2018-02-25

Crippling Tariffs, How Are China's Solar Producers Planning To Survive

Faced With Crippling Tariffs, How Are China's Solar Producers Planning To Survive?


The global solar industry has recently been thrust into the center of a standoff between China and the U.S. after President Trump imposed a 30% import tariff on all Chinese solar panels and washing machines coming into the United States.For their part, China, as well as Asian nations South Korea and Taiwan are now considering filing complaints with the World Trade Organization, and requesting compensation from the U.S.But in China, the country that prompted the solar tariff to start with, the reaction from business owners has been surprisingly moderate. Although the state response has been unequivocal, with China calling it “an abuse of trade remedy measures,” the realities on the ground seem to reflect a more adaptable atmosphere, with Chinese business owners offering a variety of solutions to keep their businesses afloat.

This isn’t the first time China’s solar has been stung by tariffs. Chinese solar companies have previously moved production factories to Southeast Asia to avoid anti-dumping tariffs ranging between 26% to 78% imposed by the U.S. Commerce Department in 2014 on solar panel exports.With Pres. Trump’s new worldwide 30% solar tariff, previously tax-exempt exports from Chinese-owned Southeast Asian factories can no longer avoid absorbing the added cost and decreasing their margins, prompting many to consider their next move.

Details of the Section 201 signed by Pres. Trump. Section 201 of the Trade Act gives the President to impose tariffs on goods threatening domestic industries.Setting up shop in the U.S.Ocean Yuan, CEO of Grape Solar, a Chinese solar import company based in Eugene, Oregon that has partnerships with Home Depot and Costco, says that moving into America has always been a smart long-term move for Chinese solar companies. 

 

“I have always advised Chinese companies who are financially capable and have cross-cultural management skills to venture into the U.S. to provide ‘Made in America’ products, because our customers want more ‘Made in America’ solar panels. The first question they ask is: ‘Where is your panel made?’" says Yuan.
 
The U.S. solar market is a large piece of the global solar pie, which is hard to resist for Chinese companies. According to Yuan, China has a demand of around 60GW per year, whereas they have an annual production capacity of over 100GW of solar panels. That leaves 40GW of solar production capacity which China would like to see exported elsewhere in the world.
 
For context and scale, the average electricity use per household in the U.S. for 2016 was 897kW per month. One gigawatt of installed solar panels can provide power for up to 800,000 households. In the U.S, over 11GW of solar panels were installed in 2017 according to a report by GTM Re-search released in January, 2018. The number is expected to grow by up to 14GW per year by 2022, making the U.S. a prime candidate for China’s solar producers.

Yuan states that at the moment, the top solar panel manufacturers in the U.S., including Suniva and SolarWorld, who lobbied for a 50% import tariff rather than 30%, are only able to produce 2GW, a fraction of the demand in the U.S. He also said that consumers in the U.S. are willing to pay a 10% premium on solar panels produced in the U.S., an enticing figure for Chinese solar producers.
 
“It's a beginning of a trend for the solar industry. The Chinese are coming, this time [they're] not only producing solar panels, but producing meaningful jobs."
 
 
But for smaller Chinese solar companies, entering the U.S. market may prove to be a distant dream. The costs of setting up a U.S factory run into the hundreds of millions of dollars, and there is a string of factors to consider, such as management, legal issues and labor laws. For many, moving production to other markets in developing countries to sustain themselves is a more realistic alternative to the realities of the new tariff.
 
Longi Solar, another Chinese solar giant, recently announced plans to open a 1GW factory in India. India currently is on a list of countries exempt from the 30% solar tariff, along with Brazil and a host of African nations. But with the recent wave of protectionism and tariffs in the global solar industry, even this exemption can’t guarantee preservation. The Indian government has recently been discussing plans for an emergency 70% import tariff on solar panels coming from China.

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