According to a recent report from Wood Mackenzie, it has been another busy week for U.S. tariffs. Conflicting signals from the current administration have left the outlook for tariffs unclear but raised hopes in the financial markets that an all-out trade war can be averted.

The U.S. and China have remained at loggerheads, apparently unable to agree even on whether or not trade negotiations have been taking place. A Chinese official said last week, “China and the United States have not held consultations or negotiations on the tariff issue, let alone reached an agreement.” But the current president said later the same day that there had been a meeting between the two countries that morning, although he declined to specify which officials had been involved.

Amid all this confusion, there was at least one clear statement on tariffs from the U.S. government this week, relating to imports of solar equipment.

The Department of Commerce announced final proposed new duty rules on solar cell imports from Vietnam, Thailand, Malaysia, and Cambodia. The duties are intended to offset the effects of government subsidies and dumping by manufacturers based in those countries.

The duty rates vary from company to company, but average about 34 percent for producers in Malaysia, 375 percent for Thailand, 396 percent for Vietnam, and 692 percent for Cambodia.

“The U.S. International Trade Commission, a separate independent non-partisan agency, now has until 2 June to decide whether U.S. solar manufacturers have been harmed by the subsidies and dumping,” said Wood Mackenzie. “If it rules that they have, then the proposed duties will come into effect.”

The duties result from investigations launched under the previous administration but align well with the current administration’s tariff strategy.

The Department of Commerce statement made clear that, although it is producers in Vietnam, Thailand, Malaysia, and Cambodia that will face the duties, the action is really a blow in a proxy trade war against China. “The U.S. alleges that companies operating in those other countries have been receiving subsidies from China, giving them an unfair and illegal competitive advantage in the U.S. market,” said Wood Mackenzie.

According to the report: “The solar supply chain is an instructive test case that illustrates the challenges of using tariffs to build up U.S. manufacturing capacity. To some degree, it has already been a success story, but going further will be increasingly difficult. And some of the progress that has been made is now at risk.”

Thanks to previous rounds of tariffs and the tax credits in the 2022 Inflation Reduction Act (IRA), particularly the 45X credit for domestic manufacturing of components and materials for low-carbon energy, solar module manufacturing capacity has boomed in the U.S.

Today, the U.S. has capacity to produce about 50 gigawatts of solar modules a year, Wood Mackenzie data show. That would have been enough to supply the entire U.S. market last year and probably again this year.

However, most of that capacity is used to assemble imported cells into modules. The U.S. has the capacity to manufacture only about 2 GW of cells per year.

“The implicit objective of the new round of tariffs on imported cells is to support more investment in cell manufacturing in the U.S., but a domestic solar cell industry cannot be conjured up overnight,” said the report.

“Making cells is more difficult than making modules,” says Elissa Pierce, Wood Mackenzie’s research analyst for solar module technology and markets. “Permitting is complicated. The process is water- and energy-intensive, and the wastewater has to be disposed of carefully. It all needs a lot of expertise.”

Wood Mackenzie is forecasting that U.S. annual cell manufacturing capacity will reach only about 8 GW by the end of the year. That means that the majority of cells for the U.S. market will still have to be imported.

“While the latest round of new import duties may help encourage investment in U.S. solar cell manufacturing, other features of the policy environment will not,” said Wood Mackenzie. Uncertainty over U.S. tariff rates makes it difficult to form stable views on any investment plan. And the threats to the IRA tax credits make it particularly hard to have clarity on the viability of low-carbon energy projects.

Speaking at Wood Mackenzie’s recent “Solar and Energy Storage Summit,” Abby Ross Hopper, chief executive of the Solar Energy Industries Association (SEIA), said that although she believed that a complete solar supply chain would be built in the U.S. over time, the uncertain outlook for the tax credits was for now an obstacle to investment.