Who knew President Trump was taking policy advice from journalist Naomi Klein?
Robert Lighthizer, the U.S. Trade Representative, announced on Monday that Trump has approved substantial import tariffs on solar cells and modules. This is not a good idea.
We know it’s not a good idea, because it’s something that Naomi Klein has argued for – she who is that guiding compass for economic policymaking.
Let me explain. We desire solar panels, systems, modules, and cells, because we’d like people to install them so that we get electricity without boiling the whales and the oceans within which they swim. Vast numbers of us couldn’t care less about that or don’t believe the underlying theory at all. But assume that we do.
Some want to have those solar things as cheap as possible so that people install more of them. The cheaper, the better. If we ever get them down to 10 cents a watt installed, then really, the entire climate change problem is solved.
But what do import tariffs do? They raise the price of such things – that’s the very point of them. The Chinese have been, apparently, selling them to us too cheap, meaning that we install a lot of solar panels. Lighthizer’s contention is that we’ll be better off if we install fewer solar panel systems, because they’re more expensive, but install American-made ones, which is why they’re more expensive.
This isn’t good economics, but there you go.
The connection with Naomi Klein is that this was exactly her complaint in This Changes Everything. My own opinion is that Klein is simply too dumb to have understood her own argument.
She noted that there was a great big solar cell/panel factory in Ontario. Which was empty, doing nothing, as a result of actions by the World Trade Organization. Klein insisted this was proof of how neoliberal globalization was making beating off climate change impossible. Except, well, the WTO had made solar panel production cheaper in Ontario, not more expensive.
In more detail, Ontario had a subsidy scheme, a feed-in tariff, in place. That’s fine; there’s no trade or WTO problem with that. Except it was linked to local content rules. You only got that special price if the cells, panels, or some significant portion of them, had been made in Ontario. That’s not allowed under those trade rules. If you’re going to have such subsidies, then they must be open to all, not just to goods or services made in certain places.
So, the plant had been built to gain those subsidies by manufacturing locally. Then comes the WTO case, and the subsidies are no longer restricted to local manufacturing. What happens then? The number of solar installations soars, because it’s now much cheaper. And no one is buying from the expensive local plant either.
Generally, the world was getting more of what it wants — more solar because it’s now cheaper. But Klein rails against the WTO because the expensive factory is empty, even as we’re getting more solar.
This is exactly what Trump and Lighthizer are doing here. They’re insisting we should use more expensive American-made solar and thus have less solar installed. They’re also going to tax imports to make solar more expensive and make sure this happens.
Yet, what we actually want is more solar panel systems installed, which means we want to make it cheaper. Exactly that mistake of Klein’s. Actually, I half-expect dear Naomi to come out and praise this latest trade action from Trump, but I can’t quite convince myself that even she’s that unaware of how bad an idea this is.
There is the point that raising the price of things we want to use by slapping import tariffs upon them is a bad idea. But rather more important is the observation that if you ever find yourself agreeing with Naomi Klein on an economic matter, then you’ve got to seriously rethink your position – to the point of considering whether you’ve entirely lost your marbles.
Sadly, Lighthizer has just failed that test and, to the extent that Trump is involved at this level of detail, so has he.
We want to install more solar; therefore, we want it to be cheaper, not more expensive. Why the heck would we tax imports?
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute.
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