Would Trump Block Low-Cost Foreign Gold Imports? Solar Trade War Lessons

Would Trump turn down free Chinese gold?
Would Trump turn down free Chinese gold?

President Trump has a hard decision to make about putting a tariff on China’s solar panel manufacturers to protect domestic manufactures, which would at the same time ironically decrease solar employment in America. In addition, the U.S. risks starting a trade war with China over this rapidly growing industry, but if we substitute “gold” as the product, Trump’s policy choices becomes a “no brainer”.

Imagine if China was caught using government funding to enable dumping of low-cost pure gold on the U.S. market. This low-cost gold was unquestionably harming gold mining in the U.S. that simply could not compete with Chinese operations. Would it make sense to put a tariff of 35% on imported gold or enact quotas for the number of tons of China’s gold that could enter the U.S. market? If China was offering $1.35 billion of gold for only $1 billion, what should the President do? Restrict trade, or would he simply buy it and pocket the profits?

I suspect President Trump would buy it, and if he could, buy all of it.

Yet, in the real world the U.S. International Trade Commissioners (ITC) recommended tariffs and quotas for solar modules imported into the U.S. from China – claiming they are cheating and selling solar panels too inexpensively. If enacted such provisions threaten tens of thousands of U.S. solar jobs many of which are just now finding their way to the middle of the country (and even into “Trump Country”) to protect two small American manufacturers from harm (one of which is already bankrupt and the other is a German subsidiary).

The two companies argued that they could not hope to compete with foreign manufacturers. Putting aside the jobs argument for a moment (the Solar Energy Industry Association CEO and President warns that the decision will “unnecessarily force 88,000 Americans to lose their jobs in 2018”, which for perspective is 50% more than the entire American coal-mining industry employment), it is important to ask if anti-free trade makes sense from a capital asset standpoint. President Donald Trump has a range of choices provided by the ITC to address the injury found for the two domestic producers. As President Trump weighs the decision on this, perhaps he can keep in mind that solar can be treated as a capital asset just like gold.

In the last decade, the prices of solar photovoltaic modules have plummeted and the levelized cost of electricity for solar has dropped below the cost of utility power for many Americans. These means normal people can profit by installing solar power on their homes and businesses. Not surprisingly, U.S. businesses and homeowners moved in record numbers to purchase solar. Despite the sustainability luster of solar, in the end the rise of the solar industry in America was all about the money consumers could save by offsetting their electric utility bills. Whether those consumers are small homeowners or giant corporations like Wal Mart. Consumers have begun to see solar as the ultimate capital asset. It is a product you invest your money in now and then it pays you back with attractive rates of return over the warranty life. As the sun is going to shine next year (and 20 years from now), the technology is well proven, and utility rates are likely to continue to increase, solar modules may be the ultimate capital asset. Equivalent to a low risk bond that pays higher than stock market ROIs.

If Trump chooses the “buy it all option”, would it make sense for the U.S. government to buy all the super low-cost solar modules on the market? In 2016, the entire global solar photovoltaic market was about 75 GW. This is a lot, but America could certainly use it. For example, to increase national security we need about a quarter of that simply to fortify the U.S. military bases domestically from medium to long-term grid failure. Large-scale use of solar by the U.S. government could also contain government electricity costs that have swollen to over $20 billion per year. In addition, providing large quantities of low-cost solar power to domestic industry would also help increase manufacturing that is now heavily automated and electricity dependent.

In the end, it is clear; it is a bad deal to leave a lot of gold (or solar cells) on America’s doorstep.

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