Understanding China Tariffs in the Energy Storage Industry
Over the past few months, changes to trade patterns and new China tariffs have impacted the storage industry in a variety of ways. The US began investigating some of China’s business practices under Section 301 of the Trade Act of 1974, which gives the United States authority to investigate trade disputes and enforce trade agreements. The investigation kicked off a series of escalating rounds of tariff increases that have impacted a variety of businesses to date. IHI Energy Storage’s resident tariff expert, Matt Toth, weighs in here on recent changes to the US’s approach to trade with China and what effects recent tariff changes may have on the energy storage market.Matt Toth, Senior Manager – Supply Chain, is a licensed customs broker with extensive experience in commodity purchasing, supply chain management, and international business. He has managed the import/export regulatory affairs such as tariff harmonization, free trade applicability, and import/export permits for various organizations. His work at IHI has connected his deep import/export experience to the energy industry and provided Matt with a unique view of the regulatory landscape and the challenges facing renewables development today.By: Matt TothBefore World War I, the majority of government funding in the US was provided by import tariffs. Since the implementation of income tax, tariffs have gradually become a very minor part of government funding in the US. In fact, since World War II, the United States and most of the world has gradually been reducing import duties in an effort to reduce barriers to global trade. In the United States in particular, reducing barriers to trade and implementing most free trade agreements has had largely bipartisan support for the last 40 or so years. In 2016 President Trump reversed this course by steering the US towards protectionist policies, including pulling the US out of TPP, renegotiating NAFTA, implementing higher tariffs on the EU for certain products, declining to renew GSP, and most significantly – the Section 301 Duties against imports from China.For those in the energy storage industry, the Section 301 duties were an earthquake to the battery supply chains that had been rapidly growing in China. Although there was a gradual build over the course of the year with each new tranche, most of the industry did not expect Section 301 would escalate to impacting lithium-ion batteries. Many projects had already been designed and contracted around specific products or already had specific batteries in production or even in transit. Furthermore, production of non-EV lithium-ion batteries outside of China was very limited – and still is.On February 14th, 2020, the energy storage industry finally received some relief from the China tariffs when the Section 301 duties for lithium ion batteries (8507.60) were reduced from 15% to 7.5%. Since then, trade talks with China have more or less been at a standstill with little indication of if or when we will see further progress. In the meantime, nearly all Section 301 lithium ion exemption applications have been rejected. At this stage, the implication is clear that the current administration does not view lithium-ion batteries from China as strategically important enough to the US economy to merit special treatment.Furthermore, on May 1st, the tension rose even higher with President Trump’s Executive Order on Securing the United States Bulk-Power System (BPS). While the language around the order has been vague and has not targeted specific components, it is clearly aimed at China and brings up concerns that certain energy storage system components from China could be outright banned from importation.Despite this, I do not expect the trade situation with China to escalate further by the end of the year. Creating any further obstacles to global supply chains amidst the COVID-19 pandemic could be devastating for many businesses. However, I also do not expect significant progress within the next year. Even if there is an administration change after the November election, I would not expect an immediate rush to conclude a trade agreement with China given the current state of affairs. That said, I am hopeful for a 2021 trade agreement, and look forward to subsequent improvements and advances for the energy storage industry.