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You may have seen last week that the Executive branch ordered itself to impose tariffs on imports of Chinese solar panels to put boulders in the harbors of Los Angeles. There is one political point today to make and one economic point. The political point is this: did US taxpayers vote for this? Do they have a say in this? After all, the Commerce Department is an unelected Executive bureaucracy which came to its independent ruling that China is “unfairly” dumping cheap solar panels on the US (I’d like to be dumped on myself …) and it orders US Customs and Border Protection to slap the tax on Chinese panels. The US Customs and Border Protection folks are likewise unelected.

To segue from the political to the economic, consider an under-explored idea. That since solar panels are an input into the good called “solar installations” it is not at all clear whether this move enhances the prospects of the American solar industry. My bet is that there are far more people involved in the installation of the panels, production of wires, etc. that rely very heavily on the cheap input of Chinese solar panels to stay competitive. Seeing the price of solar panels rising and expecting an improvement in American solar employment and installation prospects is like expecting car production and employment in the US to improve when tire prices increase.

But the simplest economic point is the most important. How the heck do those solar panels get here in the first place? Do Chinese manufacturers send them over on “one-way” ships that sink in ports when they arrive in the U.S.? Of course not. They expect something in return. Some of those things include fine Finger Lakes wines and upstate New York apples (though I think apples themselves are of Chinese origin). Think about this vis-a-vis the popular rhetoric here. The notion of “unfair” dumping of panels below cost by Chinese manufacturers leads us to think that American solar panel producers are in competition with Chinese solar panel producers.

But this is hogwash. The Chinese don’t give it away (it would be great if they did!). The real competitor to American solar panel manufacturers are wine producers and apple growers. And raising taxes on solar panels produced using the particular form of technology we call “international trade” is nothing more than raising taxes on solar panels that have as an input in their production a fine Finger Lakes Gewurztraminer or a delicious Wayne County Macoun apple. Is there any reason that this technology ought to be disfavored over another? Remember the medieval guild system? To clarify this one more time before going, imagine we have two ways to make golf clubs – forging the heads to the clubs or casting the heads to the clubs. Is there any legitimate reason for taxing the use of the casting process as a way to make golf clubs? There is perhaps no aspect of economics where illiteracy runs deeper than in the area of trade. Sadly, trade is perhaps the most important aspect of economics. For some people (such as myself) the very act of exchange is the very essence of economics. Not getting trade in economics is sort of like not getting how electrons work in chemistry. I’ve yet to meet a chemist who proudly expounds on all kinds of elaborate chemical theories and applications who does not understand how electrons work. The same cannot be said of economics.

* In fairness, the cost of the solar panels themselves are about 1/3 of the total installation costs of putting in a solar electricity system. Therefore the tariffs can be expected, ceteris paribus, to increase the cost of solar installations by about 10%.

3 Responses to “United States Raises Cost of Home-Grown Solar Panels by 35%*”

  1. Harry says:

    One for the archive, Mike. That could be the opening lecture for any course you might think about teaching. This was much more fun to read than Alan Blinder’s sleepy piece in today’s Journal.

  2. Lonny Eachus says:

    If this post is supposed to be about Austrian economics (“The Unbroken Window”), it falls short.

    It is well-established that dumping is an anticompetitive practice, and deserving of blockage. IF (and maybe that’s a big “if”) we can assume that they really are dumping, then this is fully justified.

    Dumping puts competitors out of business. (Read: U.S. suppliers.) Therefore it reduces local production capacity and economic wealth. Labor alone does not make a healthy economy. Go back and read your Smith.

    In my opinion, you need to re-think this one.

  3. Lonny Eachus says:

    Not to be contrary, but I also have to take issue with your solar-panels-for-wine analogy. If (again, only a premise, not proven) the Chinese are “dumping” solar panels at below cost, and we take your analogy seriously, then the practice is distorting the free-market price signals of not only solar panels (making them cheaper than actual production costs would justify), but also apples, grapes, and wine (making them appear MORE valuable than production costs would justify, because fewer of them are required to buy what would normally be a higher-priced product).

    Granted, these are only marginal differences, but marginal differences are important. Much of economics is based on those very margins.

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