It is needless to say that the Section 201 trade case has cast a dark, uncertain cloud since Suniva’s filing in April. Given the use of Section 201 has historically been scarce (only a handful of safeguards have been implemented under this clause since its inception), it can be challenging to read the tea leaves as to how the International Trade Commission – let alone the Trump administration – will act. While we await a September decision from the International Trade Commission on the status of the Suniva case, we should also take a closer look at another pending case with the Department of Commerce that may very well offer valuable insight into what the Administration is thinking when it comes to global trade and China.
Sun and Steel
On May 24th, the Administration commissioned the Department of Commerce to investigate the potential national security impacts that steel imports could have had on the United States. Secretary Wilbur Ross has been entertaining the notion that the U.S. impose lofty tariffs (up to 20%) in a protectionist move- calling in Section 232 of the Trade Expansion Act of 1962, which gives the President broad authority to take action in trade.
The steel case relates to the Administration’s “America First” policy on the pillar of saving domestic manufacturing jobs. As far back as the 1970s, the domestic steel industry has continuously been upended, with a 75% decrease in the workforce since the mid 20th century. Many scholars agree that the primary cause of this was technological innovation, coupled with the increase in imports of foreign steel. Regardless, the appeal to the Administration for this case will not only be that job losses in steel manufacturing locations have been staggering, but also that a protectionist ruling will parallel a pro-infrastructure revitalization platform. While the comprehensive report containing the Department of Commerce’s recommendations to the President were reportedly to be released at the end of June, any such document has not yet been published.
In the case of the Suniva bankruptcy and domestic solar module manufacturing, there just aren’t many solar manufacturing jobs to be “saved” with Section 201. Quite the opposite, actually; SEIA has estimated that a crushing third of the domestic solar workforce would be lost. If the Administration rules in favor of steel tariffs, adverse effects would be felt in the steel industry too. For every one job in domestic manufacturing, there are 46 in other steel consuming manufacturers that could be affected. However, politically, steel tariffs may carry more weight with Trump’s base than a tariff on solar modules. And if steel tariffs are imposed, would the Trump administration really want to stick it to the Chinese twice by following up with a solar module tariff? The diplomatic implications could be too much; and the asymmetry is significant. While the steel manufacturing base is likely pro-Trump and significant, the public relations effects of ostensibly saving a solar manufacturing facility are less obvious amongst the Administration base.
Past Trade Cases
In 2002, President Bush acted to protect steel manufacturers under Section 201, serving to be the most notable precedent to Suniva in recent memory. This resulted in global backlash; with the graces of the World Trade Organization, the EU threatened the largest ever tariff from one member to another on the US before Bush eventually backed down.
Solar trade dealings are no stranger to trouble abroad either. In 2011, after the United States imposed import duties on Chinese solar panels, the People’s Republic dealt a deathblow to, polysilicon manufacturer REC Silicon through retaliatory tariffs, driving them to relocate from Washington to Asia.
Both accounts, while different, were (and are) fatefully intertwined around the United States’ continued concern about foreign product “dumping” in the domestic market, which will be at the forefront of September’s decision.
Ruling on both cases amount to the potential of a multi-faceted strain on targeted nations, namely China. At first glance, protectionist rulings act as promises-delivered by the Administration; the downside is that the sum of the diplomatic consequences of both could prove to be detrimental. Thus, the Administration may have to prioritize steel due to its larger footprint on the economy.
Steel Affects Racking
What not too many are discussing is that the steel case could be directly felt in the solar industry- by driving up system racking prices. If protectionist actions are to be taken, it is likely that these components will experience a linear impact dependent on the amount of tariff applied. Thus, if rooftop racking was to experience the proposed 20% steel tariff, Sol’s engineering team estimates that the price would increase by $.02-$0.024/W (dc), and racking for trackers by $0.032-$.036/W (dc).
While this amounts to only a small increase, the tariff would shave margins for developers. Large scale utility projects would be more greatly affected due to thin project economics, and those involved should pay closer attention.
Price increases will also be felt more notably with carports. Carports require a much larger use of steel for columns, purlins, and crossbeams, (roughly one-third of total project cost) and a tariff would increase the price by $0.09-$0.094/W- amounts that could shave margins considerably.
The impact of the Administration’s ruling on steel will be but a drop in the bucket in potential impact to the solar industry compared to the Suniva case. However, due to the close similarities and implications of these two cases, we could get a good glimpse on the Administration’s sentiments for upholding the “America First” foreign policies before September.
Stay tuned. We sure will.
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