Multiple tariff issues in play
Multiple tariff issues are in play that could affect project costs.
A decision whether to impose tariffs on imported electrical transformers and their components made from grain-oriented electrical steel is expected by January 15.
The affected components are laminated steel used to make cores, wound cores and transformer regulators. If tariffs are imposed, they could add as much as 25% to the cost of the imported transformers and components. Vendors have been unwilling in many recent contracts to absorb the cost of new US import duties.
The US Department of Commerce sent its recommendations to the White House on October 15, starting a 90-day clock to run on a decision. The Trump administration is considering imposing tariffs on national security grounds. (For more detail, see “Possible transformer tariffs under review.”) President Trump leaves office on January 20.
Transformers and transformer components made in Mexico will be exempted from any tariffs that are imposed.
The United States Trade Representative announced on November 5 that Mexico agreed to establish a “strict monitoring regime” for exports of transformer laminations and cores made using grain-oriented electrical steel supplied to Mexico from other countries. The US suspects steel companies in China, Japan and South Korea of circumventing a 25% US tariff on imported steel by shipping steel to Mexico or Canada for conversion into downstream products that then pass into the United States duty-free under the United States-Mexico-Canada trade agreement.
Goods imported into the United States from the Xinjiang region in western China face possible import restrictions. Senator Marco Rubio (R-Florida) is trying to get a Senate vote before year end on a bill that would ban “all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part” in Xinjiang, unless US Customs is persuaded there is “clear and convincing evidence” that the products were not made with forced labor by Uigher Muslims. US Customs would have to report any such determination to Congress and make the findings public. The bill passed the US House of Representatives in September by a nearly unanimous vote but has run into opposition in the Senate from companies concerned about the difficulty of tracing supply chains.
Banned goods would be subject to seizure at the US border.
About a third of polysilicon used to make solar panels came from the Xinjiang region in 2019. China accounts for about 80% of global polysilicon capacity. One major polysilicon supplier, Daqo New Energy Corp., has its headquarters in the southern part of the Xinjiang region. American depositary shares in the company trade on Nasdaq.
The Solar Energy Industries Association has been strongly encouraging US solar companies to move their supply chains out of the region.
Meanwhile, the Trump administration is considering imposing countervailing duties on goods made in Vietnam to offset what it charges is currency manipulation by Vietnam to make its goods more competitive in world markets.
The US Department of Commerce recommended preliminary duties in early November of 6.25% to 10.08% on automobile tires to offset subsidies. A final recommendation is expected in March. An internal Commerce memo attributed 1.16% to 1.69% of the proposed duties to currency undervaluation. The US Treasury told Commerce in August that it believes the Vietnamese dong is undervalued by 4.7%.
The US Trade Representative is investigating Vietnamese currency practices generally, which could lead in theory to duties on a large number of products.
A labor advisory committee composed of more than a dozen large US labor unions urged the US Trade Representative in early November to impose duties of 8.4% across the board on Vietnamese products. The deadline for comments in the USTR probe closed on November 12.
The US Trade Representative is expected to hold virtual negotiations with the Vietnamese government in December. He could issue a formal finding in time for the Trump administration to act before leaving office. President Biden will appoint a new US Trade Representative.
US wind developers could face duties on wind towers from India, Malaysia and Spain. The US International Trade Commission found that domestic tower manufacturers are being injured by tower imports from the three countries in a unanimous vote in early December. The Commerce Department is expected to issue preliminary countervailing duty amounts around January 13 and anti-dumping duty amounts around March 29.
The administration has also been moving to impose duties on wind towers imported from Canada, Indonesia, Korea and Vietnam. (For more details about the tower investigations, see “Unpredictable tariffs” in the February 2020 NewsWire and “Tariffs: China, solar, steel, aluminum and wind towers” in the October 2020 NewsWire.)
A coalition of 300 companies is urging Congress to extend the generalized system of preferences (GSP) before it expires at year end. GSP beneficiaries are lesser developed countries whose products enjoy preferential access to the US market. Solar panels imported from GSP countries are exempted from tariffs that the US collects currently on imported solar panels as long as their solar panel exports to the United States do not amount to more than 3% of total US panel imports and as long as all developing countries whose individual exports are less than 3% each do not collectively account for more than 9% of total US panel imports.
Separately, President Trump announced an investigation on October 10 that could lead the US to continue collecting tariffs on imported solar panels beyond February 2022 when the current tariffs are scheduled to expire.
The United States has been collecting duties on imported solar panels since early February 2018. The duties started at 30% and have been dropping 5% each year. They are scheduled to remain in effect through early 2022. The duty rate had been scheduled to drop to 15% in early February 2021. Trump increased the rate to 18% in the same October 10 proclamation.
The proclamation also revoked an exemption from the tariffs for bi-facial solar panels effective on October 25. The administration had been trying since last fall to revoke the bi-facial exemption, but was blocked by the US Court of International Trade. (For earlier coverage, see “Solar and wind tariffs” in the December 2019 NewsWire and “Fluctuating solar and wind import tariffs” in the June 2020 NewsWire.) The court allowed the latest action to stand.
An industry-by-industry analysis by the Federal Reserve Board in October of the trade war that the United States has been engaged in with China concluded that US tariffs boosted employment by 0.3% in US industries for whom the tariffs provide a barrier from competition, but this was more than offset by US job losses elsewhere. The higher costs to import Chinese parts cut jobs at US factories that serve the US domestic market by 1.1% while retaliatory Chinese tariffs cut US jobs at companies that make sales to China by 0.7%.
Shipping costs from Asia to the US have soared.
Long-term rates charged by container shipping lines to ship from Asia to the US west coast were 63.4% higher in late October than a year before. Prices to ship to the east coast were 25% higher.
The National Retail Federation said in November that it tracked 8.1 million shipping containers into US ports during the peak shipping season from July through October as retailers restock inventories ahead of the busy holiday season and prepare for the pandemic to worsen over the winter. The volume is a record and is up 6.6% over last year.