Solar Import Tariffs or Rampant Free Trade?

Despite a positive outlook among solar industrialists and enthusiasts, the global economic recession is really hurting solar companies – a hurt that catalyzes an argument familiar here in the United States: cheap Chinese goods undercut domestic manufacturers. And it’s prompted Germany to speak out.

Photo Credit: mikebaird

Should we protect solar Germany or free up solar trade?

Conergy AG and Solarworld support tariffs on solar imports from China and other countries outside the European Union (EU) in order to protect domestic industry. Falling prices and demand have forced solar manufacturing worldwide to slow down – not necessarily to slam on the brakes, but certainly lessen the speed of production and force some cutbacks.

Proponents of international free trade are denigrating such requests, even going so far as to call such tariffs “poison,” according to Bloomberg.com. Karsten von Blumenthal of SES Research GmbH in Hamburg asserts that “the Chinese are helping to make solar power competitive by making equipment cheaper.”

A brief history of tariffs in America

Again, I point to the fact that this is not a new argument here in the States. Since the late 18th Century, when Alexander Hamilton penned his famous “Report on Manufactures,” import tariffs were a staple of the American economy, ranging between roughly 12 and 40 percent in the nearly two centuries following. The tariffs were not meant to totally discourage imports to the U.S.; they were meant to protect American manufacturing and provide revenue for the subsidy of domestic industries. In other words, to ensure an import-export balance.

Those tariffs were in place until the early 1980s when Ronald Reagan truly put free trade into action. Roughly 30 years later, American import tariffs are now at just over two percent. This dramatic decrease, beginning with Reagan and championed by subsequent presidents, motivated American corporations to take their manufacturing arms overseas to Asia or Mexico where labor is much cheaper. That resulted in cheaper goods as well, which is the basis for the free trade argument from those such as Karsten von Blumenthal, who calls for the denial of import tariffs on solar goods in the EU. Yet cheap goods alone do not create a prosperous economy.

The argument of import tariffs

Unemployed or underemployed people will gladly buy the cheapest item on the shelf – wherever it is made – not necessarily because it’s cheaper, but because they have no other choice. The “off-shoring” of domestic jobs has put American wage earners in a tough spot. Increased competition for decreasing jobs has forced people to work for less, and minimum wage can’t possibly keep up with the rate of inflation.

Furthermore, what money is spent, say, at Wal-Mart, for cheaply made foreign goods does not cycle back into the local or even national economy. If a resident of Detroit buys something at a Wal-Mart in Detroit, that money immediately goes to Arkansas (Wal-Mart Headquarters) and then a large portion of it heads right out to China to pay back or buy new merchandise. Wal-Mart sees profits, China sees a trade surplus, and the local economy in Detroit sees very little. Yes, a miserably tiny portion of that money goes to the employees of that Detroit Wal-Mart, who might then spend it locally, but the majority is shipped elsewhere. If you were to spend that same money at a local store with American-made goods, the larger proportion stays at home or at least within U.S. borders.

The idea that import tariffs and local manufacturing protections will make solar products (or any product for that matter) too expensive is a falsehood. The truth is that when we in the United States had these tariffs, our economy was growing relatively consistently in a real, concrete way. Since the tariffs were drastically reduced 30 years ago, the economy has grown stagnant or temporarily held high by credit or borrowing (from China), only to fall once more. We see the results of such practices now as banks and corporations demand and receive bailouts for a problem they helped cause.

It is true, however, that if solar panels were not made in China with cheap labor and very low import tariffs, they would likely cost more because American workers get paid more on average to put things together. The argument goes that Americans would then be unable to buy them, thus destroying the global solar market. But such a claim ignores the inherent benefits of making products at home: employing local citizens who then would have more money, spreading the wealth among local businesses selling American made products, and more subsequent jobs because money spent here stays here. People will gladly spend 10-20 percent more for a product if they are making 40 percent more at work because they’re working a high-quality job. And solar jobs are high-quality jobs.

German vs. Chinese solar

What these German firms are asking for is perfectly reasonable. The tariffs need not be extremely high, but at least enough to bring balance to the equation. Part of the problem for Solarworld and Conergy with China is that the Chinese government is heavily subsidizing their solar manufacturing industry at the investment stage (up to 50 percent, according to Bloomberg.com), whereas in Germany, subsidies are based on the amount of electricity produced – the tail end of the solar chain. In an economic climate where investment money is not so easy to come up with, such a subsidy gives the Chinese solar manufacturer a major advantage over their international rivals. Hence, the worry from major German solar firms.

Photo Credit: revolution cycle

It’s reasonable for German firms to want protection against foreign imports. They keep the industry healthy and provide revenue for subsidy of solar and other industries in Germany and the EU, which also keeps people employed. Given the cost of solar power, even cheap Chinese panels will be unaffordable to an unemployed populace.

How the U.S. can lead

I would argue for increased tariffs here in the United States. The federal government has allocated significant funds to subsidize new manufacturing businesses here in the States – up to 30 percent of initial costs. Increased but reasonable import tariffs will help seal the deal. The logic is simple: Why import something that can be made here just as easily? Not to mention create much needed jobs.

We are already heading down the road to a prosperous solar industry in the United States. Installing import tariffs on solar equipment will help solidify the industry’s strength and longevity. It may even incentivize foreign solar firms from China, Germany or elsewhere to open up manufacturing plants here. I have no problem with international trade, so long as it is fair and reasonable to the people of all countries involved. Right now in the U.S., we have an incredible account deficit; we are far from any equity or equality. Transnational corporations are making big bucks while workers in China are underpaid and working in poor conditions (including poor air quality due to corporate pollution) and the U.S. worker is struggling for a job AND struggling to buy that cheap Made-In-China t-shirt.

American manufacturing was running strong for the better part of 200 years. Only in the last 30 have we seen it really plummet, leaving us with credit cards instead of cash, lines at the food bank instead of the company cafeteria, and import tariffs that benefit transnational corporations rather than our own people. This may be a protectionist argument, but at a time like this, a little protectionism is just what we need.

In terms of solar power, the list of benefits grows: energy independence, clean environment and a happy, strong and wealthy workforce.

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Posted on September 4th in Solar Politics by Dan.