On September 30th, 2018, the United States, Canadian, and Mexican governments announced that a new trade agreement, titled the “United States-Mexico-Canada Agreement” (USMCA) was passed, poised to replace the North American Free Trade Agreement (NAFTA) that had been in effect since 1994.
Originally proposed by the Reagan Administration in 1980, during Reagan’s Presidential campaign, NAFTA was brought into discussion as an effort to promote fair and free trade, with the intention to benefit all countries involved. Negotiations for NAFTA began in 1986, eight years before Reagan’s successor, President George H.W. Bush, officially signed off on the agreement. While there was some controversy surrounding NAFTA, the agreement had been widely praised by many world leaders. However, the current administration discovered a distinct loophole that tarnished NAFTA’s original purpose; while NAFTA placed hefty tariffs on Chinese imports, it didn’t take long before companies began using other countries as middlemen. This allowed U.S. companies to send manufacturing to China in order to cut costs, but - rather than import goods directly to the United States - China would import products to countries with low tariffs (like Mexico) and then import from those countries to the U.S.
The controversial USMCA is considered a direct reaction by the Trump Administration to further limit China’s involvement in the United States marketplace, by closing the loophole and increasing the tariffs to undesirable rates. The agreement places heavy emphasis on many technology sectors of the market, with a clear focus on the solar industry.
The USMCA places a 30 percent tariff on all solar imports, which will eventually taper off to a steady 15 percent within the next few years. The goal of the USMCA, as noted by the Trump Administration, is to boost the American economy, leverage the American job market, and, as the president stated, “deliver for American workers like they have not had delivered to for a long time.” Since the 30 percent tariffs were put into effect, the solar industry has been facing integral changes; many companies that previously found it financially advantageous to manufacture solar parts in China have had to rethink their business models, and work on bringing manufacturing to the United States.
Today, the USMCA is in full force, but the trade war shows no sign of slowing down. China recently retaliated against the agreement, announcing a plan to place tariffs on $110 billion worth of American products, including chemical, coal, and medical equipment. The $110 billion announced by China trails the approximately $250 billion already placed on Chinese products by the United States, but those figures are expected to shift drastically as the war continues.
The Trump administration is threatening an additional $325 billion worth of Chinese products to be targeted, bringing the total to $575 billion ($25 billion more than the total worth of Chinese imports to the U.S. in 2018). Though tensions seemed to subside in December of 2018 between the United States and China, the recent actions of both countries foreshadow a long journey ahead. What does this mean for the solar industry?
Governments around the world are actively pursuing alternative forms of energy as the push to “go green” rises - the most pursued and lucrative form being solar. As a result, the solar industry is growing at exponential rates. In 2007, the solar industry was worth approximately $42 million in the United States alone, and rose to over $200 million by 2017. Given that the global solar industry is expected to generate some $422 billion by 2022, it comes as no surprise that it’s been at the forefront of trade conversations.
As it stands, many leaders in the solar industry believe that the American solar market will continue to flourish. The effects of the tariffs have fundamentally changed the solar marketplace, and the wheels of change have already been set into motion with many of the largest solar panel manufacturers leaving China and opening up shop in the States. Because the solar industry has already endured (and seemingly come to accept) such significant change, those involved in the industry - as well as consumers - can expect solar to remain unaffected by the most recent developments … for now.
Nicki Zvik is Co-Founder at Green Solar Technologies, a nationwide renewable energy developer.