This week, President Trump made headlines (the way a president is supposed to) by rolling out a new trade policy relating to solar panel imports. Unsurprisingly, many in the media were quick to condemn the tariff, seemingly labeling it as the death of renewable energy. To be honest, when I sat down to write this article, I initially believed that it was going to be an 800-word obloquy on an archaic policy stance; however, as I did my due diligence, I began to reach a different conclusion. While many of my other pieces have been justly critical of Trump, I have always believed that discussing policy necessitates a certain detachment. That is, while I disagree with many this president’s actions and sentiments, I do not believe it is right to allow my personal distaste for the man to obfuscate my personal assessment of any one of policies. A few months ago, I wrote an article on the many benefits derived from an integrated global economy. However, just because globalization is a far more preferable system than mercantilist nationalism does not mean that a continuingly globalized economy is one without challenges. So with that being said, it is my assessment that the tariffs levied on solar panel imports is not an inherently bad thing.
To begin, this is not some unprecedented act of recklessness by the Trump administration. In September of last year, the European Union took similar steps, and in 2014 the Obama administration levied tariffs on Chinese solar panels as well. Somehow, this seems to get lost in translation when it is reported on by most major media outlets. Additionally, these cuts are not permanent! While a 30% tariff will be slapped on solar imports in 2018, that number falls to the mid 20’s by 2019 and continually decreases over time until they’re completely canceled out.
But why (in my mind) was this temporary measure justified? Consider these numbers published by Forbes magazine:
The value of solar panel imports into the United States has increased almost 3,500% since 2003, according to U.S. Census Bureau data, or more than four times the gain for overall U.S. imports. That’s pretty striking. But just wait. The tonnage of those imports has increased more than 16,000%.
If the number of solar panel imports, by weight, increased by 16,000 percent in that time span, one would generally assume that their import value increased by a commensurate amount. However, the disparity between the 16,000% tonnage increase and the 3,500% dollar increase may well indicate that these new imports were priced at an artificially low level. Now, when we consider that China has a long history of artificially deflating its currency, along with the fact that their workers make fractions of what US workers make, it is not difficult to imagine why this divergence exists.
Furthermore, if I were to tell you that US solar manufacturers were clamoring for a 50% tariff, would you believe me? You should, because they did. Perhaps considering the above numbers may nudge you closer to my position.
This is not to say that there will not be short-term pain felt by many in the solar industry. In order to discuss this, it is important to first make a quick distinction: that is, there are solar companies in the United States whose business model is to produce their own solar panels and sell them (the ones who asked for even higher tariffs), and there are solar panel companies in the United State’s who are hired to install solar panels. This is the group susceptible to short and medium-term pain.
The former group was briefly discussed above, but the latter group will undoubtedly have short-term issues to work out. Of course, a 30% tariff on the product your company is hired to install will throw a bit of a wrench in your business plan. Most notably because many of the companies who would generally hire solar panel installers may now turn to alternative energy solutions for a few years.
In a previous piece, I discussed how tariffs are generally effective only when the domestic industry being protected is inchoate. Surely, the solar panel industry fits this description, as it has not yet existed long enough to fully mature. Of course, any new industry will have to charge higher prices until their businesses fully economize, and the US solar panel industry is no different.
You see, with China dumping cheap solar imports into the US market, US solar panel manufacturers were unable to properly invest in research, development, and innovation. This is because they just had to worry about competing with Chinese goods that were sold at below-market prices. Rather than choosing the best solar panels, US consumers were choosing the cheapest, much to the detriment of US solar manufacturers.
Now that the playing field has leveled out, US solar panel producers are in a significantly better position to innovate and improve their product, which also benefits the US-based solar panel installation companies who have lambasted this decision. In the future, a more developed US solar industry will be a cheaper, more accessible one. So while I fully understand the foil to this argument, I believe it is important always to consider the long-term ramifications of policy decisions, and it is my hope that this article convinced you that if President Trump burns the world to the ground, it won’t be because of a temporary tariff on solar panels.