- Abiye Alamina
Tariffs Bring Solar Panel Jobs to the Buckeye State
Should we care that trade is globally inefficient when we impose tariffs on foreign imports if such tariffs allow us to increase production of the import competing products domestically and create additional jobs in the process?
Now I have addressed this issue somewhat in at least two or three prior articles, but I want to look at an application that is very much close to home.
Recently First Solar, an American firm that manufactures rigid thin film modules or solar panels announced expansion plans in Lake Township, Ohio.
With Mike Koralewski, Vice President of Global Manufacturing for First Solar saying that “... strong demand in the US for advanced solar technology, along with recent changes in US corporate tax polices, have encouraged our decision to grow First Solar’s US production operations”, the $400 million expansion is expected to lead to an annual payroll of approximately $30 million for the 500 associates that will hired.
This is no doubt fantastic news for the Northwest Ohio area which does continue to have higher unemployment rates than the national average. Quite naturally the news was also greeted with elation by Ohio representatives in Congress, especially by those in the Republic party, touting the tax reform policy as continuing to deliver jobs as promised.
It is interesting to note that while First Solar pointed to strong demand and to the changes in tax policies as the drivers of this expansion, they have primarily been on the benefit end of the just recently passed tariffs on foreign solar panels. The tariffs, as a tax on foreign imports, raise their prices in the domestic market, thus allowing First Solar to potentially raise their own prices without suffering competitive loss and to increase their supply to meet the apparent growing domestic demand.
The 30% tariff on foreign solar panels kicked in in February, but it is important to note that shortly after the tariff announcement in January, First Solar’s shares jumped 9 percent indicating that while the entire industry faces a mix of good and bad from these tariffs depending on where they are in the global supply chain, First Solar stood to gain significantly. So the plans to expand production may be more intimately linked to these tariff measures than to the corporation tax reform policies.
But back to our earlier question. Why should we in Northwest Ohio not fully support the tariff policies or whatever it is that is leading to the creation of these additional jobs? So First Solar gains from the tariffs, and the wealth is trickling down in the form of jobs, why should this be a bad thing? We cannot expect anyone from the area to see this action in any bad light. Woe betide any politician of any affiliation who would condemn this move as a jobs killer for other industries. What other industries? That would be trading visible jobs for some hypothetical notion of other jobs lost. Who cares? Those jobs may not even be in the area, so why would it even matter?
That is the allure of protectionist policies. Concentrated visible benefits, and typically dispersed and not too visible costs. Politics lives by the visible, and unless we have a trade war that results from protectionist policies, these policies will continue to dominate, and the economy, including Northwest Ohio, as a whole will be worse off.
To be sure with more insightful planning we could provide the same benefits to Ohio in the form of new jobs created while working within a framework where free trade operates, the problem is that it is hard work, besides, politicians cannot easily take credit for them as they are driven largely by market processes.
First think about what it is that purchasers in the area of solar panels could have spent their savings on when they purchased these panels from abroad instead of domestically? Those other products would have faced increased demand and possible job increases in those areas, but that does not happen.
Second, also keep in mind that some of the things we produce and export, we would likely face reduced exports of those because of the absence of dollars in the hand of foreigners to make those purchases. It may not be immediately clear but if you think about it, it is by importing that we ensure that we can export. When we constrain our imports, we constrain also our exports, and job growth in those industries.
It is clear that the processes described above do not look like the results that politicians can take credit for, so they are unattractive. Worse, we only see the apparent benefit their protectionist policies provide for those within the protected industries, but we do not see how these link to the now higher solar panel prices, higher costs of installation, and the resulting reduction in both consumer spending in other areas as well as the reduction in exports as well. We are more inclined to think they are explainable from some other processes in the economy and beyond that are unrelated to the tariff policies.
OK, but why should we care in Northwest Ohio. Well, maybe we shouldn’t, but if we are part of the consumers demanding solar panels, cleaner energy, producers of goods including agricultural products that we export abroad, then it should matter. I have not just described negative impacts that affect people in some remote part of South Dakota or Illinois, or Rhode Island, or even the state up north. I have described us, here in Ohio, here in Northwest Ohio.
When it comes to any form of protectionism, as the saying goes, we have met the enemy, and the enemy is us.