Protectionism in the age of solar cells

When the Trump administration announced last week that it was imposing tariffs on solar cell panels mostly coming from South Korea and China, it appears that the progressive blogosphere was almost unanimous in condemning the action as an attack on solar energy.

I was dismayed that the neoliberal lies about free trade had apparently been accepted by so many. As Jon Larson wrote on Real Economics, “In certain corners of the economic world, this is a major story—mostly because it flies in the face of neoliberalism's first commandment—Thou shall not condone protectionism!”

The tariffs should be attacked, but not because they are tariffs, not because they are protectionist, not because they may lead to less imports of panels and therefore the loss of jobs of people installing them. 

The tariffs should be attacked because they are not accompanied by a robust industrial policy that will help USA manufacturers replace panels no longer being imported, by panels of domestic manufacture. 

Protectionism is an issue on which the Democratic Party and the left in general are very vulnerable. Basically, they have forgotten the actual history of industrial development: every single country that successfully industrialized did so behind trade barriers. Many readers may not believe me, but it is historical fact. For a relatively short but full explication of the fact that protectionism works, I point you to James Fallows’ December 1993 article in The Atlantic, “How the World Works.” For an entire book on this topic, the best is probably South Korean economist Ha-Joon Chang's 2007 book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, available as a large pdf file here. An excellent review of Chang’s book, by Chalmers Johnson, is here

For a brief discussion of how this history was purposefully and deliberately eradicated from American universities and economics courses a century ago, read “Prophet of Prosperity” in The Pennsylvania Gazette of the University of PennsylvaniaThe motive? “...landlords and other rentiers were reclassified as capitalists, just ones who invested in land and raw assets rather than machinery, and thereby earned “the increments of value attaching to land,” thus removing the social opprobrium of being exploiters, parasites and usurers. And, more importantly, to allow “money to make money.” 

(I wrote this paragraph with the nice folks at TOP in mind, especially that neoliberal buttwipe, Armando.) We like to taunt our conservative and libertarian opponents that you are entitled to your own opinions, but you are not entitled to your own facts. Well, the same applies on this issue, and to the neoliberals amongst us: you are entitled to your own opinions, but you are not entitled to your own facts. The facts are clear that historically, countries that successfully industrialized did so behind trade barriers that protected their infant industries, and protected the earning power of their working people. The facts are equally clear that since the imposition of economic neoliberalism and free trade on developing countries, and their enforcement by the World Bank, the International Monetary Fund, and other international NGOs, not to mention the USA government and others, the growth rate of the national economies of developing countries has been LESS than it was before neoliberalism and free trade. Those are the facts, and all the crap you were taught in college economics courses will not change them. 

But protectionism alone does not work. There must be a national industrial policy to promote and encourage the development and growth of new industries. As originally developed by George Washington and his Treasury Secretary, Alexander Hamilton, and later in the 19th century by Henry Clay, Henry Carey, Abraham Lincoln (on Lincoln, see one of the best overlooked books on historical political economy, Lincoln and the Economics of the American Dream, by Gabor S. Borit, Memphis State University Press, 1978)., and others, protectionism was one pillar of a three-part program for national economic development. The other two were a national banking system, and internal improvements (what we today call infrastructure).

Also, American economic thought — outside the oligarchical slave south —  in the 19th century was dominated by the now forgotten Doctrine of High Wages. According to this doctrine, there was a virtuous circle in which paying labor high wages allowed labor to avoid penury and the bodily and mental exhaustion that accompanies it, making labor more productive and thus generating the ability to pay labor high wages. It was explicitly recognized that to force Americans to compete against the poorly paid labor of the British empire (in the dreadful conditions of industrial Birmingham and London as well as the wretched poverty of India and other colonies) was crazy. In the Conclusion to his 1851 book, The Harmony of Interests: Agricultural, Manufacturing & Commercial, Carey wrote that the British system of free trade "looks to pauperism, ignorance, depopulation, and barbarism," while protectionism and the American School of political economy aims "to increasing wealth, comfort, intelligence, combination of action, and civilization."

The history of a national banking system is now obscured by Jackson's demolition of it in the 1830s fight over the rechartering of the Second Bank of the United States. But the key point was that financial activity must be steered toward productive investment and away from mere speculation and "stock jobbing."  Hamilton set down a firm and concise test in The Federalist Papers number 15: "Is private credit the friend and patron of industry?"

