Tariff threats

Author: Keith Martin Publication | June 5, 2018

Import tariffs and the possibility of an escalating trade war are being watched warily by US developers.

The Trump administration let lapse a temporary exemption from US import duties for Mexico, Canada and the European Union on steel and aluminum. The US started collecting duties of 25% on steel and 10% on aluminum imported from those countries on June 1.

Canada quickly announced it would impose $16.6 billion in retaliatory duties on US products coming into Canada. A 25% tariff will apply to certain wire and flat-rolled products made from iron or non-alloy steel. A 10% tariff will be collected on a range of other goods, including US cucumbers, gherkins, toilet paper, yoghurt, roasted coffee, maple syrup, dishwasher detergent, tablecloths, ballpoint pens, after-shave and beer kegs. The Canadian government will take comments from Canadians about the product list through June 15 and start collecting duties on July 1.

Mexico announced new tariffs on US flat steels, lamps and various types of food, including pork and apples.

The European Union advised the World Trade Organization that it plans to collect retaliatory tariffs on a range of iconic US products, including Harley-Davidson motorcycles, Levi Strauss jeans and Kentucky bourbon.

Meanwhile, the US administration has been giving conflicting signals about the status of threats to collect tariffs on Chinese products. The US government released a list of more than 1,300 products that account for $50 billion a year in Chinese imports on which it said it would take up to 180 days to decide whether to slap 25% tariffs. The Chinese quickly threatened retaliatory tariffs at the same level on $50 billion of US products, including soybeans. Roughly 25% of the US soybean crop is exported to China. The threats caused US soybean sales to China to drop by 96.9% in April as farmers were deciding what to plant.

President Trump then threatened to increase the annual volume of Chinese trade that would be subject to the 25% tariff by another $100 billion. No list of additional products has been released. US solar developers are watching warily in case inverters are on the expanded list. A significant share of inverters used in US solar projects is imported from China.

Tensions appeared to ease when US Treasury Secretary Steven Mnuchin announced May 19, after a visit to Washington by the top Chinese official charged with diffusing tensions over trade, that any trade war had been put “on hold.”

Trump then announced 10 days later that he is moving ahead with plans to collect tariffs on the first $50 billion in goods and said he will announce new restrictions on June 30 on Chinese inbound investment as well as stronger controls on exports of sensitive US technologies.

There is a risk of a protectionist domino effect. However, Trump aides insist that these are all negotiating tactics, and no trade war is expected.

The potential effect on US coal shows the complexity of international trade relations. Metallurgical coal sales account for 60% of US coal exports, and such sales were up 22% early in the year before the announcement March 8 that the US would impose duties on imported steel. Metallurgical coal is used for making steel. If the European Union were to hit back with tariffs on US coal, US producers would have to reduce prices to maintain market share against cheaper supplies from places like Australia, Canada and Russia.

Meanwhile, the US Commerce Department is still evaluating 8,700 requests for individual product exemptions from the steel and aluminum tariffs, US Commerce Secretary Wilbur Ross told a Senate subcommittee on May 10. The department has asked for more money to hire 15 outside contractors to help process requests for tariff exemptions. One company submitted 1,167 exemption requests. Separate requests have to be made by each importer for each product under the process the Commerce Department has put in place. (For more details, see “Tariffs: Effect on US Power Sector” in the April 2018 NewsWire.)

Eight Republican Senators from five states are pressing the Trump administration to exempt jumbo 72-cell, 1,500-volt solar panels from the 30% tariff the US is currently collecting on imported solar cells and modules. The Senators sent US Commerce Secretary Wilbur Ross, US Energy Secretary Rick Perry and US Trade Representative Robert Lighthizer a letter on May 9.

One Korean, one Chinese and two US companies have announced plans since the solar tariffs were imposed to increase US panel manufacturing capacity in the United States by 3,200 megawatts a year. Hanwha Q Cells announced plans on May 30 to open a factory in Georgia. JinkoSolar was already planning one in Florida. It remains to be seen whether any new Trump crackdown on Chinese inbound investment could affect these plans. SunPower acquired SolarWorld Americas and its manufacturing facilities in Oregon. First Solar said it plans to open a new factory in Ohio.

Chinese domestic demand for solar panels could fall to 30,000 to 35,000 megawatts, easing global pressure on panel prices. It was 53,000 megawatts in 2017.

The Chinese government, in a surprise move on June 1, scaled back central government support for new utility-scale solar projects and placed a low cap on distributed solar deployments this year that experts speculate has already been reached. It had already stopped issuing permits for new solar facilities in parts of the country where existing plants are sitting idle due to grid congestion.

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Keith  Martin

Keith Martin

Washington, DC