Once America's Fastest-growing Industry, U.S Solar Has Been Hit Hard By Tariffs

Of all of the industries struggling to survive in the midst of heavy federal tariffs, solar may well be among the hardest hit.

It certainly feels that way to Yi Li, the CEO of Renogy, a California-based multinational solar manufacturing company. The 30 percent tariff on imported solar panels, have cost Renogy $150,000 a month, roughly 60 percent of revenue for the company, which is headquartered in Ontario, but which has built manufacturing plants in Asia.

To counter the shock of the tariff, Li said she is in the midst of laying off up to a quarter of her 200 American employees.

"Layoffs are the last thing that I want to see, but I have no choice," said Li. "I don't know how many companies can survive under these conditions."

The solar tariff, imposed by President Donald Trump in January of 2018 to revitalize U.S. manufacturing, will continue for four years, dropping by 5 percent each year. "U.S. producers had been seriously injured by imports," U.S Trade Representative Robert Lighthizer said in a statement when the announcement was made. "There must be fair and sustainable trade throughout the whole solar energy value chain, which would benefit U.S producers, workers, and consumers.""

The heavy burdens of the tariff has left many solar companies such as Renogy in crisis even before they think about whether to move factories back to the United States.

Stratenapex, a small local solar installation company, is also in trouble. Shan Patel, the founder said he had to cut half of his 72-worker installation crew because of a drop in business since the tariff was imposed.

"Three of my competitors went out of the business," Patel said. "Two of companies that purchased from us stopped purchasing all together. Our company lost about 25 percent to 30percent of our business."

Even though California just became the first state which requires new homes to install solar panels in 2020 following a vote by the Building Standards Commission, still, Patel said the action itself may not alleviate the crisis among the local business.

"The big contractors are installing the panels themselves or creating their own solar companies," Patel said. "So independent companies like us aren't greatly affected in terms of an increase in business."

Job Losses

According to Reuters, more than $2.5 billion in solar projects were canceled after the tariff was imposed. The Solar Energy Industry Association, known as SEIA, says that by the end of 2018, the loss of roughly 23,000 American jobs out of a workforce of 260,000 will be linked to the tariff.

"While tariffs in this case will not create adequate cell or module manufacturing to meet U.S. demand, they will create a crisis in a part of our economy that has been thriving, which will ultimately cost tens of thousands of hard-working, blue-collar Americans their jobs," said Abigail Ross Hopper, SEIA's president and CEO.

Li started Renogy seven years ago, at the age of 28, with a $5,000 college economic development loan. Now, the company is one of the top 20 solar manufacturers in the U.S., according to Energysage, an online solar products research website. But the tariff is making it hard to stay in business, Li said.

Renogy spent years building production centers across Asia, from Shenzhen, China to Malaysia. Li said it would be foolish and financially ruinous to turn her back on those operations now, and said she will likely bide her time until the tariff expires. At the same time, she's struggling to keep the business viable-the grace period between the announcement of the tariff and its imposition was just one week.

"There is no way to find another domestic supply chain within a week," Li said. "The tariff is punishing American companies, the whole industry, and everyone in this chain."

Supply chains are so important that many solar companies would rather to pay the tariff than upend their entire manufacturing operation. "The tariff is temporary, so it is senseless to try to recoup their costs by building a new factory in four years," said Joshua Rhodes, a University of Texas, Webber Energy Group researcher.

The high degree of mechanization of Asian factories is a powerful disincentive to moving production back to America.

"Looking at modern manufacturing facilities in India or China, they are very highly automated, so they don't actually employ that many people," Rhodes said. "Politicians might underestimate it. You don't have to pay health care for machines."

"Looking at modern manufacturing facilities in India or China, they are very highly automated, so they don't actually employ that many people," Rhodes said. "Politicians might underestimate it. You don't have to pay health care for machines."

In an opinion article published in Forbes, Rhodes observed: "In the long run, the tariff seems unnecessary and annoying and less than helpful to the industry and the economy as a whole. I bet that all the solar that was going to get built will still get built; it might just take a bit longer."

The current supply chain for solar is concentrated in Asia. The majority of solar products in the U.S. -- roughly 80 percent -- use imported panels: 36 percent from Malaysia, 21 percent from South Korea and 8 to 9 percent from China, Thailand, and Vietnam.

While China only supplies a small fraction of American solar panels, in the global market it is one of the biggest producers of photovoltaics -- one of the most important elements in the composition of solar panels.

Trump's administration regards the manufacturing success of China as a hindrance to the domestic U.S. effort to produce competitively-priced solar products.

"The U.S cannot ignore the fact that China broke World Trade Organization rules," said Bill Mundell, producer of "Better Angels," a documentary about U.S.-China relations.

"I disagree with the notion that over the long-term America will gain jobs from this strategy," Mundell said.

Also, Not Good in the Long Term

President Trump has long sought trade barriers to protect domestic solar manufacturers from foreign competitors, especially China. Such trade protectionism has been embroiled in heated debate from the start, with opponents arguing that it does more harm than good and supporters, including some researchers, saying it may well help the U.S. win jobs back.

The Coalition for a Prosperous America, a non-partisan non-profit organization of agricultural, manufacturing and labor members known as CPA, published a series of figures in August that it said demonstrated that 20 times as many American jobs have been created in 2018 thanks to tariffs on imported products including solar panels.

"We keep hearing stories about the sky falling because of President Trump's strong hand in enforcing existing US trade laws," CPA Chair Dan DiMicco said in a press release. "But the past six months have shown impressive job creation in skilled, high-wage sectors against only very negligible, accompanying job losses."

Yet other experts worry that trade protectionism will cause the U.S to loss more in the future, especially at a moment when the U.S has invested in the Chinese market for decades.

"I do agree that over the next five years is when we have the greatest opportunity to win back the jobs that we lost from China, Mundell said. "But the problem is we may also lose access to that market."

There is no one-way trade war. Losing access to the Chinese market is a powerful side effect of the tariff, one that may undermine any gains won through the tariff, Mundell said.

"The gift that America gave to China, which was access to its markets, is the gift that China is about, right now, to give back to America in the form of a domestic market in China that is slated to double in the next five to 10 years," he said.

According to a study from consulting firm McKinsey & Company, China has around 300 million middle-class residents, a number that is expected to rise to 700 million by 2020. Mundell said even if China did not open its market any further, it is almost a guarantee that China would become the number one export destination for the U.S., eclipsing both Mexico and Canada.

He said now is the time that the U.S. is should finally be reaping the rewards of having long since opened its market to China. He worried China may close its market as a retaliation of the tariff.

The Chinese middle-class "is already predisposed to buy American products now," Mundell said. "Why do you want to have a trade war when you are about to get the the best returns from your investment?"

President Trump imposed the tariff after accusing China of violating World Trade Organization rules and complaining American business was hurt because of it. Mundell agreed with Trump's assessment, but in his view, starting a trade war is not the best way to solve the problem.