Michael Meeropol: Trump's Tariffs Harm Solar Industry While Protecting Fossil Fuel Producers

Feb 2, 2018

On Tuesday, January 23, Trump imposed tariffs on solar components.   As usual, most of the news media was distracted by the latest bright shiny object – this time, the end to the government shutdown and the question of who won or lost.  Fortunately, the New York Times decided on January 24 to explore the impact of the solar component tariff on the US solar industry.  The headline says it all, “Steep tariffs threaten growth of solar industry.”  (The New York Times, January 24. 2018, P. A1)

Now at first blush, that headline should be counter-intuitive.  Isn’t the whole point of tariffs to PROTECT American industry from foreign competition  --- to  promote growth of the domestic producers by shutting out cheaper foreign competitors?   Shouldn’t these tariffs increase the growth of the solar industry? 

The economic case for tariffs in a case like this is that when an industry is struggling and it is crucial to the long run benefit of society, it is considered a useful intervention by government to TEMPORARILY utilize tariffs or other forms of protectionism to give it time to increase its productivity and get its costs down so that it can be competitive with the foreign competitors.  This argument usually applies to what have been called “infant industries” – that is industries that are just starting out and initially have very high costs. 

(This was the main argument in favor of protecting American manufacturing in the early years of the Republic – as far back as 1816 when the first “protective tariff” was enacted to make sure that the industries that had grown up in previous years when British products were excluded from the country by first Jefferson’s embargo in 1807 and then by the War of 1812 would not disappear when British goods came to the US Solar Panel industry.)

Whatever the theoretical justification for such tariffs, the whole point supposedly is to make it more profitable for American producers of a particular product – in this case solar panels -- to increase production.   Certainly, Trump wants us to believe that this is his reasoning. 

Unfortunately, this is another lie.   In fact what this tariff does is to make the installation of solar panels more expensive.   Rather than protecting the American solar industry from foreign competition, the increased tariffs damage the industry.

Here’s how it works.   The cost of the imported solar panels will go up.  Most experts believe that there will be very few jobs created in American companies competing with the imports because even with the tariff, the foreign companies will continue to undersell American producers.  In other words --- the American companies competing with foreign producers will still be at a cost disadvantage even after the price of the imported components has been artificially raised by the tariff.

Anyway most of the jobs in the solar industry are not in the production of panels.   According to the New York Times article, of the 260,000 jobs in the solar industry, only 2000 are in panel manufacture.  The rest are employed in the construction and maintenance of the solar arrays.   In the manufacturing sector, many more workers are employed building the steel racks that the solar panels sit on than in building the panels themselves.

When the cost of solar panels goes up as a result of the tariff, it will be more expensive to utilize solar energy to generate electricity or heat water --- making it more likely that other sources, particularly fracked natural gas, will be utilized instead.   The day that Trump announced the tariff, the solar industry trade association stated that the rising cost of solar panels will cause the loss of 23,000 jobs in the solar industry and lead to the delay or cancellation of billions of dollars of planned construction projects.

This is great for the fossil fuel industries – especially natural gas suppliers.  Of all the fossil fuels, natural gas (due to fracking) is the cheapest and the closest competitor to solar and wind. The tariff will give an advantage to fracked natural gas, which will be great to those businesses selling natural gas.  It is not, however, great for employees in companies constructing and installing photovoltaic arrays to generate electricity. It is definitely not good for the future of the planet.

Most economists who claim to support the free market and decry unwarranted government interference with the private sector argue that government should remain neutral as consumers make decisions as to what product from what industry to buy. They should not, according to these economists, be in the business of “picking winners” among various industries – say in energy generation. However, instead of remaining neutral in the battle for market share between solar energy and the cheapest of fossil fuels, the Trump Administration has put its thumb on the scale in favor of fossil fuels.   Should we be surprised? Trump and the Republicans get tons of money from fossil fuel producers and their enablers.

[By the way, it is important to remember that the fossil fuel generation of electricity is only “cheap” because the market price of electricity generated by fossil fuels ignores the costs imposed on all of us by the pollution from the burning of fossil fuels as well as the costs imposed on current and future generations by the damage done by global warming. This is a classic case of what economists call negative externalities. I have often asserted that because of the terrible dangers imposed on future generations by global warming, the costs imposed might very well be infinite – as in leading to the destruction of civilization as we know it. For a dystopian fictionalization of a very possible future, see Naomi Oreskes and Erik Conway, The Collapse< of Western Civilization: A View from the Future Paperback, a book I have praised in a past commentary.]

Trump will or course claim that he is protecting American jobs and dismiss the New York Times analysis as “fake news”—that is, if he and his administration even acknowledge that the story exists. The media, meanwhile, continues to focus on the government shutdown and Trump’s recent antics on his trip to Switzerland or his alleged success in delivering the State of the Union speech by accurately reading from the teleprompter.

[This is not to suggest that some of the things the media focuses on – the Nunes memo attacking the FBI, the Mueller investigation zeroing in on obstruction of justice – aren’t very important in their own right.   I would still argue that the policies adopted that will increase the chance that global warming to continue unchecked with disastrous consequences are even more serious than even the President of the United States allegedly engaging in obstruction of justice.]

When it comes to the long term damage to our society and the world, the extra burden imposed on the solar energy industry with the recent tariff is of paramount significance. The lives of our descendants depend on how quickly we make the transition to solar and other sustainable forms of generating energy. Trump’s tariff harms solar --- making it more likely that the United States will continue with policies and economic activities that will literally burn the planet at an unacceptable rate with fossil fuels.

Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author (with Howard Sherman) of Principles of Macroeconomics: Activist vs. Austerity Policies.

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