Anti-Chinese Tariffs Boomerang on U.S. Solar Industry

Tariffs on Chinese Solar Panel Imports Boomerang on U.S. Solar Industry

June 29th, 2012 |

Credit: USL Photovoltaics Pvt Ltd.

A friend recently sent me an article from Forbes concerning the tariffs that the Obama administration has placed on Chinese-manufactured solar panels. It provides an interesting case study of how tariffs invariably have the opposite effect than intended by their imposers.

When the government slaps a tariff on an imported product, it’s for the sole purpose of making it unattractive to American consumers. For instance, if Americans grow hazelnuts and the Turks grow hazelnuts at a much lower cost — which they do — the government would impose a tariff on the Turkish imports into America to drive their cost up and coerce the population to buy American-grown hazelnuts, benefiting American growers.

The real effect, of course, is that Americans are screwed. They could spend less money on hazelnuts if the government didn’t jack up the imports, but now they have to shell out more money for hazelnuts to benefit a tiny pocket of American hazelnut growers in Oregon and Washington. A few dozen people win, millions lose. Government protectionism at work.

A tariff is strictly one-step thinking, artificially inflating costs significantly. One might think: “I want people to buy American-made things instead of imported foreign things, so if I make the foreign things more expensive, then people will buy American-made things. Problem solved.”

That thinking usually does not go one inch deeper than that. Now, in the case of solar panels, as the Forbes editorial recounts, in mid-May the Obama administration evidently needed to pay back campaign donors in the solar panel manufacturing sector or build a bit of street cred with greenies in the run-up to the November presidential election, so it saddled incoming Chinese-made solar panels with tariffs ranging from 30 to 250 percent.

Zing! You’re welcome, American solar panel manufacturers! You’re screwed, American solar panel consumers and the American renewable energy community! Oh, you might not realize it yet, but you’re screwed, too, American solar panel manufacturers!

American Solar Industry Opposes Obama’s Tariffs

The Forbes editorializers were Nick Blitterswyk, founder and CEO of Urban Green Energy, and Micah Steiger and David Droz, from UGE’s business development department. These guys are solidly behind renewable energy, including solar. It’s their livelihood. And they’re American.

At first thought, you’d be expecting them to do handsprings over the tariffs, ostensibly imposed for the benefit of the American solar energy industry. Instead, they took to the pages of Forbes to blast them.

“The ruling will constrict the growth of renewable energy here in America, driving up the prices for installers, their customers and, ultimately, the American taxpayer. This legislation threatens to kill the very blue-collar jobs it claims to save,” they asserted.

They’re right.

Let’s go back to the hazelnut example. Don’t eat a lot of hazelnut-flavored ice cream, do you? Don’t enjoy hazelnut spread on your toast? You’ve never had those yummy hazelnut candy bars, you say? You don’t keep a stash of hazelnuts around for baking desserts? You don’t put out the beer and hazelnuts when you have friends over to watch the game? And you don’t mix hazelnuts with M&Ms and raisins for a tasty snack bowl?

Wouldn’t you like to be able to afford these?

Why not? Hazelnuts aren’t a big part of the American palette, but I lived in Turkey for a number of years and have done all those things. Hazelnuts are deliciously sweet, have a pleasant texture and are more than suitable for any of the uses above. Americans should be eating millions of hazelnuts every year.

But we’re not, because the government tariffs against Turkish hazelnuts keep their prices artificially high and away from American mouths. Sure, the hazelnuts that are sold in the United States are profitable, but far more hazelnuts would be sold if Americans get a taste for them.

In other words, the American hazelnut growers who lobby Congress for import tariffs are making far less money selling relatively few hazelnuts at high prices than they would by selling lots more hazelnuts at lower margins in competition with Turkish hazelnuts. And they’ve killed in the crib the American hazelnut ice cream, hazelnut spread and packaged hazelnut snack markets, among others.