Today, that would mean a severe crackdown on the over $5 trillion a day of trading in stock, bond, futures, options, and foreign exchange markets, as well as seizing the estimated $50 trillion in hot money sitting in tax havens around the world. A tax on trading in the financial markets would go a long way to eliminate much of the speculative trading, and shift the socially harmful short term outlook of financial markets to a more long term outlook more attuned to the real economy ordinary people experience day to day. High frequency trading in particular, since it serves no economically productive or socially useful purpose whatsoever, needs to be eradicated. 

Internal improvements were carried into effect by dozens and dozens of government programs and projects, beginning with the building of lighthouses under the direction of Treasury Secretary Hamilton. Even Hamilton's political enemy, Jefferson, engaged in internal improvements —  sending out the Lewis and Clark Corps of Discovery to explore and map the northwest, followed by similar Army expeditions — almost completely forgotten today —  to the southwest, to explore the Platte, Arkansas, Canadian, Red, and upper Rio Grande Rivers of the lower Great Plains. Army officers leading these expeditions included Stephen H. Long and Zebulon Pike. Altogether, over 40 Army expeditions would be sent out over the first half of the 19th century, and the information they returned with enabled the vast overland migrations to California and Oregon. In the 1850s, Army engineers led survey expeditions to select the route for transcontinental railroads.

There were many other government programs besides these Army expeditions. There were Navy expeditions to the South seas and the Antarctic, which brought back specimens which formed the basis for creating the Smithsonian Institution. There were programs to build roads and canals, harbor improvements, and improvements to river navigation. There were clean water and sanitation projects carried out by state and municipal governments. There was direct funding of Samuel Morse to build the telegraph, and direct Navy funding of experiments to determine the most efficient designs of steam engines. There were state and national programs to study problems of agriculture, and to find, introduce, and develop new animal and crop breeds more resistant to the pests and germs of North America. There were deliberate policies to spread the new technologies and capabilities of metalworking machine tools from the national armories where they were first designed and developed, to general industry.

In short, there was ACTIVE government promotion of economic development that complemented trade protectionism to encourage the creation and growth of new industries and new transportation capabilities, while at the same time (in the North at least), ensuring that American workers were the highest paid and most productive in the world. (It must be noted that this record of nationalist economic achievement is easily obscured by focusing only on the "peculiar institution" of slavery in the South, or on the emergence of a new class of Gilded Age robber barons who consciously modeled their tastes, biases, and social outlook on British oligarchs.) 

Without these two other two pillars - national progressive banking, and massive infrastructure programs — and a discontinuation of the war on the wages and benefits of American workers —then Trump's protectionist attempts to reverse the deindustrialization of the USA economy will be largely ineffective.

There also remains the problem of avoiding a trade war. There are too many brainwashed so-called progressives who aggressively characterize critics of free trade as “isolationists” and jingoistic “economic nationalists.” Again, they may have their own opinions, but they may not have their own facts. And one important fact going forward is that the world desperately needs $100 trillion in new investment to build energy and transportation systems that run on renewable energy sources alone.

The present world trade regime, which was designed mostly by multinational corporations to create sources of cheap labor to be exploited in the making of cheap, increasingly shoddy consumer goods, and to avoid taxes on the resulting high profits, must be discarded, and replaced with a world trade regime which strictly limits speculative and hot money capital flows, and which promotes national economic development of the industry and agriculture of all nations. This means negotiating with countries like Algeria — not to open up their markets to speculators and usurers, but to assist them in acquiring and developing the scientific and technological knowledge to build their own fresh water systems, renewable energy systems, and transportation grids. Algeria wants to build its own automobiles and eliminate imports. This desire should not be attacked and disparaged as contrary to free trade, but encouraged as a solid way to provide high paying jobs for Algerians. And it should also be encouraged to be steered in such ways as to move beyond internal combustion engines as quickly as possible.

There are hundreds of millions of people across the globe without access to clean water, without indoor plumbing, without heating or cooling. How many steel plants and plastics plants are there in Africa that produce pipe? How many factories are there in Africa to produce valves, faucets, gaskets, grommets, ? If there aren’t any, rich countries like USA have a moral obligation to help establish them, and get them running. And NOT for exporting all this new pipe, valves, and faucets back to USA or other already developed markets. 

In sub-Saharan Africa, 70 percent of people live with no access to electricity. Yet there is enough solar energy hitting one square kilometer of desert in Africa to supply all the electricity needed -- in all of Europe as well as Africa. Deploy enough photovoltaics, and Africa has a huge surplus of energy it can export to Europe. There is no reason that these solar cells can’t be built by countries in Africa. No reason except plain racism, and blind ideological faith in free trade.

We need a new world trade system based on actual national development of industries and domestic markets in the less developed countries. Free your mind of its free trade lies!

