(Bloomberg) — The future of Southeast Asia’s burgeoning solar power industry, the world’s largest producer of solar panels after China, is in doubt after the prospect of heavy U.S. tariffs on the region.
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Chinese companies that built factories in Thailand over the past decade are now being accused of evading U.S. import tariffs on their home market. At least three companies, including Longy Green Energy Technology Co. Ltd. and Trina Solar Co. Ltd., are scaling back operations in Thailand, Vietnam and Malaysia, which, along with Cambodia, are targets of Washington.
Those four countries account for more than 40% of solar module manufacturing capacity outside China, according to BloombergNEF, and other Chinese companies with production facilities there are seeking alternative markets to the U.S.
“Suppliers are looking to streamline lines, especially cell lines, and relocate to either Indonesia, Laos or the Middle East,” said Jana Hrischko, head of global solar supply chain research at Wood Mackenzie Inc. Some Chinese manufacturers are waiting to see what tariff levels will be before deciding whether they need to relocate, she said.
The uncertainty highlights broader disruptions in the clean-energy supply chain, as the United States, Europe and other countries seek to recapture market share from China, which dominates production of solar equipment and electric-vehicle batteries. Chinese solar companies are also struggling with a worsening domestic oversupply that has already forced many smaller companies into bankruptcy.
A U.S. investigation in August last year concluded that some Chinese manufacturers who began investing in Southeast Asia after the U.S. imposed tariffs on panels imported directly from China in 2012 were illegally evading tariffs. The ruling led to the imposition of various levels of import duties on five companies in the region.
Some U.S. companies are now calling on the U.S. government to impose additional tariffs of up to 272% on solar products from all four countries, but BNEF said in May that tariffs would likely be between 30% and 50%. This contrasts with the 25% tariffs on China that the White House plans to double.
Washington came close to imposing the tariffs in June, when the U.S. International Trade Commission passed an initial vote to determine that manufacturers were being hurt by cheap imports from Southeast Asia. U.S. imports of solar panels from Southeast Asia jumped 36% last quarter to a record high as buyers rushed to secure supplies before tariff exemptions expired.
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Since then, Chinese and Malaysian publications have reported that Longy has shut down five production lines in Vietnam and begun winding down its operations in Malaysia, that Trina is planning to shut down some of its production capacity in the region, and that JinkoSolar has closed its factory in Malaysia.
A Longi spokesman said in June that it had adjusted production plans at several factories, in part due to changes in trade policy. The company later said in a stock-exchange filing that its Malaysian factory was still shipping cells to the U.S. and that it had no plans to relocate capacity because demand from other markets, such as India and Canada, was enough to support the Southeast Asian factory.
Trina's cell factory in Thailand is still operating normally and the company said in a statement that it would decide what to do with its Southeast Asian facilities depending on the outcome of the latest U.S. investigation. Jinko did not respond to a request for comment, but JA Solar said its Vietnam factory was operating normally.
Not all Chinese factories in Southeast Asia will close because products from the region can be shipped to India, Europe and other destinations, said Dennis Ip, an analyst at Daiwa Securities Capital Markets. While some older facilities may close, newer factories should be able to survive if they can find alternative markets, he said.
The tough U.S. stance comes as both major political parties are taking a tougher stance on China ahead of the November elections. It could not only jeopardize production in Southeast Asia but also jeopardize U.S. decarbonization efforts, given that more than three-quarters of U.S. solar imports came from the region last year.
The tariffs are likely to be imposed early next year, but could come sooner if Democrats have an electoral advantage, said Deborah Elms, director of trade policy at the Heinrich Foundation, an Asia-based nonprofit that works to promote sustainable global trade. But U.S. solar manufacturing has not grown as quickly as hoped, which could lead to less oversight, she said.
Elms said efforts to thwart what appears to be evasion of U.S. restrictions on imports from China are likely to continue, especially if Donald Trump is elected. He is “very focused” on countries with which the U.S. has a trade deficit, which he said includes many Southeast Asian nations.
(Updated with U.S. solar power import data in 9th paragraph.)
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