US Tariff On Solar Panels

One reason for the newly-imposed tariff is that the US government was attempting to correct a balance of payments deficit of 50 million dollars: according to the Commerce Department data, the US have “$605 million in imports and $555 million in exports”. In this case, the outflows of money is greater than the inflows of money, therefore creating a negative balance in the current account4. The US government responded to this current account deficit by imposing the 2.5 percent tariff on all imported solar panels, which is likely to decrease the incentive for foreign manufacturers to produce, hence reducing the country’s import expenditure.

It is also possible that the US is only trying to gain government revenues from such a protectionist measure, which is the 2.5 percent tariff with other punitive measures for specific companies. The ruling claimed that a solar panel from Trina Solar is to be classified as a generator because it contained a diode, which is required on a solar panel  in order to meet the US safety standards.

As a result, some of the Chinese manufacturers are “planning to move final assembly of solar modules to plants in the United States”. By moving the final assembly of solar panels into their subsidiary plants in the USA, the Chinese manufacturers are not actually importing any finished product of the solar modules, but rather parts of solar modules which can then be put together. This can be considered as a strategic action taken by the Chinese manufacturers, as an effort to gain back their competitiveness in US domestic market by offsetting the effects of the 2.5 percent tariff.

This protectionist measure will only work in the short run, and it can lead other countries to impose tariffs on American exports as a retaliatory effort. In the long run, however, US government will have to rectify the low cost of labors in exporting countries, which is the actual cause of the deficit. The US government can achieve this by either producing the solar panels at an efficient level or lowering the capital cost of the solar panels, if not the labor cost.