In a way, it was destined to happen. As the sums got larger, the U.S. would benefit more if solar duties were imposed. After two years of levying duties that didn't have teeth, the U.S. finally imposed duties that did.
On June 3, the Commerce Department imposed duties of between 18.56% to 35.21% on many Chinese solar panel importers. While the duties are preliminary and subject to change before the final determination, the U.S. will begin collecting fees immediately.
The U.S. imposed the duties because it believed China was unfairly subsidizing its solar producers. The Commerce Department in particular concluded that China was providing its solar producers with an estimated subsidy help of between 2.90% to 4.73%, which the producers used to grab global market share. By imposing duties as it did, the U.S. was just evening the playing field.
By all counts, the duties will benefit American solar and hurt Chinese solar companies in the short term. Share prices of SunPower Corporation (NASDAQ:SPWR) and First Solar (NASDAQ:FSLR) both rallied after the news, while the share price of JinkoSolar Holding Company (NYSE:JKS) dropped. Because of the imposed duties, American solar manufacturers will likely realize better margins and more business in their U.S. segments, while Chinese solar companies will likely realize the opposite.
The long-term consequences of this decision are a bit more uncertain, however. This is because the world is a chaotic, dynamic system where good events can become bad events, and bad events can become good events. In that view, the newly imposed U.S. duties could lead to both a bullish scenario and a bearish scenario.
The long-term bullish scenario is that the new duties provide U.S. solar companies with more gross margin that they in turn spend on research and development. The increased research and development allows them to realize better conversion efficiency and lower costs. This in turn allows U.S. solar companies to become more competitive internationally, grab global market share, and realize more profits.
The long-term bearish scenario is that protectionism takes over. The Chinese solar market may dwarf the U.S. solar market in the coming years, and U.S. companies may see more barriers to entry imposed by the Chinese government as retaliation. U.S. companies may focus less on containing costs because they have more gross margin to work with, and subsequently become less competitive in global markets. This in turn lowers their overall profits. Growth in the U.S. solar rooftop market may also slow as solar energy costs fall less than expected.
Ultimately, the future is unknowable, because even the smallest events, when passed through the right feedback loops, can cause great changes in the future. Right now the market has spoken, voting that the event is positive for the U.S. solar industry. Whether the U.S. duties will be positive in the long run is still uncertain.
Jay Yao has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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