No Matter the Size of Subsidy, Solar Isn't Economic

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It seems Republicans and Democrats in Congress can agree on at least one thing: China's to blame for many of the US's solar energy woes.

Recently, amid much discussion of the US and others taking China to the WTO over rare earths exports, Afghanistan and the Fed's bank stress tests, the government quietly passed a law permitting the Commerce Department to slap tariffs on Chinese solar panels. The law, HR 4105, authorizes the use of countervailing and antidumping duties on solar panels a bipartisan Congress feels are unfairly subsidized by the Chinese government. The Commerce Department followed through last Tuesday, enacting an initial tariff of between 2.9% and 4.8% on panels.

Those petitioning for tariffs had hoped for far more-suggesting a tax of 100% on Chinese panels, arguing higher rates would protect American jobs. Reactions to these much lower figures literally run the gamut-some suggesting they support the notion China trades unfairly, others noting the low rates vindicate China. But both are likely premature-the final rules, including anti-dumping tariffs, aren't due until the summer.

No matter the final result, this is a very small matter economically. Solar accounted for roughly 1% of total US energy production in 2011, and that's rounded up to the nearest whole number. But the principle behind this-and how it highlights the economic confusion extant in Washington-deserves further exploration.

HR 4105 seemingly operates on the presumption panels are just flat out too cheap. Now-defunct Solyndra would seemingly agree, considering they blamed their failure on these very imported panels. Now, obviously, the effect of a less than 5% tariff likely isn't the biggest deal in the world, but what a tariff does is make panels more expensive. Why? A tariff is just a tax. And while they might be relatively new to this whole capitalism thing, we're pretty confident Chinese producers get these costs can just be passed on to consumers. So the cost goes up. However, tariffs are also an effort to channel demand to other goods-in this case, I presume that's American-made solar panels. (After all, we don't want any more Solyndras, do we?) But here's the kicker-limiting consumer choice and increasing competitors' prices are not shown to reduce costs overall.

That's all fine and dandy and would simply amount to another non-noteworthy example of politicians' frequently demonstrated lack of economic wisdom. But it's even odder than that. Consider: The oft-cited evidence solar energy subsidies are needed is we have to make solar competitive with fossil fuels for it to rise above that 1% (rounded up) figure. Solar cannot be both too cheap and too expensive, yet this is precisely Washington's policy "direction."

What's more, tariffs don't necessarily protect jobs-a fact highlighted by the US's Coalition for Affordable Solar Energy. They note installers frequently use Chinese panels and claim a harsh tariff could "cost thousands of American jobs"-illustrating the fact equating China's subsidies to a giant green jobs vacuum just doesn't fully reflect reality. So while we may "protect" some solar jobs, we could lose some due to tariffs, too.

As I've said, this law is small in scope. But the principle is big, and I'm left wondering what message we're trying to send with laws like these. Maybe it's a response to China's new rule limiting government officials to China-made cars. (Hey! Maybe they think some US automakers are unfairly subsidized!) Or maybe the "buy China" rule was a response to failed US tire tariffs, "buy America" provisions or other. But consider: According to the US Census Bureau, China accounted for roughly 14% of US total trade in 2011-and about 7% of US exports. Why we'd want to continue the tit-for-tat with China-potentially risking our trade relationship-over something as economically benign as solar energy is head-scratching.

Innovation, spurred by competition (foreign or domestic, "fair" or "unfair"), helps drive economic growth in the long run. Protectionist cronyism-and that's what this is-is anathema to capitalism and has few actual beneficiaries except election-year politicians who can trumpet they did something. But from a non-ideological point of view, whatever your opinion of the US's solar subsidies or tariffs, I cannot discern why they'd ever make sense paired. And they'll likely protect few American jobs when all is said and done. Bifurcated policy isn't unique to the present administration. Consider, in the news recently have been the Export-Import Bank and Jackson-Vanik amendment. Ex-Im's original goal was to boost trade-partly through providing credit to the then-USSR, like two loans totaling $199 million issued in 1973. (A transaction Ex-Im seems particularly proud of, considering it's on their website's greatest hits list.) Passed unanimously in 1974, Jackson-Vanik-noble as its aim of allowing the free flow of people out of the USSR may have been-contradicted this by attempting to restrict trade with ... the USSR. Sure, the government can and should occasionally shift directions. But very often, when the strange bedfellows politics and economics get together, politically popular issues of the moment win out over the broader picture. The result, frequently, is bipartisan economic nonsense.

Todd Bliman is a member of Fisher Investments MarketMinder's editorial staff. He has been with Fisher Investments since 2006 and has worked in finance for over a decade.

(This article constitutes the views, opinions, analyses and commentary of the author as of March 2012 and should not be regarded as personal investment advice. No assurances are made the author will continue to hold these views, which may change at any time without notice. In addition, no assurances are made regarding the accuracy of any forecast made herein. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.)



Todd Bliman writes about global financial markets and economics.  

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