How the Trump Solar Panel Tariff Affects the Solar Industry
Trump’s solar panel tariff was introduced in 2018, increasing the price of imported solar cells and solar panels by 30%. Since the import tariff is reduced by 5% each year, a 20% rate applies for 2020. However, the tariff does not increase the final price of solar systems by 20%, since it only affects panels and cells. On average, the solar installed cost increases by less than 10 cents per watt. Therefore, solar power remains among the best investments available for property owners.
For example, a 10-kilowatt solar system will normally cost around $30,000 with current US prices, before subtracting any rebates and incentives available. For a system of this size, the Trump tariff on solar panels will affect the final price by less than $1,000.
How Does the Trump Solar Panel Tariff Work?
According to the US Trade Representative, China was producing 60% of solar cells and 71% of solar panels globally by 2018. This was possible in great part thanks to government subsidies and low-interest financing for solar manufacturers. At the same time, solar panels manufactured in the U.S. were becoming less competitive against the low-cost imported panels.
To protect US-based solar companies and stimulate local production, the Trump administration imposed a 30% tariff on solar panels manufactured outside the US. The tariff was introduced in 2018, with a four-year duration and a gradual reduction of 5% per year. The following table summarizes how the tariff affects a 300-watt solar panel with a price of $100 during each of the four years:
|Year||Solar Panel Tariff (%)||Tariff for a $100 Solar Panel (US$)|
Since the tariff uses a percentage instead of a fixed dollar amount, it increases and decreases along with the solar panel price. For example, a 300W panel with a price of $110 would have a tariff of $22, even with the same wattage as the panel in the example above.
These numbers may seem small, but consider that home solar systems often use more than 20 panels. In this case, the tariffs on solar panels result in a cost increase of $400. Commercial, industrial and utility-scale solar projects are affected more, since they use thousands of panels. For instance, one megawatt of solar capacity requires around 3,000 panels. If each of them has a $20 tariff, the one-megawatt project becomes more expensive by $60,000.
As previously mentioned, the import tariff imposes a 20% fee on both solar panels and solar cells. This means manufacturers cannot avoid the tariff by importing solar cells and assembling them into panels inside the US. However, the tariff does not make full a solar power system more expensive by 20%, since the panels are just a fraction of the total cost. Keep this in mind when reading solar tariff news.
Does the Trump Solar Panel Tariff Affect the Federal Tax Credit?
The US government offers a federal tax credit for solar power systems, which can be combined with local incentives. Federal solar tax credit information is very abundant online, but the most important facts you need to know are the following:
- The incentive was 30% until 2019, and it has been reduced to 26% for 2020.
- There will be another reduction tax credit reduction to 22% in 2021.
- From 2022 onwards, there will only be a 10% incentive for businesses.
The federal tax credit applies for the full price of an installed solar power system, while the Trump tariff only affects solar panels and cells. In other words, the tax credit is much higher that the extra import tariff. You can also avoid the import tariff by using locally-produced solar panels.
Solar panels are still fairly expensive, but the federal tax credit makes them easier to afford. For example, a 6-kilowatt home solar system has a typical price of around $18,000. If the import tariff increases the cost by 8 cents per watt, you pay an extra $480. However, when you deduct 26% of $18,480, the federal tax credit is $4,805. The numbers may vary when you get offers from solar installers, but in this example the federal tax credit is 10 times larger than the Trump tariff.
Solar panels are worth the investment even with the Trump tariff. Paying 20% may seem like a lot when only solar panels are considered, but the price effect on a completed system is typically less than 3%. Solar panels are also getting more affordable each year, and a percentage-based tariff decreases along with panel costs.
- Office of the United States Trade Representative – Section 201 Cases: Imported Large Residential Washing Machines and Imported Solar Cells and Modules
- Solar Energy Industries Association – Solar Investment Tax Credit (ITC)