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Trump's Solar Tariffs Are Bad, but so Are Solar Subsidies

February 2, 2018 in Economics

By Robert P. Murphy


By: Robert P. Murphy

The Trump Administration has enacted tariffs on imported solar cells and larger modules (as well as on washing machines). In general, tariffs are counterproductive, because they only help some producers at the expense of others, and they unambiguously raise prices for consumers. That logic applies to this case as well. However, insofar as the American solar companies that import cells and modules are some of the biggest losers in this deal, they have little grounds for complaint, as they are already receiving lavish benefits from provisions in the tax code. Two wrongs don’t make a right, to be sure, but employment in the renewables sector is arguably closer to the “natural” level after this latest move by the federal government.

The Context for the Announcement

The tariffs on solar cells and modules start at 30 percent in the first year, and then fall by 5 percentage points until reaching 15 percent. According to the Administration, the purpose of the tariffs is to correct for the distortion in trade caused by the Chinese government’s use of “state incentives, subsidies, and tariffs to dominate the global supply chain” in this arena.

Back in the fall, the U.S. International Trade Commission recommended that the federal government enact tariffs in response to China’s allegedly unfair practices. Indeed, the Obama Administration had reached a similar conclusion, as CNBC explains:

The Obama administration twice placed tariffs on solar imports from China, but Chinese companies skirted the penalties by moving production to neighboring countries. The Trump administration’s tariffs close that loophole by applying tariffs to all solar cell and module imports.

I personally don’t recall as much outrage over the Obama Administration’s moves when they occurred.

Tariffs, a Blunt and Inefficient Instrument

In general, economists from across the political spectrum agree that tariffs are a very blunt instrument, and reduce economic efficiency. They, of course, have the ability to help certain producers—that’s why tariffs exist—but in general, the gains to the winners are smaller than the losses to the losers. As such, when the U.S. government imposes a new tariff, it makes Americans per capita poorer than they otherwise would be.

The pithiest case against tariffs was penned by Henry George, who observed: “What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.” (Quote from page 47 here.) For an introduction to the …read more


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