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Trade wars benefit nobody, but we may need to brace for one soon. This month, China is set to decide on whether to place a tariff on U.S. chemical imports—specifically polysilicon—used in the solar cell manufacturing process. Chinese polysilicon producers accuse the U.S. of dumping said chemicals onto the Chinese market. If the Chinese do impose a tariff, American polysilicon producers will lose access to a significant market while the cost of solar panels will rise significantly everywhere—making everyone a loser. Yet this bad outcome is likely because the Obama administration has already fired shots in what could become the world’s first “green” trade war.
The Department of Commerce fired those shots last October, when it levied a 31 percent tariff on Chinese solar panel imports, supposedly as a “retaliatory antidumping measure” against “unfair” government subsidies to Chinese manufacturers that subsequently dumped their product onto the U.S. market.
Of course, “unfair” is a relative term. In 2010, U.S. officials reported that China spent $30 billion on subsidies to solar energy, which led President Obama to accuse China of “questionable competitive practices.” Yet his administration spent $60 billion in domestic renewable energy subsidies in 2010. Currently, it offers a 30 percent tax credit for any business investing in solar energy and a renewable energy grant equal to that 30 percent to businesses purchasing solar power systems.
This hypocrisy is bad enough, but the real problem lies with the Commerce Department’s approach to trade as a zero-sum game with winners and losers. Imposing a tariff harms everybody, except for a few interested parties. We import things we want that we can get more affordably than when producing them at home, and export things in order to pay for those imports. The sole benefactors of tariffs are domestic producers who are protected from foreign competition. As the tariff causes prices to rise for solar panels, the losers extend well beyond just Chinese panel manufacturers. Those most notably hurt by higher prices are U.S. solar panel distributors, installers, and, most especially, consumers.
The administration imposed the tariff in response to pleading by a handful of solar panel manufacturers led by German-based SolarWorld, which has many manufacturing plants in the U.S. They ensured that the tariff applies only to Chinese panel manufacturers that use Chinese solar cells. The world’s top solar cell and module producers include SolarWorld (GER) and First Solar (US). Thus, the tariff leaves Chinese manufacturers with only two choices: buy American or German cells or use Chinese cells and face a crippling tariff in a major market. By discouraging affordable foreign competition the tariff creates a U.S. stranglehold on the solar panel industry—and raises prices for all.
The President has repeatedly reaffirmed his support for green energy, but he is making solar power less affordable, and at a time when the industry is still dependent on massive subsidies.
The fundamental problem with solar power is that it takes a lot of collection. Sunlight may be free, but gathering it and converting it into power is expensive. So far, solar power has proved resistant to significant price drops. That’s why the headlines during the Carter Administration predicting solar would provide 20% of domestic electric power by 2000 did not come true.
If solar power is to have a future, it needs to come down in price rapidly. Outsourcing production to China had seemed to be helping that happen. A trade war would stop that progress in its tracks. If China wishes to subsidize Americans’ consumption of solar power, our correct response should be, “Thank you very much,” not launch a trade war with no winners.