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For a little background, the heart of the argument SolarWorld and its coalition made against Chinese manufacturers was that the government gave unfair subsidies to Chinese-based solar manufacturers, by giving virtually unlimited amounts of money for expansion, and then these companies sold their products in the U.S. market for under fair market value.
The result was a tariff by the Department of Commerce for both unfair subsidies and dumping charges.
Here is what the tariffs look like:
- Suntech Power (NYSE: STP ) will be subject to a 31.22% anti-dumping tariff and a 2.9% unfair-subsidy tariff.
- Trina Solar (NYSE: TSL ) will be subject to a 31.14% anti-dumping tariff and a 4.73% unfair-subsidy tariff.
- Other Chinese cell manufacturers are subject to a 3.59% tariff because of the anti-subsidy tariff.
- Fifty-nine other exporters qualify for a separate anti-dumping tariff of 31.18%.
- All other Chinese producers and exporters received a preliminary dumping margin of 249.96%.
If that sounds harsh, it's because it is. Trina Solar, Yingli Green Energy (NYSE: YGE ) , and Suntech Power have already come out with statements defending their position against the tariffs.
This has been headline news, but the impact may not be as strong as some think. Manufacturers will be able to get around it in a few ways, including buying third-part cell or "tolling" modules through Taiwan. The duty only applied to solar cells, so the outsourcing will be an option for some, but moving modules through Taiwan is viewed as a quick fix for most manufacturers. It will add an estimated $0.06 to $0.08 per watt, so it will still have an impact.
Longer term, manufacturers may set up shop in Mexico or other countries with low labor costs to feed the U.S. market.
Winners and losers
The obvious winners from such large tariffs are First Solar (Nasdaq: FSLR ) and SunPower, two U.S.-based companies that don't manufacture in China. Obvious losers are pretty much everyone else, including Yingli Green Energy, Trina Solar, and Suntech Power.
This may even push cell suppliers like LDK Solar, JA Solar, and others off the cliff. These manufacturers need all the demand sources they can get, and even a small impact on demand from the U.S. won't be good.
The tariff may also result in retaliatory measures against U.S. companies like GT Advanced Technologies (Nasdaq: GTAT ) . What many people don't realize is that the U.S. is actually a net exporter of solar products, including equipment from GT and raw materials like polysilicon. This will hurt all of the companies involved in exporting right now.
But the biggest loser may be solar in the United States.
What it means for solar
Part of the reason the solar industry has grown as much as it has in recent years is low-cost Chinese solar modules. Any added cost will eventually make its way back to customers, raising the cost of solar.
It may in fact be true that solar modules have been subsidized and dumped in the U.S., but most of the cost associated with installing a solar module is still spent in the U.S., so this won't be a positive impact on the economy or solar installations. A report from The Brattle Group said a 50% tariff level would cost the U.S. 15,000 to 50,000 jobs overall.
The president of the Solar Energy Industries Association has called upon the U.S. and Chinese governments to "work together toward a mutually satisfactory resolution of the growing trade conflict within the solar industry." When trade groups want cooler heads to prevail, you know that a tariff probably isn't good for the whole industry.
I've even argued that solar subsidies were a necessity for the U.S. if we want to expand solar-power usage. So the biggest loser in all of this may be the industry the U.S. and SolarWorld want to help build.
One Fool's reaction
The U.S. was in a tough spot here, and I could make strong arguments both for and against tariffs. I'm sick of seeing China steal our industries with subsidies and unfair business practices, but to be fair, we've provided subsidies of our own (see Solyndra). So we're doing the right thing by imposing tariffs while hypocritically using some of the same practices ourselves.
As an investor and a shareholder of SunPower, I obviously loved the news, and tariffs have been part of my investment thesis for some time. But as someone who hopes to see the solar industry grow into a sustainable business with lower costs, I'm hoping we can negotiate some sort of truce instead of escalating a trade war. No one wins in trade wars, especially not the people working day after day to make solar a more competitive power source.
I'm conflicted on whether this is good or not, but what do you think? Leave your thoughts in the comments section below.
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