The Obama Watch

Obama’s Solar Smoot-Hawley

Setting off a trade war with China that could have worldwide repercussions as if it were 1931 again.

By 12.22.11

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Watching President Barack Obama ruin the economy by repeating every mistake of the 1930s, the one thing you could say was, "At least he hasn't passed a Smoot-Hawley."

Not anymore. The great amateur autocrat has now put his foot in it, kicking off a back-and-forth with China that is threatening to envelop other countries of the developing world, leading to who knows where. And what has set off this world trade war? Wouldn't you know, it's that wonderfully soft and beneficent solar energy, so clean, green and non-environmentally threatening, the darling of every liberal politician. In order to protect a domestic industry that literally lives off government subsidies, the President has embarked on a path that could take us directly back to 1931.

In case you haven't been following, here's what happened. Embarrassed by the loss of $500 million on Solyndra plus the bankruptcy of two other companies, Evergreen Solar and Spectrawatt, which together totaled one-sixth of U.S. solar manufacturing, the Department of Commerce has decided that China is to blame. The department has ruled that the Chinese have subsidized their solar panel industry by lending it $34 billion, thereby flooding the international market with cheap products. This has led the price of solar electricity to drop from $3.30 per watt in 2008 to $1.80 last January to $1.20 today. In retaliation, Commerce is considering slapping a tariff of anywhere from 50 to 250 percent on Chinese solar panels.

Now first notice this. Everywhere you look environmentalists and clean energy enthusiasts are celebrating the rapid fall in price of photovoltaic panels, arguing it heralds a glorious renewable future. Google just spent $94 million buying a solar station in California, claiming renewables will soon be "less expensive than coal," according to Forbes. "The price of solar panels has fallen 40 percent since the beginning of the year," exulted Rhone Resch, president and CEO of the Solar Energy Industries Association, only last week on Huffington Post. The European Union just announced confidently that by 2050 all forms of renewable energy will be cheaper than fossil fuels or nuclear and will be replacing all those nasty things. So is the price of solar really coming down or is it just the Chinese dumping subsidized products on the market, in which case the Administration's purpose is to jack them back up again?

Well, it's hard to tell. In any case, the President has elected to punish the Chinese and teach them a lesson. Are they being appropriately contrite? No, as anyone would have predicted, the Chinese have responded by accusing us of unfair trade practices by subsidizing the thin film industry, the main component of solar panels. So now we're in an escalating situation. Will it stop there? Not likely. This week the Indian Ministry of Commerce announced it too would yield to a petition from its solar industry and will investigate unfair trade practices by both China and the United States, targeting Arizona-based First Solar, our largest make of thin-film panels, and Suntech Power Holdings Co., the world's largest producer of solar panels based in China. So now it's a three-way trade war and growing fast.

Will that be the end of it? Don't bet on it. Remember, when President Herbert Hoover called Congress into special session in 1929, he was only responding to a plea from two Western Senators to protect farmers in Utah and Oregon. By the time Congress got finished, every industry in America had carved out its own special protected niche. The late Robert Bartley argued persuasively that it was Smoot-Hawley that turned a normal two- or three-year recession into the Great Depression that lasted for the next decade.

There's a more important point to be made here, however, because it's gong to be with us a long, long time. Every country in the world is going to be subsidizing its renewable energy sector. Spain did it, Germany is doing it, Denmark and Britain are doing it, and just about every country on the planet will eventually. Why? Because none of these technologies are economical in a market environment. Wind, solar and biofuels are all hopelessly inefficient and expensive and always will be. All must be propped up by the panoply of "renewable mandates," "feed-in tariffs," production tax credits, investment tax credits, government loans and outright grants that governments are providing everywhere.

The result is that every government in the world will be able to accuse every other government of subsidizing its renewables industry. The possibilities for future trade wars are literally endless.

So let's call a truce. In order to avoid worldwide trade wars, let's just have everyone admit that solar, wind, and all the other renewables will never get anywhere without massive government intervention in the economy. That way we can experience the "wave of the future" and still have a world economy left when we're done.

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About the Author

Green Lantern is the pen-name of an East Coast writer.