- A tariff is a tax, or duty, imposed on imports or exports
- Tariffs can increase the competitiveness of local manufacturers
- Duties can also lead to trade wars, and increase consumer prices
On Monday, the Trump Administration approved steep tariffs on imported solar panels and washing machines.
The move follows a push by domestic manufacturers of both products to get U.S. trade officials to impose taxes on imports, as a way to protect them from international competitors.
Late last year, Whirlpool and GE Appliances asked for a 50% tax on washers from overseas competitors including Samsung and LG, both based in South Korea, which they accused of dumping cheap products in the U.S. Similarly, solar panel manufacturers Suniva and SolarWind had petitioned for tariffs, primarily on Chinese solar components.
China is the largest manufacturer of solar components in the world, and its prices are generally far cheaper than those for American products. American manufacturers of solar products have said a flood of imports from China has hampered their ability to manufacture.
The tariffs will add up to 50% on imported washers and parts, and up to 30% on solar components, according to the Office of the U.S. Trade Representative, the federal agency responsible for setting trade policy.
What’s a tariff?
A tariff, sometimes called a duty, is a tax typically imposed by one nation on another’s imports. (In some cases, they can be levied on exports.) The tariff is generally calculated as percentage of the import’s total value, including freight and insurance charges.
In principle, governments impose tariffs to make their own products more competitive and affordable, and to generate revenues.
Think of it this way: The additional taxes imposed on LG washers will make them more expensive for U.S. consumers to buy, so they’re likely to shop around and buy cheaper models, presumably made by U.S.-based manufacturers. And if they do buy the more expensive foreign product, the tariff adds to U.S. coffers.
The problem is that tariffs can also spark something called a trade war. That’s when nations retaliate by increasing prices for products they export, or by imposing their own tariffs on imports. That, in turn, can make things more expensive for consumers in both countries.
South Korea has already said it will appeal the tariffs to the World Trade Organization, and LG has said it plans to increase the prices of the washers it ships to the U.S. in retaliation.
“It’s likely this will result in higher prices and fewer choices for consumers,” John Taylor, senior vice president for LG Electronics, told USA Today this week.
How does this affect the solar industry?
The solar industry in the U.S. has really taken off because the price of solar panels, 80% of which are manufactured overseas, has fallen by about 70% since 2010, according to reports.
But the U.S. solar industry is based on innovation and installation, more than manufacturing solar components, experts say.
Shares of First Solar, a U.S.-based manufacturer of solar components increased 7% following the tariff announcement.
Solar installation is currently a $29 billion industry, and it’s the fastest growing segment of the solar market in the U.S., according to Slate.
While the tariff on solar products is likely to help companies manufacturing solar panels and other components in the U.S., it’s likely to hurt the companies that install solar systems in consumer homes and rooftops, as costs for components go up.
For example, shares of First Solar, a U.S.-based manufacturer of solar components increased 7% following the tariff announcement.*
Solar installers, however, expressed concern about the tariffs.
“The gains that may materialize in module manufacturing won’t be nearly as much as the near certain losses in the rest of the US manufacturing supply chain and installation jobs,” Kevin Bassalleck, the president of Affordable Solar, based in Albuquerque, told Business Insider.
*Source: Yahoo Finance, January 25, 2018