The “Greenback Green” vs “Solar Green”

Though it is part of an administration that often promotes green energy sources, the Commerce Department prefers its own color palette. Call it “greenback green” versus “solar green.”

The Department has announced that it will impose a tariff of up to 250 percent on imported Chinese solar cells. The tariff is in response to alleged violations of “anti-dumping” regulations, which prevent foreign companies from selling their products below the cost of production. The Commerce Department claims that Chinese government subsidies of solar panel manufacturers enabled companies in that country to price their products so low that American manufacturers could not compete.

While the rates remain preliminary, 61 Chinese manufacturers, including major players Suntech (STP) and Trina Solar (TSL), will likely be required to pay around 31 percent, while all others will likely be charged a rate of 249.96 percent. The current round of tariffs will come on top of an existing duty of as much as 4.73 percent, which was announced in March and was also triggered by the issue of Chinese government subsidies.

As I wrote last year, our anti-dumping rules are deeply flawed, allowing domestic manufacturers to effectively wield the U.S. government as a weapon against foreign competitors. Furthermore, in this case, Chinese companies weren’t the only ones receiving government support. The Obama Administration ought to be fully aware of this. President Obama used his first campaign advertisement of the season to defend the $535 million federal loan guarantee it made in 2009 to Solyndra, a U.S. solar panel firm that, despite the government support, collapsed two years later.

The problems with these solar panel tariffs, however, go beyond unfairness. Subsidized or not, Chinese solar panel manufacturers are succeeding at a task that has proven difficult for American companies: producing solar panels at a price that makes them economically attractive. The tariffs may lift solar power back out of economic reach for many American companies and consumers. Jigar Shah, president of the Coalition for Affordable Solar Energy, an American industry group that opposes trade restrictions, told Bloomberg that the new tariffs “will increase solar electricity prices in the U.S. precisely at the moment solar power is becoming competitive with fossil fuel generated electricity.”

Even with the tariffs, American companies are unlikely to gain the boost the Commerce Department seems set on giving them. Instead, Chinese manufacturers will probably move production to other countries to avoid the duties. “It’s something we’ve been thinking about over the last year already,” Isabelle Christensen, director of North American operations for Chinese solar module maker JinkoSolar Holding Co. (JKS), told Bloomberg. Such a move would add to costs, but most likely would not be expensive enough to completely take away the Chinese companies’ price advantage.

While the effect on U.S. solar panel manufacturers will likely be minimal, the same won’t be true for the rest of the U.S. solar industry. The U.S. is also a key producer of polysilicon, an important component of solar panel production – and much of that is sold to Chinese panel manufacturers. Polysilicon makers have already expressed fears over the possibility of retaliatory tariffs. Even if there are no retaliatory tariffs, the cost of the U.S. tariffs to Chinese manufacturers will reduce their demand for polysilicon, cutting into the U.S. companies’ profits. Meanwhile, the higher cost of panels in the U.S. will lower demand here, taking away business from the people who sell, deliver, install and maintain solar systems.

The end result will be fewer American jobs and a setback for the solar industry as a whole. In short, less green.

There are, of course, a few winners here: the Treasury, which will get to collect the tariffs until Chinese companies are able to relocate production; SolarWorld (ETR:SWV), the German company whose U.S. division pushed for the tariffs, which will get at least a short-term advantage over its competition, courtesy of the U.S. government; and the Obama administration, which might be able to wrangle a few votes by appearing to protect U.S. manufacturing jobs – never mind at what actual cost to other domestic jobs.

The winners, however, are few, and the gains are minimal. To really encourage job gains or clean energy, we’re going to need much higher wattage policy than this.

About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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