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Arrow's picture

It made me ask the question...Is what we live in really a enforced reverse protectionism?

Through a neo-liberal world economic order of empire, much like colonial empires did before,
the 1% percent force their 'product' on the world. This takes the form of 'intellectual property' (the neo-rentier?) thru treaty's like TPP, NAFTA, and the whole supra-national enforcement mechanisms like WIPO. Two examples -

British colonial India (if you watched the 'Gandhi' movie) was forced to buy British manufactured textiles and salt.

Nowadays under this new 'neo-rentierism' a sweatshirt coming from a Vietnamese factory with Mickey Mouse on it costs 2-3 dollars and everywhere you must pay $30 for it.

Drug patents?!...Software licenses ?!...No no no!...You must pay me my cut!...I'll send you to economic (and physical) jail!

So look at the 'trade war' between Canada(and Europe) over jet airplanes. Boeing (through it's worldwide Imperial enforcer the US government) slapped tariffs and pressured governments. This was all in order to protect 'free trade' against the 'protectionism' of Canada for having a national economic policy and supporting same with grants.

Don't go a few miles to the sea and make salt!...Or weave cloth at home!...You must buy those things from us!

Nice job Tony and sorry I turned this comment into a rant.

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I want a Pony!

k9disc's picture

Neo-mercantilism or corporate mercantilism.

The only difference is that instead of national/sovereign based, it's legal structure based.

Same kinds of shenanigans are happening given that the "whole pie" is in the market, and corporate only works with corporate. I think those are two defining aspects of mercantilism, IIRC.

Sometimes I really wish I were more economically literate. All I got is my liberal arts and science education.
@Arrow

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“Tactics without strategy is the noise before defeat.” ~ Sun Tzu

Tony Wikrent's picture

@k9disc
I have explained neoliberalism by first explaining that liberalism arose as a revolt of the rising merchant and craft classes of Britain seeking to overcome the power and preference given the monarchy and its courtiers under mercantilism. The original economic policies of USA have been described as mercantalist, but the crucial point usually missed is that whereas under the monarchies and oligarchies of Britain and Europe, mercantilist policies ensured that all economic activity was directed to enrich the ruling elites, in USA, the Constitutional mandate to promote the General Welfare results in economic activity being directed (mostly) to the public interest.

("Mostly," because periodically, political fights erupted when it became clear and intolerable that powerful economic interests were ignoring or even damaging the public interest: the rise of the Grangers and their fight in the 1860s-1870s against the railroads (which ironically had been funded by massive grants of public land); the rise of the Farmers Alliances and populism in the 1870s-1880s and their fight against seed companies, farm implement manufacturers, and commodity futures markets (which was really never won); the rise of progressives in the 1880-1910s against the Trusts, especially the meatpackers and drug companies; the rise of organized labor in the 1920s-1930s against the auto companies and other large industrial corporations.)

Now, USA had devolved into an oligarchy, with supporting philosophies of political economy -- trickle down economics, monetarism, libertarianism, neoliberalism, sharholder value, etc, etc. -- to justify almost all economic activity being conducted in almost total disregard for the public interest.

Thus, neoliberalism is a revolt of the rich and the corporatists against the regulatory / welfare state that was built to fulfill the Constitutional mandate to promote the General Welfare -- one of the great achievements of the American republic which set it beyond and above all forms of government before it.

Fortunately, there are some, such as Friedrich Hayek, who explicitly attacked the concept of the General Welfare as being the slippery slope to "statism," or as Hayek's book was entitled "The Road to Serfdom." Unfortunately, it seems many more Americans are familiar and comfortable with the ideas of Hayek, than with the ideas of Benjamin Franklin and Alexander Hamilton. Hamilton is particular is crucial, because he served as a "prime minister" under Washington. And, he is the first Treasury Secretary. As Henry Adams wrote in 1879,

"The true ground of Hamilton’s great reputation is to be found in the mass and variety of legislation and organization which characterized the first Administration of Washington, and which were permeated and controlled by Hamilton’s spirit. That this work was not wholly his own is of small consequence. Whoever did it was acting under his leadership, was guided consciously or unconsciously by his influence, was inspired by the activity which centered in his department, and sooner or later the work was subject to his approval. The results — legislative and administrative —
were stupendous and can never be repeated. A government is organized once for all, and until that of the United States fairly goes to pieces no man can do more than alter or improve the work accomplished by Hamilton and his party."

I recommend, as the best book on economics, my friend Jon Larson's 1992 Elegant Technology: Economic Prosperity from an Environmental Blueprint. Larson has made the entire book available for free at the link. Also, the web page is organized by chapter, which should allow you to quickly decide if it's something you want to read.

