Trade Wars: Solar Power Subsidies

Americans who rarely think about the adverse effects of free-trade agreements and who blindly promote them in the quest for “efficiency” can finally feel the pain these pacts inflict on the less dominant power.  The obvious outsourcing and flight of labor intensive jobs are standard during free-trade transitions.  But Americans can now also understand the darker side of uneven banking practices and of markets flooded with foreign subsidized production.  Yesterday’s filing of a broad trade case against China for subsidizing solar power manufacturers best exemplifies years of mounting karma.

President Obama speaks at Solyndra on May 26th, 2010.

In a news conference earlier this month, President Obama addressed issues with the solar power industry.  “Even if the technology was developed in the United States,” the President said, “they end up going to China because the Chinese government will say, ‘We’re going to help you get started, we’ll help you scale up, we’ll give you low-interest loans or no-interest loans, we will give siting, we will do whatever it takes for you to get started here.’”  Through what equates to a subsidy with no-interest loans, China props up its domestic solar power industry, creating imbalances that give Chinese industries an edge against competition.  But America does this all the time. 

Although it provided the solar power company Solyndra with a $535 million federal loan guarantee and a $25million state tax break, the US is losing at its own game, as Solyndra couldn’t compete and filed for bankruptcy over the summer.  When the US proposes free-trade agreements (like those passed with South Korea, Colombia, and Panama last week), the one-sided treaties allow for American farmers to flood foreign markets with US subsidized food.  Even the most efficient foreign farmers could never compete with the $5 billion a year US Farm Bill.  In another recent and visible example, Japan didn’t speak up when the Detroit auto industry effectively received the same loans under TARP.  In essence, Chinese solar power subsidies just sound like America getting a dose of its own medicine. 

As US policy makers simultaneously pass new free-trade agreements with the developing world and negotiate new subsidies for farmers at home, they attack currency manipulation and subsidizing bank practices in China.  American politicians fail to see the situation’s irony.  If the US fights to equalize trade practices with China, will developing nations follow America’s example and fight back against US subsidies?




Here's a NYTimes followup to yesterday's post: Solar Trade Case May Backfire on US Firms

Trade Wars: Solar Power Subsidies