Cheap Chinese Solar Panels Could Boost American Manufacturing

As Dave Roberts notes at some length, a variety of diverse trends in the solar industry—from bankruptcies of solar panel companies to skyrocketing installation rates—are driven by the surge of dirt cheap photovoltaics emanating from China under what the US says is a WTO-violating subsidy scheme.

Now you might think that the Obama administration would welcome this. After all, the White House often seems paralyzed by the fact that it wants to promote environmental causes, wants to engage in moderate level of fiscal austerity, and wants to indulge the voters’ desire for cheap energy. Here we have a way to get clean energy on the cheap for the consumer and at zero budgetary cost to the United States. Let the Chinese pay for it! Instead, they’re slapping punitive taxes on Chinese solar to protest the unfair conduct. Roberts has mixed feelings about this, which he links to the idea that we should be promoting American manufacturing. But note that electricity is an important production input cost for manufacturing. So while obviously taxing Chinese solar panels would be good for the American solar panel manufacturing industry, it would be bad for American cement-makers or even builders of windmills.

I think the real issue here has to do with the dynamic strategic response. If punitive tarrifs induce the Chinese to move to a free trade equilibrium and then we drop the tarrifs, then the policy has worked well. But punitive tarrifs could also push us into a cycle of back-and-forth retaliation and the equilibrium could get worse and worse.