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- Tony Wikrent
Nation Builder Books(nbbooks)
Mebane, NC 27302
2nbbooks@gmail.com

Maybe good for murcan manufacturers, definitely bad for consumers, jobs and renewables. Good for utilities, bad for the environment. There is nothing nuanced about neoliberal policy. More for the fat cats and less for rest of us. Good article, thanks.

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Lots of history and information that I was not aware of.

One quibble:

The tariffs should be attacked because they are not accompanied by a robust industrial policy that will help USA manufacturers replace panels no longer being imported, by panels of domestic manufacture.

It seems fair to suggest that Trump is pursuing this course out of spiteful opposition to solar technology, even if the critics saying as much have their own duplicitous agenda.

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Tony Wikrent's picture

@FutureNow
It is fair at this point. We must wait to see what other items, and how many, are subjected to tariffs. If it is a large number of goods, then it will not be an accurate assessment of his motives.

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- Tony Wikrent
Nation Builder Books(nbbooks)
Mebane, NC 27302
2nbbooks@gmail.com

Outsourcing Is Treason's picture

I strongly suspect that the real prize at stake here is the estimated twelve to thirteen trillion dollars worth of fossil fuel currently in the ground. It can’t get turned into cash until it is sucked out of the earth and burned. Cheap renewable energy is the chief alternative, and that’s what this tariff targets.

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"Please clap." -- Jeb Bush

earthling1's picture

@Outsourcing Is Treason
I wonder if any consideration was given to the fact that our entire military would come to a halt with all the fossil fuel burned and gone?

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Neither Russia nor China is our enemy.
Neither Iran nor Venezuela are threatening America.
Cuba is a dead horse, stop beating it.

ZimInSeattle's picture

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"Those who make peaceful revolution impossible will make violent revolution inevitable." - JFK | "The more I see of the moneyed peoples, the more I understand the guillotine." - G. B. Shaw Bernie/Tulsi 2020

I think consumerism, which may have been a way to stimulate economic development at the turn of the 20thC has reached the point of diminishing returns. We are literally drowning in the wasteage of cheap stuff.

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Mary Bennett

@Nastarana returns are beyond diminishing. A bit off topic, but reminds me of a story about cleaning out the catch basins in New Orleans. There exists a network of underground drains to keep the Mississippi from filling up the streets. They are emptied by huge, ancient pumps running almost constantly. Someone had the bright idea to unclog the drains recently and unearthed tons of Mardi Gras beads. Funny Smile

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Tony Wikrent's picture

@Nastarana
Indeed. A few years ago, addressing the issue, I attempted to launch the word "malconsumption."

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- Tony Wikrent
Nation Builder Books(nbbooks)
Mebane, NC 27302
2nbbooks@gmail.com

I saw your essay over there and it stood out for it's depth. I have been wondering about this. This solar panel dispute started in 2012 with a USITC investigation. https://ustr.gov/sites/default/files/files/Press/fs/201%20Cases%20Fact%2... Prob. at that time the price spread wasn’t that bad between domestic and imported panels. The 6 years they collected data imported panels dropped like a rock, the US was flooded with cheap panels and the solar industry took off. So what do you say to the American companies “You were right, you win, but too bad we’re doing nothing for you”. I see two things. It took so long to reach a decision American companies were decimated, and Trump did have a lot of discretion in what the penalties would be.

It just seems there should have been a better, fairer way. Solar World had 500 layoffs. Maybe impose a tariff within 6 months of the complaint to equalize prices before the spread gets too wide, or give subsidies, and sort it out in the WTO? I don’t know what the answer is, but we keep talking about American companies and American jobs being important and it’s disheartening to hear “ we don’t care, we want cheap panels”

Solar World ,one of the plaintiffs was called out as a foreign company that should have no credibility in all this. It was started by Bill Yerkes https://www.solarworld-usa.com/newsroom/news-releases/news/2014/bill-yer... and was bought out by a foreign company. Chrysler used to be an American company, and we still bail them out.

I guess I'm biased. I put in my own solar array and we bought Solar World because it was American made.

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@Snode but I think you've just illustrated what Tony is talking about in this essay - the lack of a coherent policy for this country, and its workers in particular, to reap the benefits of solar. The Chinese beat us at our own game there. The ugly part now, as you also mention in your response, is the delay in transforming to renewables is made worse for Americans overall as well who could perhaps afford to get solar but now that may change due to increased costs due to tariffs, so we lose out twice.

