up with mature technologies in China, but it would be very difficult to re-establish supply chains in a short period of time and at low cost,” said Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies. “It’s entirely feasible, but it would take longer and be much more expensive.”
Tariffs on solar panel imports from four Southeast Asian countries (Cambodia, Malaysia, Thailand and Vietnam) will be reinstated after a two-year moratorium imposed by the Biden administration. The 14.25% tariff applies to bifacial panels, which account for the majority of solar panel imports.
This marks a major shift for a market that has become heavily reliant on the region in the face of tariffs on imports from China. Supply from four Southeast Asian countries accounted for 87.5% of solar PV imports in the first quarter of 2024, according to S&P Global Market Intelligence.
The Commerce Department and the International Trade Commission are investigating allegations that Chinese companies engaged in illegal trade practices by using their operations in Southeast Asia to ship products from those countries to evade U.S. tariffs.
“The United States is no longer importing solar panels from China,” Mazzocco said, adding that U.S. tariffs have been most successful in “rerouting” trade to Southeast Asia.
China’s Advantage
The solar industry is concerned that tariffs could hurt demand: Residential and commercial solar installations are expected to double to 10 million by the end of the decade, according to a report by the Solar Energy Industries Association and Wood Mackenzie.
But that growing demand hasn’t translated into market share for U.S. solar manufacturers, which remain reliant on Asia for key components needed to generate solar power: China controls more than 70% of the world’s capacity for silicon raw materials and components for solar panels, according to S&P Global.
A Department of Energy study found that as of 2022, the U.S. had no operational ingot, wafer or silicon cell manufacturing capacity.
“[The US] “The Chinese facilities are much larger than they used to be, but they’re also expanding,” said Greg Nemet, a professor at the University of Wisconsin-Madison’s La Follette School of Public Policy. “It’s a whole different scale. China continues to expand because they benefit from spreading fixed costs over the number of modules. The biggest benefit is optimizing the automation of more and more parts of production.”
Mazzocco said government support has been key to China’s growth, with subsidies and tax breaks ensuring sustained demand and low costs, adding that production and manufacturing innovations also play a key role, with China now controlling “a lot of the intellectual property” essential to mass-producing solar panels.
“This is the type of technology that the more you make, the better it gets and the cheaper it gets to make,” she says. “The benefits get bigger and bigger, exponentially.”
“There is very little policy predictability.”
President Biden’s landmark climate change law, the Inflation Reduction Act, countered with subsidies of its own, offering a 10% tax credit on top of a 30% basic tax credit if raw materials are sourced in the U.S. These incentives have spurred more than $100 million in investments by U.S. solar and storage companies, according to the SEIA.
First Solar (FSLR) CEO Mark Widmer said the IRA is the first step in an “industry-wide approach” to enable domestic manufacturing. The company, a longtime advocate of reducing reliance on China, has announced the expansion of its manufacturing facility in Ohio and new locations in Alabama and Louisiana since the law was passed.
“The announced tariffs [are] “This is just another step in our efforts to create a stable policy environment that ensures a level playing field for meaningful investment in the United States,” he told Yahoo Finance in May.
First Solar expects to have 14 gigawatts of generating capacity by 2025. According to Reuters, meeting Biden’s climate goals would require the U.S. solar power installations to triple to more than 60 gigawatts per year.
But future policy decisions remain unclear. Seven companies, including First Solar, have asked the Commerce Department and the International Trade Commission to investigate China’s trade practices and are calling for additional tariffs ranging from 70% to 271% on imports from the four Southeast Asian countries.
There are also growing concerns that some of the IRA provisions could be rolled back if former President Donald Trump wins the US presidential election in November.
Trump has called IRAs the “biggest tax increase in history” and has publicly criticized President Biden’s climate change policies, with campaign officials recently quoted as saying Trump wants to eliminate many of the tax deductions.
“That’s the problem in the United States,” Mazzocco said. “There’s been very little policy predictability.”
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