President Donald Trump’s aggressive use of tariffs as part of a hawkish trade and foreign relations strategy is causing heartburn for the US wind industry, but opposition Democrats may not provide much relief if they can oust him in the November 2020 election.

With 16 months to go, the leading candidates for the party’s nomination are exuding confidence they can beat Trump, although polls suggesting they would do so are largely meaningless this early. Most pollsters forecast that he would lose the 2016 election.

Since taking office in January 2017, Trump has turned traditional Republican free-trade dogma on its head, adopting “America First” policies by wielding or threatening to impose tariffs, which he calls a “beautiful thing,” to punish friendly nations and perceived foes alike to achieve policy objectives.

“I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in tariffs. MAKE AMERICA RICH AGAIN,” he tweeted last December.

Trump’s capricious approach to tariffs has blindsided and unnerved business groups, traditional Republican allies, and left them guessing whether he will increase levels of those in place, impose more of them and when, or drop those he has threatened.

This regime of tariffs on and off needs to stop. The uncertainty for business is horrible.

“This regime of tariffs on and off needs to stop. The uncertainty for business is horrible,” said Mark Goodwin, chief executive of Apex Clean Energy, a leading wind and solar developer. He spoke at the recent REFF-Wall Street conference here organised by the American Council on Renewable Energy (ACORE).

The tariffs, while politically popular in some cases, are starting to have a chilling effect on capital investment and payroll expansion as companies are increasingly unsure about overseas supply sourcing, future costs of imported goods and where to locate factories. The wind industry is no exception.

“We are very concerned about the impact of tariffs on jobs,” Tom Kiernan, chief executive of the American Wind Energy Association, trade group, said last month. “We would have been hiring more people if it weren’t for the current tariffs.”

Trump has imposed 25% and 10% tariffs on most imported steel and aluminum, respectively, and a 25% levy on imported Chinese lithium carbonate and lithium hydroxide, which impacts energy storage components.

Steel accounts for almost half of material content of a wind turbine. According to tower manufacturer Broadwind Energy, domestic steel prices have risen more than 50% since the tariffs were imposed. The tower is roughly 20% of a turbine’s installed cost.

‘Real gut punch’

Broadwind and its competitors here are passing most of those costs through to their customers, turbine OEMs such as Siemens Gamesa Renewable Energy, but there are limits even if Trump doesn’t further raise steel tariffs.

The production tax credit (PTC), the main federal wind subsidy, is set to expire at year-end and this is forcing project developers to demand cheaper components and services from their suppliers. Low natural gas prices and intensely competitive, rock-bottom power off-take deals further add pressure on the supply chain to become more cost-effective.

Tower producers have had some success in procuring steel from countries unaffected by US tariffs if quality is acceptable, but this also depends on fluctuating steel prices, wind farm locations and shipping costs. Finished tower pieces, not subject to tariffs, grabbed more than 25% of US installs in 2018.

A key Trump target has been China, which has a lopsided bilateral trade surplus with the US and is a low-cost wind industry supplier. In May, his administration raised import tariffs to 25% on $200bn of Chinese goods including circuit boards, machinery and microprocessors to pressure it – without success thus far – to make concessions.,

Trump later warned about imposing similar levies on $325bn in additional Chinese products – essentially all Chinese exports to the US. Last week, he agreed to hold off after reaching agreement with Chinese President Xi Jinping to restart trade talks.

Taken together, the accumulated tariffs have been a “real gut punch” for OEMs here, who were making great progress in taking costs out to partially offset the fading PTCs, said Jim Murphy, president of Chicago-based Invenergy, a leading wind and solar developer, at the conference.

Consultants forecast a “cliff” in 2023-24 when wind capacity additions will plummet after completion of projects benefitting from the PTC. Tariffs, even at present levels, would represent a drag on the industry’s ability to compete on cost with gas and solar – if they remain in a potential second Trump four-year term.

While Trump has also slapped a 25% tariff on most imported solar modules and cells, solar will retain a permanent federal subsidy for commercial-scale projects starting in 2022.

Democrats, a party divided

Most wind leaders have generally been supportive of Trump’s economic policies including corporate tax cuts, a looser regulatory environment and offshore energy development, even as they lament his criticism of onshore wind turbines and support for fossil fuel subsidies. His weaponisation of tariffs is pushing some of them to the Democrats.

Historically, the party has been more protectionist than the Republicans, influenced by labour unions concerned – correctly as it turned out - that cheaper imports from lower tariffs would undermine US manufacturing and eliminate jobs.

Blue-collar influence ebbed in recent decades, however, as the industrial sector shrunk. Party decision-making and funding became driven by the financial and high-technology sectors, which advocated freer trade, and public sector unions.

Evidence of this was the landmark North American Free Trade Agreement (NAFTA) signed by Bill Clinton in 1993 and Trans-Pacific Partnership (TPP) negotiated by Barack Obama in 2015 – both Democrats.

Under pressure from Trump, NAFTA partners Canada, Mexico and the US negotiated and signed but have not ratified a replacement accord which appears slightly more favorable to American interests. Trump abandoned the TPP declaring an end to the era of multinational trade agreements.

But Democrats and their presidential candidates are divided over trade policy and how to negotiate with China. Frontrunner Joe Biden and former vice president under Obama generally supports a more liberal approach on trade, an unpopular stance among many in the party.

He promises to end Trump’s erratic and go-it-alone approach, and team with US allies to pressure Beijing to honor trade commitments and further open its economy. Cracks have already appeared in Biden’s trade façade, however, as he has begun to suggest tariffs can be useful as a policy stick to enforce carbon-fuel limits on other nations.

This has left wind industry officials wondering whether Biden would also succumb and aggressively use tariffs as president to suit his political needs. His closest rivals, Senators Bernie Sanders (Vermont) and Elizabeth Warren (Massachusetts), support protectionist trade policies that differ little from Trump’s.

Party leaders are also aware they need union votes in manufacturing states such as Michigan and Ohio if Democrats are to beat Trump, who is popular there, in part, because of his tariffs.

Whoever is the party’s nominee can’t ignore that US public attitudes are hardening toward China on trade and policies such as forced technology transfers as a pre-condition to the government approving joint ventures with foreign investors.

And that may prevent meaningful changes in the substance of tariffs imposed by Trump regardless of what Democrat is in the White House.

Wind

Democrats may not be US wind industry's saviour on tariffs