President Donald Trump’s decision to impose tariffs on imported solar panels is a double win for America.
The duties, which will add 30% to the cost of these cells in their first year and then steadily decline to 15% in their fourth and final year, will help the United States reap the greatest possible economic benefits from the green-energy revolution. And they will prevent a new set of Chinese and other foreign government-subsidized foreign products from distorting the free markets that Americans rightly prize.
In announcing the tariffs, the Trump administration showed that it understands a crucial economic distinction that has been muddied throughout the solar trade controversy — between manufacturing and services.
It’s true that companies that install solar-power systems for homes, businesses, and utilities strongly opposed the tariffs. But it was always misleading for these firms to call themselves vital segments of “the American solar-energy industry.” and portray the sector as deeply split over the imports issue.
After all, no one would ever confuse the Big Box retailers whose staff will set up your cable or satellite TV system with “the American telecommunications industry.” It’s obvious that that title belongs to the world-leading information technology that created the hardware and software that comprise these networks.
No one would ever confuse taxi or ride-share companies with “the American automotive industry.” It’s obvious that that title belongs to the capital-intensive firms that produce motor vehicles and parts.
No one would ever confuse elder-care providers with “the American pharmaceutical and medical-equipment industry.” It’s obvious that that title belongs to the cutting-edge firms that manufacture medicines and health-care devices.
Similarly, the vital core of the “solar-energy industry” is composed of highly innovative U.S.-based producers that manufacture these green-energy products. Trump’s tariffs aim at keeping the nation in the critical green-energy production game by enabling these businesses to compete against overseas counterparts that use government support to keep prices at rock-bottom levels and undersell rivals that need to generate revenue and profits without a crutch (a practice known as “dumping”).
Solar installers naturally don’t care where their panels come from. The less expensive their inputs, all else equal, the wider their profits, and the lower the prices they can charge customers for solar energy.
So it’s true that cheap imported panels would help speed up the use of such alternative power sources. But as the Trump tariffs recognized, the long-term national costs are far greater of allowing foreign governments to sink entire American green-energy manufacturing sectors.
First, such green-energy production deserves priority treatment because, as with industrial companies generally, manufacturers in the solar sector vastly exceed the productivity growth of service companies like installers.
Indeed, according to their figures, the manufacturers’ improvement in this measure of efficiency (and key to sustainable national prosperity) jumped by nearly 60% between 2012 and 2016 alone — a period when productivity in manufacturing overall, the long-time U.S. pacesetter, barely budged.
Further, as is also the case with much of American manufacturing, the solar producers that sought the tariffs are standout innovators, with Solar World
holding more than 50 patents and Suniva more than 150.
Largely as a result, the manufacturers contend, every dollar of their new output generates fully two dollars of growth elsewhere in the American economy — an unusually high multiplier. The installers opposing the tariffs make no remotely comparable contributions.
Additionally, permitting the Chinese and others to dump solar panels would have signaled to other foreign government-subsidized industries that it’s open season on other key American manufacturing sectors — including in alternative energy.
The only conceivable outcome would be a surging presence in the U.S. economy of even more government-funded entities, which bring to bear the resources of entire national treasuries in their competition with U.S.-based producers that rely exclusively on private financing. How would this development promote the free-market system and norms crucial to both America’s historic economic success and its future prosperity?
Had Trump listened to the solar installers and coddled solar-panel dumping, Americans would have been limited to affixing imported solar equipment to U.S. homes and businesses, the nation would have been pushed further to the sidelines of the green-energy revolution, and government-supported foreign producers would have compromised further the nation’s free markets.
Fortunately, he decided to help the nation win the biggest economic and technological prizes likely to flow from further alternative energy progress instead of the crumbs, and restore genuinely free competition to this crucial segment of the green energy industry.