And in the meantime, our idiots want to fire up a few more coal plants if possible and make matters even worse. I do think that's also part of Trump's motivation, he and his cronies will do anything to keep the fossil fires burning, not only to make money but to shove it in the face of all the rest of us who see just how dire climate change is going to become. What do these idiots care? They are just dumb enough to think they'll thrive once the useless feeders are gone. God how I would love to be a fly on the wall when they finally get their just rewards.

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Only a fool lets someone else tell him who his enemy is. Assata Shakur

@lizzyh7 Yes, thanks
At least the solar part...

"The tariffs should be attacked because they are not accompanied by a robust industrial policy that will help USA manufacturers replace panels no longer being imported, by panels of domestic manufacture."

The US was the birth of the solar industry, and we pissed it away.

the rest I'm still chewing through. It's good stuff.

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It seems that there is no dirth of free traders to support corporations and practices which undermine the national interest.

I was, and I shouldn't be, shocked at the total and faithful attacks on tariffs by mainstream liberals/democrats even though the Chinese in particular were using unfair trade practices. They in fact seem to have a national industrial policy. While not necessarily protecting local industries in all cases, the Chinese look out for national gains. For example, they put high tariffs on GM high end cars especially jeeps if memory serves. The result was GM unable to access the growing Chinese market. What happens, GM moves production to China.

In attempting to understand the current outcry over tariffs on solar panels, it does seem the US is its own worst adversary. Solar activists claim that fees imposed by utilities in Nevada destroyed the residential roof-top market for solar. In FL, restrictions put in place by utilities and others pretty much make it impossible for homeowners to install solar panels. No industrial policy.

I suppose in the end, the hatred of Trump is so intense that democrats will take up any position opposite of Trump decisions. Which of course, just serves the ideology of neoliberal globalism.

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has a monopoly on a key rare earth element? So how do we build the panels without China? Or do we just not build efficient panels?

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I've seen lots of changes. What doesn't change is people. Same old hairless apes.

@The Voice In the Wilderness to Tellurium, which is a rare metalloid. It is used with Cadmium to produce 'thin film' pv cells, which is new technology. Most existing pv cells use silicon crystalline, which is abundant. China, Mexico and Sweden have found new sources of Tellurium, so I do not believe any country has a monopoly. Probably a neo-liberal talking point from the US as they can not yet control it.

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@QMS

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I've seen lots of changes. What doesn't change is people. Same old hairless apes.

polkageist's picture

I enjoy your essays because they always teach me something. You also save me from having to read economics blogs.

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-Greed is not a virtue.
-Socialism: the radical idea of sharing.
-Those who make peaceful revolution impossible will make violent revolution inevitable.
John F. Kennedy, In a speech at the White House, 1962

Meteor Man's picture

Thanks for this essay TW. From The Doctrine of High Wages to this part was a real eye opener:

Carey wrote that the British system of free trade "looks to pauperism, ignorance, depopulation, and barbarism," while protectionism and the American School of political economy aims "to increasing wealth, comfort, intelligence, combination of action, and civilization."

That and all of the progressive government programs of exploration and development in the 1800's were completely ignored in my college history and economics courses. Now I know why. The amazing social, scientific and economic development of America were the result of government "subsidies" instead of the pure "capitalist ingenuity" of greedy Randian entreprenuers.

Tariffs and a coherent industrial policy are a necessary element of early stage economic development in developing and underdeveloped countries:

We need a new world trade system based on actual national development of industries and domestic markets in the less developed countries. Free your mind of its free trade lies!

American "free trade" is actually global economic domination through American copyright and intellectual property mechanisms. TPP was a way of locking in the economic advantages of First World nation states over developing Second and Third World nation states. (I think that's a reasonably accurate generalization)

Thanks again TW and Keep Coming Back!

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

wendy davis's picture

tony wikrent. but i did remember this by leo panitch on TRNN, and hunted it down outside the TRNN site. he seems to imply that orange julius knows all this; i doubt it. and in davos he'd said he'd take another look at the TPP. will he tout or order tax breaks for solar? sure, ya can take that to the bank...

Panitch: You know, does he have a free trade agenda? One has to be careful with this. I mean, he is definitely throwing some sand on the free trade roads, but let's remember that free trade agreements are primarily about the free movement of capital, and the free movement of financial services and corporate services: lawyer services, consultancies, etc. You know, the tariffs are not so significant any longer in the context of free trade. The great irony of him putting on the solar panel tariff is that the company he is protecting most is an Atlanta company that is owned by Chinese capitalists, so he's putting tariffs on to protect Chinese capital that has invested and is employing people in the United States, while getting in the way of American capitalists who produce solar panels in Asia and import them to the United States."

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