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How Trump's Solar Panel Tariff Will Affect The US

On January 23rd, President Trump announced that he would impose a 30 percent tariff on imported solar energy cells and panels. But, professionals in the renewable energy industry are worried about the potential results.

It seems like a solid idea on paper: implement a tariff on imported solar energy products to encourage manufacture within the United States instead. But, the issue with this philosophy is that infrastructure in the solar energy is geared more toward installation rather than production. As a result, this tariff could actually be detrimental to companies that focus on solar energy.

Here are some of the most likely scenarios that will result from the increased taxation of imported goods in the industry.

Costs Will Rise

Imports have been the backbone of the solar energy industry within the United States. In fact, industry researcher Ethan Zindler has called the role that imports play in the solar industry "absolutely massive."

Malaysia and South Korea have been the largest exporters of solar panels to the US. Those countries are only two of many others on a list of others that will have tariffs imposed on their products. However, when companies in the US have less inventory because of fewer imports, the only logical result is that costs will have to rise.

In 2016, there was a surge of growth in the industry that led to a 24.5 percent increase in total jobs. But, this growth (most of which happened in 2015) was a direct result of a sharp increase in installations. But, fewer imports will result in fewer installations, and thus fewer total jobs.

The future isn't entirely bleak, though. The tariff decreases by 5 percent each year until 2021, where it will stabilize at a 15 percent total tax on imported solar goods.

Competition Will Increase

Solar has remained competitive with the wind and gas industries due to the cheap price and high quality of imported goods. This allowed money to be allocated more toward installation of solar panels rather than their acquisition through trade with other countries. As one can expect, tariffs will remove this niche that businesses in the solar energy industry had. This means that companies like Shine Solar will have a more difficult time competing with businesses whose services centralize around gas or wind energy.

Generally, competition is good for markets. It forces companies to provide better service and lower costs. But, when competition increases from an already high level, it can be difficult for some businesses to stay afloat. Over the next few years, it's not at all unlikely for companies in the solar industry to lay off hundreds (or even thousands) of workers due to increased expenses.

At the very least, industry competition at this level would cause growth in the solar industry to slow or even halt while business owners develop a plan to deal with the smaller amount of imports.

A Trade War Could Begin

Much of the focus on the tariff's effects has been on the short-term impact it will have on solar energy businesses. But, there could be long-term issues that arise in the future.

Countries who suffer from Trump's tariff may seek to take similar measures against imports to their country from the United States. This response will strain the trade relationship between the US and those countries, and it could result in severing ties completely. Specifically, Chinese relations may become particularly inflamed. In fact, representatives from the Chinese Commerce Ministry declared that officials are dissatisfied with Trump's tariff.

In another ominous statement, a representative said that China will unfailingly defend its own trade interests. While these words may seem ambiguous, US officials worry it could be the beginning of a trade conflict with China. Similarly, South Korea and Mexico (two of the United States' top trading partners) also expressed their disdain for the decision to tax their exports.

It's a long road until 2019, and the only way to see how this next year will unfold is to wait. But, adaptation is a part of any business, and professionals all over the world are going to have to be malleable.

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