Solar Trade War: Collision Ahead

Back in August, before the Solyndra news broke, I discussed the bankruptcy filings of two U.S. solar manufacturers.

As I remarked in the August post:

The price of solar panels has fallen dramatically as China ramps low-cost manufacturing. That's good news for U.S. energy consumers and the environment, because the cost differential between solar power and power generation from fossil fuels is narrowing. If the trend continues, solar power will become a competitive alternative energy source without government subsidies.

Yesterday, the New York Times reported that seven of the surviving U.S. solar manufacturers have filed an anti-dumping case against the Chinese solar industry. The case seeks tariffs of more than 100% on the wholesale price of solar panel imports from China. Obviously, such an action would increase the cost of solar power development projects (by increasing the cost of solar panels). Higher-cost solar power projects would translate into higher costs for U.S. energy consumers (because the cost of renewable energy is "passed through" by utilities to consumers). Moreover, higher-cost solar panels would slow the transition in our energy infrastructure away from fossil fuels.

The result is a collision of political, economic and environmental priorities.

The U.S. solar manufacturers and many politicians will argue that this is about jobs. We need a strong manufacturing base and we have the capacity to lead the development of renewable energy technologies in the coming decades. As a leader in development, we should be able to exploit our technological advances by manufacturing solar panels "at home." If China really is dumping panels below cost to gain market share, we should enact tariffs to "level the playing field" so that U.S. manufacturers can compete with Chinese manufacturers.

All fair points; one might quibble with the details, but the broad principles hang together.

From an economic perspective, however, we might be better off permitting China to dump its solar panels on us below cost. Sure, that might cost us U.S. manufacturing jobs. But China's dumping policies would effectively be subsidizing U.S. solar development projects. To some extent, then, we'd simply be shifting jobs between industrial activities. We'd need less individuals fabricating and assembling solar panels. We'd need more individuals working on construction projects and, upon completion, operations and maintenance of solar facilities.

Big picture, why shouldn't we permit China to subsidize our solar development projects? By subsidizing our solar development, China would be reducing costs to U.S. energy consumers. Our businesses would be more competitive (due to lower energy costs), and individual consumers would have more disposable income. Let's say that a Middle Eastern country decided to "dump" oil into the U.S. market, reducing U.S. oil production and decreasing the number of U.S. oil drilling jobs. Would we view that as a negative development? Would the U.S. support an anti-dumping case against the Middle Eastern country to save American jobs? Or would the U.S. take the Middle Eastern energy subsidy and run with it?

Finally, how does the environment fit into this picture? Solar power is unequivocally "cleaner" than power generated from fossil fuels. Should environmental considerations "tip the balance" in a situation where economic and political objectives do not align? In this case, for example, does the threat of global warming and environmental catastrophe outweigh concerns about a few hundred (or few thousand) U.S. manufacturing jobs? Should we make the transition to a cleaner power generation footprint the highest priority? For politicians on the left and right, time to pick your poison. Which is the higher priority: protecting U.S. jobs; economic growth; or environmental protection?