Southeast Asia’s Solar Boom Threatened by US-China Trade Tension

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(Bloomberg) — The future of Southeast Asia’s booming solar industry, which produces the world’s largest number of solar panels after China, is in doubt as the U.S. prepares to impose steep tariffs on the region.

Now Chinese companies that have set up factories there over the past decade are being accused of avoiding U.S. tariffs on their imports from the domestic market. At least three companies — including Longi Green Energy Technology and Trina Solar — have scaled back operations in Thailand, Vietnam and Malaysia, which Washington is targeting along with Cambodia.

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The four countries account for more than 40% of solar module production capacity outside China, according to BloombergNEF, and other Chinese companies with facilities there are looking for markets to replace the United States.

“The mood of suppliers is to pack up lines, especially cell lines, and move them either to Indonesia, Laos or the Middle East,” said Yana Hryshko, head of global solar supply chain research at Wood Mackenzie Ltd., adding that some Chinese manufacturers are waiting to see what the tariff level is before deciding whether they need to move.

The uncertainty underscores broader disruptions to clean energy supply chains, as the United States, Europe and others seek to claw back market share from China, which dominates production of solar equipment as well as electric-vehicle batteries. Chinese solar companies are also struggling with a growing domestic surplus that has already seen a number of smaller players go bankrupt.

Last August, a U.S. investigation found that some Chinese manufacturers—which began investing in Southeast Asia after the U.S. imposed tariffs on panels imported directly from China in 2012—were illegally bypassing those duties. The ruling resulted in import taxes of varying levels being imposed on five companies in the region.

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Some U.S. companies are now pushing Washington to impose additional tariffs of up to 272% on all solar products from the four countries, though Bloomberg New Energy Finance said in May that the duties were likely to be between 30% and 50%. That compares with a 25% tariff on China, which the White House plans to double.

Washington came close to imposing tariffs in June, when the U.S. International Trade Commission passed a preliminary finding that manufacturers were being hurt by cheap imports from Southeast Asia.

Since then, Chinese and Malaysian publications have reported that Longi has halted five production lines in Vietnam and has begun scaling back operations in Malaysia, Trina is planning to shut down some of its capacity in the region, and Jinko Solar has closed a factory in Malaysia.

A Longi spokesman said in June that the company had made adjustments to production plans at several factories, partly due to trade policy changes. The company said in a subsequent stock exchange filing that its Malaysia plant is still shipping cells to the United States, and has no plans to move power as demand from other markets including India and Canada will be enough to support its Southeast Asian plants.

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Trina said in a statement that its cell plant in Thailand is still operating normally, and it will decide what to do with its facilities in Southeast Asia depending on the outcome of the latest round of U.S. investigation. Jinko did not respond to a request for comment, while JA Solar said its plant in Vietnam is operating normally.

Not all Chinese factories in Southeast Asia will close, as products can be shipped from there to India, Europe and elsewhere, according to Dennis Ip, an analyst at Daiwa Capital Markets. Some older facilities may close, but newer ones will be able to survive if they can find alternative markets, he said.

The tougher line from the United States comes as both major political parties there are taking a tougher stance against Beijing in the run-up to elections in November. In addition to jeopardizing Southeast Asian production, it could jeopardize Washington’s decarbonization efforts, given that more than three-quarters of its solar imports came from the region last year.

While the tariffs are likely to be imposed early next year, it could be sooner if there is an electoral advantage for Democrats to do so, said Deborah Elms, head of trade policy at the Hinrich Foundation, an Asia-based nonprofit that works to promote sustainable global trade. However, she said, U.S. solar manufacturing is not growing as quickly as hoped, meaning there could be less scrutiny.

Efforts to curb perceived circumvention of U.S. restrictions on Chinese imports are likely to continue, Elms said, especially if Donald Trump is elected. He is “very focused” on countries with which the U.S. has a trade deficit, she said, and that includes many Southeast Asian nations.

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