Years ago, during one of my stints advising a foreign government on their energy policy, I had to contend with a rather obstinate official intent on a single solution for his country's economic woes.
This jolly little fellow insisted that relying only on domestic production would benefit both an episodic unemployment problem and jump-start local factories.
In short, high protective tariff walls were the answer.
Now, I must always be careful in such situations…
If, on the one hand, I provide advice that turns out to improve the situation, usually that just advances the political prospects of the minister who steals the idea.
On the other hand, if my advice causes problems (usually because it's not correctly administered), there's the risk that the locals will read newspaper headlines proclaiming that an American advisor has just ruined their children's future.
Still, protective tariffs are rarely the answer to economic difficulties. They increase internal prices and inefficiency by depriving the market of an essential ingredient…
My experience has always been that this sort of give and take – someone suggesting tariffs, me showing them in great detail why that'll just come back to bite them – plays out only in developing countries.
This New Policy Will Hurt U.S. Businesses
On Monday, President Trump announced 30% tariffs on solar panels and components imported into the United States from China.
This is likely to put a damper on upstream solar development in the United States, since it will now virtually guarantee increases in the cost of solar power generation on the American market.
It will also hurt American employment. Initial projections following the president's announcement are for a near-term loss of at least 23,000 jobs (in addition to any investment losses facing those who've put money in these U.S. companies).
And that figure is likely to increase.
The reason is simple…
See, this is not a fight over who provides a homeowner with panels for his or her roof – there is still a market there.
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But with the sector saturated in many regions and subsidies ending, this is becoming an exercise in declining expectations.
The real push for solar is further upstream, as solar power "farms" expand to provide more power.
As I have recently noted, the intermittent nature of solar and wind power coupled with no foreseeable breakthrough in battery or storage technology will result in a barrier as to how far solar can go.
However, the prospect of replacing cheaper imported panels with more expensive domestically produced ones is going to have a chilling effect on the solar sector.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.