To spur solar panel projects in the U.S., the Biden administration waived tariffs on solar panels from four Southeast Asian nations for two years and invoked the Defense Production Act. While the temporary suspension of the tariff may increase the availability of solar panels, other factors such as inflation, interest rates, and on-going supply chain issues may stymie solar installation projects.
Waiving Tariffs to Stimulate Solar Development
On June 6th, the White House announced that it was waiving tariffs on solar panels imported from Cambodia, Malaysia, Thailand, and Vietnam. The move comes in response to concerns that solar projects nationwide are being delayed or cancelled, impacting the administration’s plans to fight climate change. The Biden administration claims that this exemption will stimulate solar development across the nation while U.S. manufacturing ramps up.
The exemption ensures that panels, which account for 80 percent of U.S. imports, will no longer face tariffs of as much as 250 percent, which the Commerce Department had the power to levy retroactively as part of its probe into Chinese manufacturing and distribution practices.
Ironically, in February 2022, President Biden extended tariffs on imported solar panels in a bid to protect domestic manufacturing. These tariffs increased the price of solar panels in the U.S. by adding 15 percent to the cost of a panel. At the same time, the Biden administration was urging the nation to expand the use of renewable energy.
Attempting to Protect Domestic Manufacturing
Until 2011, the country was a net exporter of photovoltaic (PV) modules. When the price of PV module prices dropped in 2010, many U.S. and German companies suspended operations as they were unable to compete with low-cost Chinese competitors. U.S. companies asserted that China was driving out competition by providing unfair subsidies to Chinese companies, which were purportedly selling PV modules at less than the cost of manufacturing.
Citing unfair trade practices, the U.S. placed tariffs on Chinese cells and modules in 2012 and 2015. Despite these tariffs, low-cost modules and cells still made their way to the United States’ market because Chinese companies expanded manufacturing in neighboring Asian countries. Perhaps unsurprisingly, most of the material needed to make cells and modules is sourced from China.
Imposing Section 201
In 2018, the U.S. imposed the Section 201 tariff, a four-year safeguard designed to protect domestic PV manufacturers from economic harm by imports. The tariff imposed duties of 30 percent on most imported modules. This rate decreased five percent each year until 2022, when the rate dropped to 15 percent.
To help domestic companies that assemble imported modules while encouraging PV cell manufacturing in the U.S., the tariff exempted the first 2.5 gigawatts of imported PV cells. However, the industry did not reach the 2.5-gigawatt quota until the month before the initial four-year term ended.
Increasing Solar Capacity Despite Tariffs
Companies assembling modules in the U.S. imported virtually all of their cells without tariffs. Approximately 80 percent of solar modules installed in the U.S. during the initial four-year term of the tariff were imported. As of the end of 2021, there was no PV cell production in the U.S., revealing that tariffs failed to stimulate domestic production.
Notably, tariffs were implemented when global PV module prices were falling. U.S. panel prices have continued to trend downward and are lower now than when the tariffs took effect. Because of the low cost of modules, more solar capacity was installed in the U.S. during the Section 201 tariffs than at any other time.
Regarding American jobs, currently, most solar-related jobs are associated with project development, installation, and construction rather than manufacturing. Of 231,000 U.S. solar jobs, only 13 percent were in manufacturing at the end of 2020.
Time will tell if the temporary suspension of Section 201 will help the White House achieve its renewable energy goals.
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