The Commerce Department is expected this week to conclude some Chinese manufacturers are illegally dodging tariffs by assembling solar equipment in other Asian countries before shipping it to the US — the culmination of a 17-month probe that could have profound impacts on tens of billions of dollars in trade.
The agency already preliminarily determined that exporters in Cambodia, Malaysia, Thailand, and Vietnam are circumventing those roughly decade-old duties meant to offset unfair pricing and subsidization in China. Such a conclusion could expose some manufacturers in the targeted nations to antidumping and countervailing duties as high as 254% beginning next June.
“We’ve long regarded Commerce as a protectionist agency, and it rarely deviates from the preliminary finding significantly,” said Timothy Fox, an analyst at ClearView Energy Partners.
A final circumvention ruling would likely hasten efforts by renewable developers to decouple their supply chains from China, amid allegations about the use of forced labor to produce key solar gear and a US law that has prompted detentions of imports with ties to the manufacturing hub of Xinjiang. It also could give a boost to companies such as First Solar Inc. and Qcells North America that are expanding US manufacturing capacity.
President Joe Biden already gave renewable developers and other solar importers a two-year grace period from new duties — designed to sustain domestic solar deployments while US manufacturers and other alternative suppliers ramp up. Companies have used the time to stockpile duty-free equipment and adjust supply chains. Some affected Asian manufacturers shifted to focus on European markets as US buyers switched to other suppliers.
Even so, the US remains heavily reliant on imports from Southeast Asia, with the countries targeted in the trade probe supplying about 75% of modules to the US. And domestic manufacturing alone won’t be sufficient to make up the gap.
“A decision in line with the preliminary determination would undoubtedly slow America’s clean energy growth and cause the United States to miss out on new jobs and investment,” said Abigail Ross Hopper, chief executive officer of the Solar Energy Industries Association. “As the clean energy industry continues to leap forward, we should be making it easier to invest, get a job and allow everyday citizens to access clean energy.”
There should be sufficient supply — more than 50 gigawatts annually — of tariff-free goods from the US, Southeast Asia, and India to meet domestic solar demand between 2024 and 2030, even with expanded duties, said BloombergNEF analyst Pol Lezcano.
It’s unclear if the Commerce Department will tighten requirements for importing solar modules and cells under the moratorium. Biden’s directive stipulated that affected imports be consumed in the US market within six months of the moratorium ending early next June.
A key question is whether the Commerce Department alters its treatment of silicon wafers that are used to make cells and, eventually, modules. The agency initially planned to spare modules that are made with Chinese wafers from duties as long as no more than two other key inputs were produced in the country. Additionally, Commerce deemed wafers produced outside of China with polysilicon sourced from the country as outside the scope of the circumvention probe.
Senator Sherrod Brown, a Democrat from Ohio, warned Commerce Secretary Gina Raimondo against that approach in a letter earlier this week. “At a minimum,” he said, “wafers should not be made with Chinese-produced polysilicon and other inputs — and no Chinese state funding should be permitted to finance the production of certified solar products outside of the geographic bounds of China.”
That wafer treatment has the potential to be a “backdoor” for duty-free imports while undermining investments under the Inflation Reduction Act meant to nurture domestic solar manufacturing, said Nick Iacovella senior vice president of the Coalition for a Prosperous America.
“If they get it wrong, it’s going to render some or all of the IRA useless,” Iacovella said. The law has spurred a wave of announcements in new manufacturing plants, but the US must “take the necessary steps to protect that investment.”