Tariffs Make Solar Panels Excessively Expensive

The Washington Post recently posted an article by a representative for a US-based solar panel manufacturer explaining how President Trump should implement the recent International Trade Commission (ITC) remedies on tariffs against Chinese solar panel imports.

It is highly likely that some form of a tariff is forthcoming.

The ITC offered three remedies – each with a four-year cap – with varying severity from a 35% module tariff (decreased over time) to a minimum import license of $0.01 per watt. Each remedy, or a combination thereof, is ultimately the decision of the Executive Branch. Given that the President has already expressed interest in China’s trade practices, the consensus is highly likely that some form of a tariff is forthcoming. In fact, according to some solar panel retailers, prices have already risen to hedge against the tariff.

The recent Washington Post article pleads the typical protectionist outcry – “unfair” business practices, layoffs, plant closures, and even cybersecurity threats. While it targets China specifically as the reason for their woes, it’s worth noting that utilizing Section 201 of the 1974 Trade Act (of which this petition was filed) could affect all importing countries, not China alone, conclusively increasing costs across the board.

While the effects on prices vis-à-vis tariffs are rather well-known, the salient point which protectionists take is that Americans lose out. As the author writes, China is ”laughing at the United States and continuing to steal American jobs.”

There is little doubt that imports will affect American equivalent jobs, but the net result is a wash. As individuals leave one job sector they eventually move to another, more demanded, sector. As the U.S dollar leaves the country to pay for imported solar panels, it returns in the form of demand in a different sector. The dollar itself acts as a future claim on American goods and services. China can choose to spend it immediately, invest it in America, or trade it with another country. Either way, the loss to one sector is a gain in another.

If the Chinese wish to produce at a loss and use up their resources for the benefit of American consumers, why should we object?

The article goes on to explain that, without the Chinese government subsidizing their own exports, US producers would stay competitive. Given popular opinion, this complaint seemed valid, but only when viewed solely from the perspective of the US-based producers. However, the benefits are readily apparent when consumers are viewed as a  whole.

The installation costs of solar panels alone have dropped over 70% since 2010. If the Chinese wish to produce at a loss and use up their resources for the benefit of American consumers, why should we object? After all, the more we import versus export, the more we increase our wealth as a nation.

President Trump faces a January 12th deadline to agree to some form of a tariff. In theory, Section 201 tariffs could apply to not just China but all importing countries. However, if a tariff is forthcoming, it will likely be some combination of the proposed solutions to appease both the producers and the existing trade agreements. Either way. tariffs ultimately affect prices for all solar panel consumers thus benefiting a select few at the expense of the many.

As economist Milton Friedman puts it “When anyone complains about unfair competition, consumers beware. That is really a cry for special privilege, always at the expense of the consumer.”