The immediate effect of the tariff will be an increase in the cost of imported solar cells and modules in the USA. In recent years, Chinese manufacturers have dominated the global market due to lower production costs, supported by substantial government subsidies. The US tariff aims to prevent an influx of cheap imports from China and support domestic manufacturers as the USA looks to ramp up solar photovoltaic (PV) installation ambitions domestically.

Higher domestic module production costs (imported cells used to produce US modules will now have tariffs attached to them), relative to those exported elsewhere by Chinese manufacturers, may initially slow new solar installations. The long-term goals of this move are to strengthen anti-dumping measures and stimulate domestic solar manufacturing. Increased investment in local manufacturing could lead to innovation, job creation, and a more resilient supply chain. Companies such as First Solar and SunPower, a company that was close to bankruptcy earlier this year, may benefit from this shift, which has the potential to revitalise the US solar sector.

Alternative suppliers and opportunities in emerging markets

While Chinese imports will become more expensive, most US companies have already turned to alternative suppliers, with significant volumes of Chinese-branded cells and modules imported via intermediate countries or from Chinese companies operating manufacturing facilities outside China. Countries such as Vietnam, Malaysia, and South Korea, which have substantial solar manufacturing capabilities, are key players in the US market, although Chinese ownership will most likely come under review. This diversification has created a more robust supply chain and reduced dependency on imports directly from China; however, the origins of components and raw materials still come into question.

This shift presented opportunities for companies that were able to adapt their supply chains rapidly. Investing in emerging markets with growing solar manufacturing capabilities could also be advantageous as these countries ramp up production to meet US demand while US manufacturing capability is developed.

Impact on raw materials

The solar industry relies heavily on raw materials such as high-purity silicon, silver, and aluminium, with several other raw materials critical to its technology. However, the tariff is not expected to alter the demand and sourcing of these materials in the short term because sufficient local cell production still needs to be established in the USA. As domestic production increases, the demand for US-based polysilicon producers may increase, creating investment opportunities. However, the environmental and regulatory implications of increased mining and production activities, as well as adequate support and incentives for an industry that has struggled in the USA in the past, must be considered.

Polysilicon shipments and supply chain adjustments

The impact of the tariff extends beyond the immediate cost increases. According to Chinese trade data, polysilicon shipments to China decreased by more than 28% year-on-year from 89.3kt in 2022 to 63.5kt in 2023, reaching levels not observed since 2011. This decrease is attributed to major non-Chinese polysilicon producers Wacker, Hemlock Semiconductor, and OCIM shifting their shipments from China to Vietnam. This shift was driven by major Chinese PV module suppliers JA Solar, JinkoSolar, and Trina Solar setting up wafer plants in Vietnam. This strategic move allows these companies to circumvent anti-dumping and countervailing duties imposed by the USA.

However, on 24 April 2024, the American Alliance for Solar Manufacturing Trade Committee filed anti-dumping and countervailing duty petitions with the US Department of Commerce and the US International Trade Commission to investigate potentially illegal trade practices by Chinese-headquartered companies exporting products from Cambodia, Malaysia, Thailand, and Vietnam. This petition highlights concerns about the massive subsidisation in China and Southeast Asia, leading to high volumes of dumping on global markets.

Starting on 6 June 2024, the US Department of Commerce will impose duties on manufacturers in Cambodia, Malaysia, Thailand, and Vietnam using Chinese wafers to produce cells and modules. The use of non-Chinese polysilicon by Chinese PV module suppliers in Vietnam will enable them to circumvent these duties. However, imports of Chinese polysilicon to Vietnam also increased in 2023, leading to the possibility of feedstock mixing at wafer production facilities.

This is not the first time Chinese PV module suppliers have created separate supply chains based on polysilicon from non-Chinese manufacturers for module exports to the USA. Previously, the US Uyghur Forced Labor Prevention Act, which went into effect in June 2022, led to a similar reaction. Imports of polysilicon into China are expected to decrease further in 2024 as domestic polysilicon capacity increases and Chinese PV module suppliers establish production centres outside China to circumvent duties imposed on products from China.

Additionally, the Biden–Harris Administration plans to revoke the 14.25% tariff exemption on imported bifacial solar modules, which allegedly represent 98% of US solar module imports. This exemption has been a point of contention, with various administrations revoking and reinstating it over the years. The current administration extended safeguard measures by four years in February 2022, continuing the tariff on crystalline silicon PV cells and modules but maintaining the tariff exemption for bifacial modules. The most recent revocation could further impact supply chains and costs.

Broader strategic and political implications

President Biden’s directive on 14 May 2024 to increase tariffs under Section 301 of the Trade Act of 1974 on solar cells and modules, among other products, reflects a broader strategy to protect US jobs, manufacturers, and government investments. The tariff on solar cells and modules will be increased from 25% to 50%, further intensifying the focus on domestic manufacturing and reducing the potential for reliance on Chinese imports.

The 50% tariff is not just an economic measure but also a political statement, reflecting the US government’s commitment to strengthening domestic industries. However, it also raises questions about future international trade relations and potential retaliatory measures from China.

This tariff is a strategic move aimed at bolstering domestic manufacturing while addressing trade imbalances. This policy is particularly timely as the USA targets a significant increase in new solar installations (up to 38GW) for 2024, projected to drive substantial year-on-year growth in the solar PV sector. This domestic growth is set against a backdrop of declining solar installations in China, leading to a potential surplus in Chinese production. As the USA ramps up its solar capacity, emerging tariffs will aim to protect and invigorate the local industry and position the country to become less dependent on Chinese-branded imports, thereby fostering a more resilient and self-sufficient solar market. However, the tariffs on cells are somewhat controversial as vertically integrated players in the USA are expected to be largely immune to the associated price increases, whereas smaller module manufacturers dependent on imported cells will be most likely to have to increase prices, potentially leading to consolidation as smaller competitors face high production costs.

In response to this shift, China, faced with a surplus in domestic production due to falling installation rates, is likely to seek new markets for its excess solar panels. This could lead China to aggressively expand its export strategy, targeting regions with high solar energy demand and fewer trade restrictions. Such a move could result in lower prices for solar panels globally, benefiting countries outside the USA. However, this might also intensify global competition and put pressure on manufacturers worldwide to enhance their efficiency and innovation to remain competitive. China’s strategic pivot in the global solar market will thus be a critical factor in shaping future trade dynamics and the overall growth of solar energy adoption worldwide.

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