Panel Production Is Not Where We Should Focus

The Forbes editorial noted that the same thing is happening to solar panels because of the tariff on Chinese tariffs. UGE executives contended that the production of solar panels isn’t where U.S. companies should be competing. The industry, they said, “is one of razor-thin margins, increasing automation and commoditization. In other words, it’s not where we can make a difference.”

Forget who makes the panels; where America makes its money is what we do with them. In the Forbes piece, Blitterswyk, Steiger and Droz wrote:

Companies like SolarCity, Sungevity and Urban Green Energy are focusing on the actual implementation of solar and renewable energy technologies, rather than just the production of panels. In doing so, we are growing extremely fast, creating thousands of American jobs. These jobs, far outnumbering what would be created in manufacturing, cannot be outsourced. Furthermore, our companies scale globally, bringing proven business models overseas and increasing the presence of American companies as leaders in the worldwide renewable energy industry.

But the tariffs raise the prices of imported solar panels to prohibitive levels. That means a large chunk of the panels that companies need to do their work is unavailable, since if the American solar panel production industry could meet the demand at the best price, there wouldn’t be any need for tariffs. The very fact that a tariff exists is confirmation that the domestic industry is incapable of meeting demand.

Panel production is only one part of the overall solar industry in the United States and, as the Forbes guest writers showed, not the most important part. Putting barriers on Chinese-produced panels results in an overall net loss of jobs and wealth for an industry that is struggling to find its feet. It’s one-step, reductionistic, overly simplistic thinking applied to a complex issue and ultimately does far more harm than good.

In other words, it’s exactly the thing you’d expect grandstanding politicians to do.

Besides, as Blitterswyk, Steiger and Droz pointed out, tariffs are almost quaint in their inability to accomplish even their stated goals. They wrote that Conergy, a prominent U.S. supplier of renewable energy products, as a result of the tariff, would now be offering solar panels from Hyundai at competitive pricing. They concluded:

Yes, that’s right — this tariff does nothing for U.S. manufacturers; it only moves business from China to Korea, and makes our parts more expensive.

Hyundai thanks you, Obama administration! The editorial summed up succinctly:

In punishing Chinese companies, the Department of Commerce is victimizing American companies as well… Do we raise trade barriers in order to protect ourselves from competitiveness? Hey, it works for North Korea, right?

Is It a Good Day to
Start a Trade War?

That said, China has a “win some, lose some” relationship with the Obama administration. As was noted here at ThomasNet.com Green & Clean last September, nearly $2 billion of your taxpayer dollars were spent to manufacture parts, including blades, for wind turbines for a wind farm in Texas. The project created over 2,000 jobs. But 80 percent of the $2 billion went to manufacturers overseas, particularly China. That’s right: You paid $1.6 billion to create jobs overseas.

Meanwhile, at the same time, employees of a Pennsylvania-based wind turbine blade factory were laid off. Here’s an idea: Why don’t we just let whoever can produce solar panels of suitable quality the least expensively do so, and, as the Forbes editorial suggested, others can add value where they can? Why divert our resources to producing what we can buy cheaper elsewhere?

Besides, imposing tariffs nearly always backfire. Think about it: If your friend charges you for the beer that you drink at his house, are you going to give him beer at your place for free? How well do you think American exports to China are going to fare in this latest round of tit-for-tat?

Not well, the Chinese promised. The Wall Street Journal reported in May that Chinese officials, not unreasonably, said, “U.S. tariffs will hurt both countries because China imports a large amount of raw materials and equipment from the U.S. to produce solar panels, and it exports such goods to the U.S … this has benefited the U.S. economy.”

China could shop around to see where else they can get those raw materials and equipment. And the country could find other vendors anxious to sell. As if to underscore the point so nobody in Washington missed it, an anchorwoman with China Central Television said, “We fear that if these tariffs are levied in full, Chinese companies may have no choice but to exit the U.S. market.”

Which, of course, is just what you want when you’re still trying to revive the economy: A trade war. With China. Thanks, Washington!