U.S. Raises Tariffs on China: What It Means for Solar

rade tensions with China build up as the United States tightens its grip on imports to boost homegrown production. The solar sector, which has sourced from China for years, is now maneuvering through a web of tariffs, duties, and trade investigations.

Raising the stakes, the U.S. Trade Representative recently announced a steep increase in tariffs on Chinese imports. The hardest-hit items are key to the clean energy shift: solar components, batteries, semiconductors, steel, and electric vehicles.

China, in turn, has urged the U.S. to reconsider its decision. The country's officials warned that this could disrupt global supply chains and hurt U.S. businesses and consumers. So, what is happening at the moment, and what might it mean for the U.S. solar industry and individual solar users? SunValue is here to walk you through the stakes in play.

The Tariffs: What's on the List?

The current situation fits into a long-standing pattern of global superpowers clashing over trade and technology. The latest U.S. move raises tariffs to 25% on Chinese batteries and steel, 50% on semiconductors (vital for the solar industry), and a whopping 100% on electric vehicle imports from China.

Additionally, the U.S. International Trade Commission (USITC) decided to keep the tariffs in place for Chinese crystalline silicon solar cells and panels as lifting them would negatively impact U.S. businesses.

These new measures follow a review under Section 301 of the Trade Act, which has been tightening the screws on Chinese imports since 2018. It was created to counter unfair trade practices, such as intellectual property theft and forced technology sharing.

The U.S. Trade Representative argued that the higher tariffs are needed to shield American industries from China’s “non-market excess capacity.” This applies most to the solar industry, where China has dominated global production for a very long time.

Lael Brainard, a top economic adviser in the White House, labeled this new stricter stance as a "tough and targeted" strategy in trading with China. He claims it strikes the right balance between industrial policy and the shift to clean energy.

Echoes of Concern: Industry Voices Speak Up

Some market players aren’t happy about this change. An organization for electrical manufacturers, NEMA, raised worries about potential industry ripple effects.

Fred Fischer, NEMA’s managing director of global policy, pointed out that while it’s crucial to create a wider supply network, the increased tariffs "come at a critical time when domestic manufacturers are working to prioritize and accelerate the energy transition while balancing ongoing global supply chain challenges that hinder competitiveness."

He argues that international trade is vital for the U.S. electroindustry and for keeping domestic producers competitive. Higher tariffs will push up the prices of clean energy products, making them less competitive globally. NEMA expects that duties on electrical goods will leap from $1.3 billion in 2023 to $4 billion by 2026.

As a result, the higher costs could make it harder for Americans to switch to clean energy. The demand for renewable energy is going up, but supply chain bottlenecks could set back the country’s climate progress and put energy security at risk.

The Solar Energy Manufacturers for America (SEMA) alliance, on the other hand, praised the USTR’s actions. Mike Carr, executive director of SEMA, thinks that the tariff hike is a move to align U.S. industrial policy with the goals of the Inflation Reduction Act. "Both an increase in tariffs on China’s solar component exports and temporary tariff relief for certain solar equipment will boost U.S. manufacturing and send an important signal to China," he stated.

China Reacts: A Call for a Reversal

To no one’s surprise, China quickly expressed disapproval of the decision. The Ministry of Commerce labeled the tariffs as "typical unilateralism and protectionism," claiming that they harm international trade and threaten the security of global supply and industrial chains. According to the ministry, these tariffs won’t solve the U.S. trade deficit problem. Instead, they will raise import prices, and American consumers will end up paying more.

China requested that the U.S. rethink its move, warning that it wll implement measures to protect its businesses if needed. This suggests that it might counteract in a way that could escalate tensions between the two economic powerhouses.

Moreover, the ministry noted that most public comments opposed Section 301 tariffs as many U.S. companies argued that increasing tariff breaks would offer them greater benefits. Despite the pushback, they claim, the U.S. government chose to proceed with the tariff increases, worsening the already fragile relationship with China.

What’s at Stake for U.S. Clean Energy?

The U.S. has a lot on the line. On one hand, the tariffs are designed to grow domestic manufacturing and limit the need for Chinese supplies. Rising trade barriers are pushing manufacturers to rethink their supply chains and production strategies. This could create a more diversified solar industry, with new production hubs forming outside China.

On the other hand, the U.S. solar industry is still finding its footing, and additional trade restrictions could hold it back. The domestic industry has indeed made progress in solar panel assembly—according to the latest report released by the SEIA and Wood Mackenzie, solar panel manufacturing capacity has increased four times since the IRA. Yet, we still rely heavily on foreign PV cells, as solar cell production isn’t catching up.

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Source: Clean Energy Associates

The supply shortage is getting worse due to the possible drop in shipments from Southeast Asia. Despite the tariffs on cheap solar imports from China, some companies are still bypassing them: they are making minor tweaks to Chinese components in other countries before shipping them to the U.S. These countries are currently under trade investigation, and if they face taxes, it will further raise import costs and increase solar panel prices for both big players and individual solar buyers.

Chart: SunValue; Data Source: United States International Trade Commission

Latest Updates on U.S. Solar Tariffs in 2024

The U.S. solar industry faced significant changes in 2024 as the Biden administration implemented new tariff policies aimed at boosting domestic manufacturing and reducing reliance on Chinese imports.

Tariffs on Chinese solar cells and panels increased from 25% to 50%, while duties on lithium-ion EV batteries jumped from 7.5% to 25%.

These measures, part of a broader strategy to counter China's dominance in clean energy manufacturing, sparked concerns about potential price increases for solar installations and supply chain disruptions.

However, the impact was somewhat mitigated by ongoing price reductions in global solar component markets and the diversification of supply chains to Southeast Asian countries.

The solar sector continued to grow despite these challenges, with U.S. manufacturing capacity expanding significantly, though cell production still lagged behind panel assembly capabilities.

A Trade Conflict That’s Far From Over

With the tariff decision now in place, it’s obvious that the impact will be far-reaching and complex. Policymakers will need to carefully balance the protection of local industries with the realities of global trade. Strict trade rules could leave the U.S. without key parts for its clean energy shift. But, ignoring the problem could make domestic industries vulnerable to unfair competition.

While the goal is to protect domestic businesses and fix trade imbalances, moving forward won’t be easy. Supply chain delays, higher expenses, and possible backlash from China might cut into the expected benefits. Consumers hoping to go solar may face higher prices, and U.S. climate goals might progress slower. Manufacturers, meanwhile, must adapt and reshape their strategies.

The solar industry is now caught in the crossfire, leaving the future of solar power in the U.S. uncertain. But one thing is sure: clean energy is now deeply linked to geopolitics, and this conflict may affect the solar sector for years to come.

Sources:

https://www.usitc.gov/press_room/news_release/2024/er0912_65892.htm

https://www.federalregister.gov/documents/2024/09/18/2024-21217/notice-of-modification-chinas-acts-policies-and-practices-related-to-technology-transfer