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Not Getting Swept Away

posted Nov 14, 2017, 11:27 AM by Nate Shanklin

The Solar Industry survives a close call with protective tariffs

By Nate Shanklin

If you work in any industry long enough, you will inevitably begin to care deeply for issues that have next to no recognition amongst the general population.  I am sure that the readers of Parking Today are uniformly concerned with issues that the readers of Sandwich and Snack News cannot find the will to care about (both real publications).

It is with this in mind that, I fully realize that the recent International Trade Commission case for solar panel imports may not resonate with everyone.  But this case represents something larger than solar panels, and so instead of laying down a complex argument about the past and future of the solar industry, I think it would be better to focus on something that we all have a commonality with, brooms.

The United States whisk brooms industry is presently protected by a 32% protective terrify on imports. The Federal Government has long played with protective tariffs to generate federal income and to protect domestic industries.  Starting from the first tariff in 1789 (originally on all imported goods), the United States Government has had a binary decision to make in terms of fostering the development of domestic industries.  The choice is to either support local industry via tax breaks or through attempts to foster innovation or to tax imported goods as to allow domestic industries to sell their wares at a competitive price.

Stemming back to 1913, arguments were made to the Congressional Ways and Means Committee that the domestic production of brooms, specifically those with a wooden handle and with natural fiber bristles, were a strong domestic industry and one worth protecting.  Over the year, the wording of the tariff became increasingly specific as to not artificially affect an entire industry. As time has moved on, this has meant that home cleaning products have innovated and blossomed, but to this day at the Libman broom plant in Arcola Illinois, along with all of their modern products, there stand a small troop of workers who are still paid by the piece to run the machine that bunches the fibers and then wraps the wire collar around the wooden handle to make the protected brooms.

Tariffs do help in two specific cases. First, with dumping where one government is subsidizing the cost of a product to intentionally depress that same industry in another country, and secondly to stabilize the domestic production of commodities.  The protection of commodities is usually seen as important as a national stability and independence move. In no case however, does a tariff ever typically encourage the innovation of a domestic industry for the specific product being protected.  By its very nature, the specificity of most tariffs actually encourage the stagnation of a product as it will tend not to change and risk losing its protected status.

In the end, innovation is what moves industry forward.  For any tariff, on broom or other, we must consider the larger ramifications of that restrictive action.  If associated industries, such as the sanitation and janitorial business are able to get their goods at a cheaper price, then they will be able to operate more efficiently, offering them the ability to grow. While this is not a one for one market reaction, it must be understood that no industry operates in a vacuum.  Preserving jobs is always at the forefront of any protective effort, that, or federal revenue. We need to make sure that the far reaching effect of a protective tariff do not needlessly sweep away the capabilities of a greater swath of industries only to protect the fragile bristles of a domestic business that is unable or unwilling to change.

Also, if you are a private equity firm attempting to recover a $50 Million dollar convertible equipment loan from the solar panel manufacturer, Suniva, and you are willing to drag down a multibillion dollar industry by petitioning the United States International Trade commission for a protective tariff of nearly 200% of present panel prices all because you invested in a company that kept making small panels even as the industry moved to large ones, well… you shouldn’t do that either.

 

Shine on everyone.

Wolcott Energy Group

www.wolcottenergygroup.com

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