May 23, 2013 5:02PM

Toward Managed Trade in Solar Panels

Rumor has it that the United States, European Union and China are looking to negotiate a deal that would settle a developing trade dispute over solar panels. According to the New York Times, the deal would require China to limit its exports of solar panels to the U.S. and Europe and would impose a minimum price for those panels. In exchange, the U.S. and EU would drop existing antidumping duties (of around 30 and 50 percent, respectively). 

You might call this an “un‐​trade” agreement. Rather than agreeing to lower their own barriers to trade, the U.S. and EU are convincing China to acquiesce to those barriers by altering their form. The purpose of tariffs is to impose an additional cost on foreign manufacturers that limits competition and keeps prices high. The new model also keeps prices high and limits foreign competition, but unlike tariffs, a mandated minimum price enables the foreign manufacturers to benefit from those high prices. 

The agreement would be beneficial for existing U.S. and Chinese manufacturers, but not for U.S. consumers. For consumers, the effect of this agreement would be the same as if U.S. and Chinese solar panel makers agreed to divide up the market and not to compete on price. Actually making such an agreement between themselves would, incidentally, be highly illegal. So their governments are going to arrange it for them. 

The bizarrest aspect of this new development, and indeed the entire dispute, is that the market for solar panels would hardly exist if not for government subsidies. Increasing the cost of solar panels is completely at odds with any environmental policy to decrease emission of greenhouse gases. Even if you support the creation of “green jobs”, restricting trade in panels is counterproductive because it reduces employment in downstream businesses like solar panel installation. That our government would impose artificial barriers to direct artificial demand toward favored companies highlights the follies of green industrial policy, not just as a mind‐​boggling waste of taxpayer money, but as an impediment to the success of the broader green energy agenda.