At the end of January, CNN reported that in response to new tariffs on solar panels, Chinese solar panel manufacturer JinkoSolar would build a plant in the United States. These tariffs make Americans poorer, not richer.
The Parable of the Broken Window
The nineteenth-century French economist Frederic Bastiat exhorted us to look beyond what is immediately apparent to the harder-to-see but still-real effects of policies like tariffs. Tariffs produce “prosperity” for some very visible people and their very noisy advocates in Washington, but they do so at the expense of others.
Bastiat shows us why solar panel tariffs aren’t a win for the United States for three reasons.
Bastiat’s parable of the broken window illustrates his point. When a child breaks a window—as has happened in my house more than once—it’s a mistake to point at the money that has to be spent replacing the window and claim that it “encourages the national labor,” to use a phrase reminiscent of the eighteenth and nineteenth-century mercantilists.
I said windows have been broken in my house more than once. Imagine they hadn’t. In that case, we would have retained the money we spent replacing the windows and spent it on other things—and we’d still have a window. Society would be richer, not poorer.
This shows us why solar panel tariffs aren’t a win for the United States for three reasons.
The Unseen Consequences
First, the factory itself and the new jobs in solar panel manufacturing embody waste. If Americans could buy cheaper solar panels in the US, we would be able to deploy that labor and capital in other industries. Instead, all that land, labor, and capital is tied up in inefficient solar panel manufacturing.
If you scratch virtually any economist you will find an unrepentant free trader.
Second, as CNN notes, a lot of US solar jobs are installation. They’re not in manufacturing. As solar panels get more expensive, people buy fewer of them. This means fewer jobs installing solar panels and lower standards of living for those who would otherwise install solar panels.
Third, the increased earnings for US solar manufacturers is a transfer from consumers to producers, not net new production. Americans produce more solar panels, and they get higher prices for them, but these gains are exactly offset by the higher prices consumers are paying for solar panels.
If you scratch virtually any economist you will find an unrepentant free trader. Why? Free trade delivers the goods and raises standards of living. It’s a mistake to think that Americans are better off on net because of these tariffs.
Here’s a walk-through of a textbook problem on the effects of tariffs.
Reprinted from author’s personal blog.
