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Solar Tariffs Upheld, but May Not Help in U.S.

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Reposted from The New York Times

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Solar Tariffs Upheld, but May Not Help in U.S.

Diane Cardwell | November 7, 2012 | NY Times

When the United States International Trade Commission decided on Wednesday to uphold tariffs of about 24 to 36 percent on most solar panels imported from China, the case’s proponents claimed a major victory. Domestic solar manufacturers said the duties, to be in place for five years, would make up for unfair business practices by Chinese companies that had harmed the domestic market and allow homegrown companies to hire more workers and thrive.

“This basically takes it from being just allegations of illegal activities in this industry to confirmation,” said Gordon Brinser, the chief executive of SolarWorld Industries America, the lead company that brought the case. “This was a growing industry just a couple years ago that has been basically decimated by the Chinese manufacturers.”

The Commerce Department had imposed the tariffs earlier this year after finding that Chinese solar companies had received unfair subsidies from their government and dumped solar cells below costs.

But whether the duties can help save the American solar industry is a matter of some dispute. Because they apply to panels made of Chinese-produced solar cells, Chinese companies are already avoiding the duties by assembling their panels from cells produced elsewhere, like Taiwan, even if the cell components come from China.

The case is also unlikely to have much effect on the central market dynamic that analysts say is driving companies out of business: oversupply.

About a dozen panel makers in the United States have gone bankrupt or closed factories since the start of last year. “The economics of today, and supply and demand of today, aren’t going to change because of this,” said Aaron Chew, a renewable energy analyst at the Maxim Group, an investment bank and asset management company. “I don’t think there’s actually any direct impact on the U.S. going forward.”

Many Chinese companies have adjusted their supply chains, shipping components to Taiwan or South Korea to be made into cells and then returning them to China or elsewhere for assembly into panels.

Although this has made production about 10 to 15 percent more expensive, China-based global players like Suntech and Yingli can spread that cost over all of their merchandise, not just what gets shipped to the United States, said Shayle Kann, the head of GTM Research, a unit of Greentech Media.

“We’re basically nowhere near having fixed the structural problem yet,” he said, adding that there were about 70 gigawatts worth of global production capacity but only about 30 gigawatts worth of demand. “There have been a few bankruptcies and a few plant closures and so on, but at this point it’s just a drop in the bucket.”

The industry’s financial problems may stick around for a while, even as panel prices continue to drop because of the glut. Weak or indebted companies are unlikely to go out of business quickly in China, said Ocean Yuan, the president of Grape Solar, an importer of solar panels in Eugene, Ore. That is because out of the 70 cents a watt in costs for a solar panel, much less than half is for labor, materials, shipping and other variable costs. The rest are fixed costs, mostly interest payments on money borrowed to buy the highly automated Western equipment that does most of the manufacturing.

So as long as companies can cover their variable costs and earn at least some revenue to put toward interest payments, they will continue to operate even at a loss, Mr. Yuan said.

Opponents of the tariffs, which include solar developers and installers who have benefited from the abundance of cheap panels, have argued that the tariffs will actually harm the domestic industry, making it more difficult for American companies to do business abroad.

In 2010, the United States was a net exporter of solar goods to China by $247 million to $540 million (and almost $2 billion globally), according to GTM Research. The trade figures are likely to have changed since GTM’s study, but American solar exports would be jeopardized by a trade war, tariff opponents say. The Chinese have already started trade actions aimed at American polysilicon exports as well as at subsidies provided to companies in Canada, Greece and Italy.

“We have more to lose,” said Tom Gutierrez, chief executive of GT Advanced Technologies, which sells equipment for making components like polysilicon wafers. “Instead of taking trade tariff actions that are very narrowly defined, you have to consider the unintended consequences.”

Keith Bradsher contributed reporting from Beijing.

5 Responses to “Solar Tariffs Upheld, but May Not Help in U.S.”

  1. Joe Brooks says:

    With Spielberg’s Lincoln film on the horizon and Time’s recent question “What would Lincoln do?”, the question is more “What did Lincoln do?”.

