Muhammet Ali Zurnacı: There are analyses that the high solar tariffs imposed by the US on Southeast Asia will shift production to the Middle East, India and other countries. What is your perspective?
Economics 100:
Of course. Here’s the structured strategic analysis following the Economics 100 method:
Executive Summary
The United States’ imposition of high tariffs on solar imports from Southeast Asia — particularly targeting Vietnam, Thailand, Malaysia, and Cambodia — is poised to significantly reconfigure global solar supply chains. The immediate strategic effect is to divert manufacturing investment and production toward India, the Middle East, and potentially Latin America, reflecting a broader shift toward creating “friend-shored” or “near-shored” supply networks. However, this reallocation introduces both new opportunities and strategic vulnerabilities for the U.S. and global energy markets.
Comparative & Historical Context
Historically, U.S. solar policy has oscillated between promoting domestic manufacturing and maintaining cheap solar deployment. Notably, under the Obama and Trump administrations, tariffs on Chinese solar panels (2012, expanded 2018) led to the rapid emergence of Southeast Asia as an alternative production hub — Chinese firms simply moved factories to avoid tariffs. The current U.S. tactic mirrors that earlier cycle: it tries to close another loophole.
Comparatively, today’s shift is more complex:
- Unlike 2012–2018, India and Middle Eastern countries are now offering direct state subsidies for clean energy manufacturing (e.g., India’s PLI Scheme, Saudi Arabia’s Vision 2030 green energy projects).
- Global energy security considerations — amplified post-Russia-Ukraine — mean the U.S. is more willing to tolerate short-term cost increases in exchange for supply chain security.
Strategic & Relative Impact
Winners:
- India: Positioned to become a major solar module supplier, with strong government backing, cheap labor, and a large domestic market.
- Middle East (especially UAE, Saudi Arabia): Emerging clean energy hubs eager to diversify beyond oil; access to capital and ambition to lead in hydrogen and solar technologies.
- U.S. Domestic Manufacturers: Benefiting from Inflation Reduction Act (IRA) incentives aligned with the tariffs.
Losers:
- Southeast Asia (Malaysia, Vietnam, Thailand): Short-term economic loss as solar investments decline or reconfigure.
- American Solar Installers and Consumers: Higher panel prices could slow U.S. solar adoption rates temporarily, conflicting with climate targets.
- Chinese Solar Giants: Increased difficulty in maintaining dominance over U.S.-linked markets, though they will likely find alternative destinations (e.g., Africa, Europe).
Power Dynamics Shift:
- The U.S. aims to weaken China’s stranglehold over clean energy supply chains (~80% of global solar manufacturing capacity).
- New strategic “green alliances” will emerge between the U.S., India, and Middle Eastern states around solar and broader clean energy systems.
Unintended Consequences & Risks
- Supply Chain Bottlenecks: India and Middle Eastern nations lack the mature upstream supply chain (e.g., polysilicon refining) that China and Southeast Asia have. The transition may create new dependencies or delays.
- Cost Inflation: In the short run, U.S. solar project costs could spike, jeopardizing climate commitments unless mitigated with subsidies.
- Reshuffling, Not Reshoring: The tariffs may not bring jobs back to the U.S. at scale — they are more likely to create a new set of offshore hubs, merely shifting dependency.
- Geopolitical Tensions: China’s Belt and Road Initiative (BRI) investments in solar for emerging markets could accelerate, trying to bypass Western-aligned supply chains.
Final Insight & Steering Caution
Dominant narratives in the U.S. frame the solar tariffs as an economic and national security necessity, but this overlooks the reality that truly “independent” clean energy supply chains are infeasible in the near term. Rather than reshoring, the world is entering a multipolar clean energy economy, with fragmented supply chains heavily influenced by geopolitics rather than pure market forces. Stakeholders must avoid framing the shift as a zero-sum “win” for U.S. manufacturing, when in reality it is a strategic hedging maneuver — trading one set of external dependencies for another, arguably more politically palatable, but no less economically complex.
“Economics is not only about allocating scarce resources, but about understanding whose interests are served by each allocation.”
— Joseph E. Stiglitz
Would you like me to also map out a future scenario analysis showing how India vs. the Middle East might compete differently for this solar manufacturing surge? 🌎⚡
Economics 100, Chief Economist
III’ Corporate