Sunday, September 24, 2017

We Have to Make Things

The U.S. International Trade Commission (ITC) found on Friday “that low-cost, imported solar panels from China and other countries have hurt two domestic manufacturers. They are Georgia-based Suniva and Oregon-based SolarWorld.” [1]  It is anticipated that the ITC will “hold a public hearing on October 3 as it considers potential remedies to help the manufacturers. Those remedies could include levying tariffs on panels imported from other countries. The commission will then forward those recommendations to” President “Trump in November,” and he will “have 60 days after that to decide what to do.”

Not everyone in the solar industry is happy with this outcome. As Fortune puts it,

“The issue has split the solar industry. On one side are a few solar manufacturers like Suniva and SolarWorld that say low-cost imports have made it impossible to be profitable. On the other side is the U.S. solar installation industry, which has benefited from low-cost panels that have led to explosive growth in rooftop systems on homes and commercial buildings as well as massive solar farms.” [2]

So it’s manufacturers versus installers. If you’re neither of those, whose side should you be on? Here are some things to consider:

First of all, we have to make things. This is not only because manufacturing jobs tend to pay better in the United States, but also because those who do make things can, at any time, withhold them from those who do not. It’s a matter of national security. Thus, Alexander Hamilton did not scruple to encourage the use of protective duties on articles coming into the United States, saying in his Report on Manufacturers that duties “wear a beneficent aspect towards the manufacturers of the country.” [3]

Hamilton’s ideas were developed by Henry Clay, who proposed what he called the “American System,” which consisted of these features:

“• Support for a high tariff to protect American industries and generate revenue for the federal government

“• Maintenance of high public land prices to generate federal revenue

“• Preservation of the Bank of the United States to stabilize the currency and rein in risky state and local banks

“• Development of a system of internal improvements (such as roads and canals) which would knit the nation together and be financed by the tariff and land sales revenues.” [4]

“Henry Clay’s ‘American System,’ devised in the burst of nationalism that followed the War of 1812, remains one of the most historically significant examples of a government-sponsored program to harmonize and balance the nation's agriculture, commerce, and industry. This ‘System’ consisted of three mutually reinforcing [sic] parts: a tariff to protect and promote American industry; a national bank to foster commerce; and federal subsidies for roads, canals, and other ‘internal improvements’ to develop profitable markets for agriculture.” [5] The American System was “implemented under Clay’s disciple and admirer Abraham Lincoln and his successors during the period between the 1860s and the 1940s, when the US became the planet’s leading manufacturing economy behind a high wall of tariffs.” [6]

All of this is mentioned in anticipation of those who would equate laissez faire capitalism with the founding of the Republic. It is simply not the case. The “free trade” dogmatism that we witness today came much later. So someone calling for protective tariffs should not, for that reason, have his patriotism called into question.

But there is a legitimate criticism which points out that tariffs can lead to higher prices in the domestic market. Solar panels manufactured in the United States are likely to cost more than those made in China simply because of the relative labor costs, if for no other reason. To this concern your humble servant can do no better than cite to a speech of William McKinley, who said this during a speech in Boston in 1882:

“Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. [It is said] that protection is immoral.... Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefiting mankind everywhere. Well, they say, ‘Buy where you can buy the cheapest’.... Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: ‘Buy where you can pay the easiest.’ And that spot of earth is where labor wins its highest rewards.” [7]  

A company that pays cheap wages creates a situation in which its competitors have to pay cheap wages as well in order to compete. But when every company starts paying cheap wages, the number of items sold goes down. That is because the more people there are receiving cheap wages, the fewer number of people there will be who can afford the items manufactured. The economic system ends up getting sucked into the vacuum created by the cheap wages.

Of course, we can’t treat the solar panel installers as if they didn’t exist. Even if it was demonstrable that the total number of jobs gained through protective measures would exceed the number lost, we can’t reduce human beings to statistics. Or we shouldn’t do that anyway.

The fact remains, however, that we need to have things manufactured in the United States. We cannot afford the dependency that would follow if we did not. But American manufacturers are at a distinct disadvantage in relation to countries like China when it comes to labor costs. The only alternative is to level the playing field with tariffs, since lowering American wages to China levels would adversely impact our overall standard of living.

This is not to say that we should leave the installers without options. Right now, American governments do far too little in the area of finding people work. We hear a lot of complaints about how many people are on welfare and food stamps, but there seems to be less interest in making sure that people have work. If it does turn out that protective measures enacted to protect the American solar panel manufacturers cause harm to the installers, resulting in layoffs, giving those laid off the right of first refusal for job openings with the manufacturers might well be something to consider.

This would include requiring the manufacturers to bear the burden of any necessary training. If the country steps in to help the manufacturers, it would be fair to ask the manufacturers to help the country.

We need to relearn the necessity of a strong manufacturing base in the United States, and we need to remove incentives for manufacturers to relocate their facilities to countries where there is cheap labor. At the same time we should be mindful that we have been moving to a service economy for some time, and we must take steps to ensure that people employed in that sector are not harmed in the process of transitioning back.