    He stated that he was a Henry Clay American System import tariff guy and helped place import tariffs that lasted nearly 50 years.

    He also analysed the above article’s issues very thoroughly, written in the prose of the times, but still easily understood with some effort.

    “Believing that these propositions and the conclusions I draw from them cannot be successfully controverted, I for the present assume their correctness, and proceed to try to show that the abandonment of the protective policy by the American government must result in the increase of both useless labor and idleness, and so, in proportion, must produce want and ruin among our people.”

    He also explains the reason why food from China and other distant economies is so poisonous and confronts the false “cheaper” manufactured goods lie, logically and resolutely. BTW Mo, Woods and Mises got to fantastic lengths and ridiculous, idiotic logic to try to refute this exact note. Even Newsmax is saying that Romney should have learned from Lincoln, if he wanted a win.

    This was Lincoln thinking. God forbid one of the last 4 presidents have an independent thought. The entire piece.

    http://en.wikisource.org/wiki/Life_and_Works_of_Abraham_Lincoln/Volume_3/The_Home_Market_and_Other_Advantages_of_a_Protective_Tariff

    • Dan DiFabio says:

      For many years,the Republican party was the party of common sense protectionism.The Abraham Lincoln quote that you posted is so relevant to our economic situation. It is a great quote. If the Republican party wants to survive,it needs to embrace the protectionism of Clay,Lincoln,and Taft.

    • Mo says:

      Joe yes some Libertarians argue against tariffs but it’s because in today’s current environment trade is heavily distorted by unsound money. I have to note that some Libertarians may not see the connection that free trade, comparative advantage and sound money all have to go together. You can’t have free trade and comparative advantage work properly under a fiat monetary system where money can just be created at will. It’s important to note that Libertarians like Ron Paul were very against US participation in the WTO, NAFTA, CAFTA, Most Favored Nation Status for China etc.

      From 1850-1900 when money was sounder and backed somewhat by gold, the US ran current account deficits, had tariffs and a growing economy. So a country can have trade deficits and a growing manufacturing sector. What matters is the terms of trade. Back then the US incurred debt to import capital goods which was used to make new goods and services to repay back its debts. Today money is just created and spent recklessly on consumption, wars, financial speculation, malinvestments, etc. that have to be paid for with the export of capital like jobs, factories, technology transfers and ownership of US companies.

      Another period to look is during the 1930s when the US had tariffs and trade surpluses. Even though the US had trade surpluses due to all the incoming gold, the 1930s was a decade of capital consumption and declining living standards due to monetary and fiscal mismanagement like today. Only after WW2 did the economy really recover when the capital structure was allowed to re-adjust more naturally.

      To illustrate how sounder money protects manufacturing we can look at Germany. Before the financial crisis Germany had a money supply that was growing slower than other Euro zone countries which helped to keep real interest rates and real wages stable. Having stable real interest rates causes savings to be stable that allows for stable investment. This enabled Germany to remain competitive in manufacturing with high real wages and a higher valued exchange rate as compared to the US and China.

      If the US even with an overvalued dollar encouraged savings instead of consumption, the US could have been more like Germany. However, because of the large increases in the money supply to keep interest rates low to fund wars and induce increased consumption, profit margins for many small and medium sized manufacturers got squeezed as the prices for raw materials and labor increased. An overvalued currency with policies to inflate to increase consumption only leads eventually to the emergence of rustbelts.

      The only reason that tariffs may need to be implemented is because the world unsound monetary system heavily distorts the capital structures of trading nations. Exchange rates under a fiat monetary system can keep prices heavily distorted for long periods of time that prevent the proper restructuring of capital. Under a world unfettered gold standard or commodity backed monetary system, exchange rates would be kept within specie points (cost to import and export the commodity) that would link price levels and interest rates between countries which would allow for capital restructuring to occur in a more timely fashion.

  2. Dan DiFabio says:

    The New York Times will invariably demonize tariffs.Diane Cardwell must be another one of their corporate shills. The best way to solve a problem mentioned in the above article is to apply tariffs to all imported solar panels.

  3. Joe Brooks says:

    Agreed on all points, Dan.

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