AsianFin -- China's photovoltaic (PV) industry is facing renewed challenges following the announcement of reciprocal tariffs by U.S. President Donald Trump on April 2.

The tariffs, aimed at reducing the U.S. trade deficit with China, have sent shockwaves through the capital markets, with significant repercussions for the PV sector, which has already been struggling in recent years.

As Trump's administration imposed additional tariffs on Chinese goods, global stock markets plunged. The photovoltaic sector was one of the hardest-hit, with 107 out of 111 photovoltaic companies listed on China's A-share market seeing their stock prices fall by more than 7%. The sector's market value evaporated by over 200 billion yuan (US$ 27 billion) in a single day, making it one of the largest declines in market value across all sectors.

Although the Chinese government intervened on Tuesday with increased support from state-owned enterprises, attempting to stabilize the market, the PV sector's recovery has been limited.

Leading companies like Canadian Solar (CSI), JinkoSolar, and Trina Solar saw modest rebounds, but overall, the sector's recovery from the previous day's plunge has been negligible. ETFs tracking the PV sector continued to show declines, signaling investor skepticism about the industry's ability to weather the storm.

The Tariff Impact: A Misjudgment or a Wake-Up Call?

The reciprocal tariffs imposed by the U.S. have raised the tariff rate on Chinese goods to as high as 67%, with an additional 34% tariff expected to take effect on Wednesday. The U.S. Treasury Department has confirmed that this tariff increase will combine with previous tariff hikes to bring the total rate to a staggering 54%, severely impacting China's exports.

In response, China has announced countermeasures, including a 34% tariff on all imported goods from the U.S., and filed a lawsuit against the U.S. at the World Trade Organization (WTO). The measures have further escalated the trade war between the two largest economies in the world. While the move has led to substantial losses in stock markets, particularly in China, the impact on the PV industry remains mixed.

Industry insiders suggest that the severity of the decline in the PV sector is a result of "misjudgment" in the market, exacerbated by an already challenging environment for the sector. Many investors feel that the photovoltaic industry has been struggling with poor fundamentals for years, and any additional crisis may be the final straw for many companies.

The photovoltaic industry has failed to fully benefit from the recent asset revaluation trend seen in other sectors. Despite the broad market gains in China's A-share markets earlier in 2024, driven by sectors like artificial intelligence, the PV sector saw limited growth, with many companies failing to catch the wave.

For instance, Longi Green Energy, often hailed as the "king of photovoltaics," only saw a modest 5% increase in stock value between mid-January and April, with its stock price stagnating near its January levels. As of April 8, the company's market value had shrunk by 80% from its peak in November 2021.

The lack of performance support from fundamentals has been a key reason for the sector's poor performance. The disclosure of annual performance reports, showing that leading companies are experiencing massive losses, has further undermined investor confidence. This, coupled with ongoing technological advancements in other sectors, has left the photovoltaic industry in a constant state of flux.

Tariff Challenges: A Long-Term Struggle

The impact of tariffs on the photovoltaic industry is not a new phenomenon. The U.S. has been imposing trade barriers on Chinese photovoltaic products for years. As early as 2010, U.S. President Obama initiated a "301 investigation" into Chinese solar energy products, leading to anti-dumping and countervailing investigations in 2011. By 2012, tariffs on most Chinese photovoltaic products had risen to over 30%, forcing many Chinese companies to exit the U.S. market.

Despite these hurdles, China's photovoltaic industry has continued to thrive, thanks to strong demand in Europe, Japan, and Australia. However, the U.S. market remains a critical "profit highland" for many companies. Recent tariff increases are expected to further restrict Chinese photovoltaic companies' access to the U.S. market, as the Biden administration canceled tariff exemptions for countries like Vietnam, Malaysia, Cambodia, and Thailand in 2023.

In response, leading Chinese photovoltaic companies, including JinkoSolar, Longi Green Energy, and Trina Solar, have established manufacturing facilities in the U.S. to bypass tariffs. However, this move has not come without challenges, as the companies now face issues with supply chain sources and the uncertainty surrounding the Inflation Reduction Act (IRA), which has been suspended under Trump's administration.

As the U.S. continues to impose tariffs on Chinese photovoltaic products, Chinese companies are looking to diversify their production and export destinations. Southeast Asia, particularly countries like Vietnam, Malaysia, and Thailand, has been a primary focus for many Chinese manufacturers, although the recent tariff changes have made this strategy less viable. In addition, countries in the Middle East, such as the UAE and Saudi Arabia, have become increasingly important markets for photovoltaic companies looking to expand beyond traditional markets.

However, the increasing tariff pressures from the U.S. are forcing companies to rethink their strategies. While some companies are exploring emerging markets in regions like Indonesia, Turkey, and Bangladesh, the U.S. and Europe remain the most lucrative destinations for photovoltaic products. The rise in trade barriers may force Chinese companies to shift their focus more toward regional markets, potentially sacrificing growth in high-value markets.

Despite the current challenges, the photovoltaic industry has a long history of overcoming trade barriers and adapting to changing market conditions. According to Bloomberg New Energy Finance (BNEF), the industry has accumulated extensive experience in dealing with tariffs and trade disputes, with many contracts already containing clauses that address tariff-related issues.

The ongoing tariff wars are expected to encourage Chinese companies to explore new markets, particularly in emerging regions, while the U.S. photovoltaic industry may find itself increasingly dependent on imports from China. However, the uncertainty surrounding trade policies, including the future of the Inflation Reduction Act, adds a layer of risk for companies operating in both domestic and international markets.

In conclusion, while the immediate impact of the U.S.-China trade war and the "reciprocal tariffs" on the photovoltaic industry is significant, the sector's long-term prospects remain tied to its ability to innovate and adapt to a rapidly changing global market. As tariffs continue to shape the landscape, the industry may find new opportunities in emerging markets, but it will also face challenges as it navigates the evolving geopolitical and economic landscape.