Posted by Patrick Burnell – 01.08.19
The ongoing trading battle between the US and China has had a noticeable impact on the US solar market and in particular, on the supply of solar panels across the nation. Many solar projects tend to be hindered by delays directly from utility queues. However, there is now the added implication of waiting for solar panels to actually be manufactured. As a result, some US developers are purchasing entire stocks of products to minimize the impact of when solar supply levels are at a low.
The continued battle between an emerging superpower and an established leader is happening whilst both nations continue to compete for a superior position in new technologies. According to President Trump, China, and other trading nations have taken advantage of the U.S. for some time, referring to the trade deficit as an example of the loss within the national manufacturing market and the overall decline of power within the country. For over a year now, Trump has hiked up the tax on imports and supported US businesses impacted by tariffs to relocate production and other related jobs back to home soil.
China is being targeted by President Trump as the main contributor towards the deficit, but his trading disputes spread further with other Asia Pacific nations. When China entered the World Trade Organisation back in 2001 it was under a rule that confirmed its concession as a developing nation and enhanced its position within global markets. Many studies highlight that the rise of Chinese exports resulted in lower prices for consumers in the U.S. and at the same time enabled many millions of Chinese nationals to move out of the poverty line. The rise of power, however, also led to a significant loss of manufacturing jobs across the U.S. The power within China, particularly within the technology industry has now reached a level where it is eliminating the economic advantages of the U.S.
Back at the start of 2018, Trump implemented levies on imported washing machines and solar panels in a move to protect U.S. producers. New tariffs on goods specifically from China commenced later in 2018 and whilst China responded and it looked like a deal was to be arranged, Trump has continued to raise tariffs again to a higher level. In the last month, Trump along with Chinese President Xi Jinping confirmed they would restart discussions to avoid any further tariff increase for the time being.
The US trade deficit reached a ten year high in 2018, hitting a figure of $621 billion. Many economists believe that the trade dispute has actually contributed to widening the gap by invoking slower economic development within China and across Europe. Meanwhile, the solar market has been directly impacted by the tariff changes, with many developers struggling to maintain a reliable supply of solar panels, with many businesses opting to purchase additional stock in case of potential manufacturing shortages.
In addition to the tariffs, the solar market has been impacted further by changes to the solar investment tax credits (ITC), which was regarded as one of the most vital policy mechanisms for solar energy generation in the nation.
In 2015, the Solar Energy Industry Association successfully launched an extension of the credit scheme, which has continued to provide added stability for businesses and investors. Despite the popularity and success of the scheme, the ITC credit value is now planned to decrease over the coming years. The ITC currently stands at a figure of 30% which is claimed against the tax liability of residential, commercial and utility investors within solar energy projects. New proposals, however, show that the tax credits will decline to 26% in 2020 and even further to 22% in 2021. As a consequence of the credit changes, solar businesses are being pushed to acquire more supplies before tax credit changes take effect.
Trump maintains that the trade war is helping the national economy, with GDP increasing by just over 3% in the first quarter of this year. Financial analysts surveyed by Bloomberg, however, believe that gains will slow to a figure of 1.8% later this year, which represents a two year low, as trade policies and slower rates of global growth cause businesses to be more cautious about hiring and spending.
Research analysis by Bloomberg Economics suggests that for the number of Chinese goods that experienced tariff changes from 2018 saw a decline in imports by about 26% year on year at the start of 2019. During the same period, countries such as Taiwan and South Korea gained an increase in the sales of electrical components and other products, a clear sign that tariffs have increased the movement of low value-added manufacturing to other regions outside of China. Many businesses have responded to tariff actions by relocating their production facilities out of China.
Whilst Trump continues to push the tariffs and is confident of its success for the U.S, many markets have experienced significant impacts and certain businesses are warning of higher prices for the future. Many leading solar companies are opposing the proposed tariffs, arguing they will increase prices for customers and damage smaller businesses. According to Bloomberg Economics, the global economy could potentially lose significant amounts of money by 2021 if the trade war heightens further, based on tariffs for the US and China reaching 25% and a 10% reduction in equity markets. Analysts are now trying to determine whether an agreement is in reach but for now, Trump has made it quite clear that he wishes to keep tariffs in place until he is certain that China is complying with any deal.
Posted by Patrick Burnell – 01.08.19