Solar Tariff

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President Trump has imposed a 30% trade tariff on solar panels made outside of the United States. While the United States does have its own means of solar production, the White House has also made it clear that its primary focus will be on the domestic pursuit of traditional fossil fuels, specifically re-opening coal mines that were closed under the previous administration and expanding its oil excavation to new territories.

A solar tariff is not exactly new. The Obama administration did impose a higher tariff than Trump on Chinese imports of solar panels, however Obama’s tax was specific to China while Trump’s is imposed on all foreign countries.[1] While the reasoning behind the Obama tariff was an obvious act against a government subsidizing a technology to gain an unfair competitive advantage in the global market, a blanket tariff like the one the current white house imposed seems less clear. While it could be imposed as a protectionist policy to bolster solar production, it could just as easily stifle it.

The rise in solar usage has been directly linked to its reducing average cost. From the year Obama took office to the year he left, the break-even cost of life long usage of solar dropped from well over $150 per kilowatt hour to just over $50.[2]

That is why this tariff seems to come at such a strange time. One would think it would make sense to open this technology to trade and harbor its advancements because renewable energy is no longer a topic of conversation specific to climate change, but also affordable alternatives.

The one clear thing about this tax is solar technology will become more expensive. This seems to line up well with Trump’s promise of bringing coal back. By imposing a tax that will raise the cost of one form of energy consumers will naturally transition to cheaper forms.

80% of parts used to create solar panels, even ones made in America, are supplied by foreign countries. Not just China, but Malaysia, South Korea, and Thailand too. The solar industry may not be as large as oil or natural gas but it does employ 260,000 Americans. According to the Solar Energy Industries Association this tax could cost tens of thousands of jobs in the field.[3]

While Tariffs in the past have seemed to serve a specific purpose, either protecting a sector or punishing a foreign power, the motives behind this one seem less clear. American Solar does have the capacity to continue to grow and with innovations like the solar tiles replacing traditional panels, we could still see a future price drop from innovations to the technology.

Views expressed are the opinions of Jeffrey Goldfarb and the Financial Advisors at Goldfarb Financial and not necessarily those of Raymond James.

[1] https://www.bloomberg.com/view/articles/2018-01-24/trump-s-solar-tariff-is-bad-but-not-a-huge-deal

[2] https://www.nytimes.com/2018/01/23/us/politics/trump-solar-tariffs.html

[3] http://time.com/5113472/donald-trump-solar-panel-tariff/