The Farce of Clean Energy Dumping

I did not find in the quoted words of Treasury Secretary Janet Yellen the exact expression “clean energy dumping” to attack inexpensive Chinese exports of clean-energy goods (solar panels, EVs, and such). But when giving her speech at solar cell producer Suniva, she did say “flooding the market,” which means the same. And that’s how Financial Times journalists interpreted her speech: see “Janet Yellen Warns China Against Clean Energy Dumping,” March 27, 2024.

After trying to persuade us that the use of fossil fuels threatened the future of mankind, these politicians get on their high horses because some producers in the world want to sell us at low prices products that could prevent the catastrophe. In the United States, formerly called “the country of free enterprise,” the feds and state governments are heavily subsidizing domestic producers of “green products.” The so-called Inflation Reduction Act offers large tax credits. Isn’t it also farcical that the government of the United States would beg a foreign socialist government to cut its exports of green products?

For sure, Chinese producers are nearly totally dominated by their state and the latter can more easily force its taxpayers to subsidize domestic exporters. (The exporters use their national resources to produce goods for foreigners—but let’s skip this contradiction of protectionism.) Why would American consumers and producers reject a gift from foreign taxpayers and prefer instead to their other fellow citizens to pay? It is true that American producers (shareholders and workers of out-competed companies) would be harmed and would have to adjust: some workers would have to switch industries, some shareholders’ investments would lose value, and some companies may even go bankrupt—like Suniva already did once in 2017.

The US government—both the Biden and the Trump administrations—apparently believes that the relatively flexible American economy is threatened by socialist businesses and by Chinese taxpayers whose average income is one-fourth the average income in America. Moreover, the share of personal consumption expenditures that comes from Chinese imports (including the Chinese part of their input components) is only 1.9%, as shown by a 2011 study by the Federal Reserve Bank of San Francisco. (The low figure is partly explained by the fact that services, mostly non-tradable, make up two-thirds of American consumption expenditures. Only in certain industries do Chinese imports make up a high proportion of consumer expenditures.)

Ms. Yellen, who was an economist before she became a groupie politician, said that “China’s overcapacity distorts global prices and production patterns and hurts American firms and workers.” Of course, any subsidy or tax preference causes distortions in prices and production, but there is not much that the US government can do to change the policies of the Chinese state, short of annexing China. A little could be done through the World Trade Organization, but both the Trump and the Biden administrations have cooperated to neuter it.

And then, how much distortion is caused by the annual federal spending ($6.1 trillion in FY 2023), which includes multiple subsidies—to individuals mainly, but also to corporations? Same question for federal revenues ($4.4 trillion), most of which are taxes. Same for its deficit ($1.7 trillion). How much do the federal government’s transfers to individuals distort the labor market and the charity market? How much further distortion is caused by its minimum wages and the coercive privileges it grants to trade unions? Such questions are not easy to answer, but the Treasury Secretary should at least pretend to ask them instead of blaming the government of a developing country for giving to Americans at bargain prices what her government claims they need to survive.

What damage could the forced generosity of Chinese taxpayers cause to the American economy? Let me make the most heroic assumptions against my case. Suppose the total production of green goods and services in the American economy corresponds to $1 trillion or 4% of GDP. (This is a wild assumption, which is double the maximum Commerce Department estimate for 2007. This study did not use value added as in GDP but shipments, which include much double-counting, as well as a wide definition of green products and services.) Suppose that all of this green stuff comes from China (while it is almost certainly much less than 20%). Suppose, as unrealistically, that all American producers of green goods and services go bankrupt after being out-competed by producers from communist China. Add the assumption that after this “victory,” “China” suddenly decides to cut all green exports to the United States–which, except in case of war, is another a fantasy assumption. Even this highly exaggerated scenario would not be a catastrophe.

We must not forget the savings realized from Chinese green imports up to the hypothetical cutoff point, and the production, consumption, and investment that would otherwise not have occurred in other sectors. More importantly, who doubts that American businesses could not rapidly pivot to importing the same products from other countries—even if presumably for a higher price? Who doubts that greedy American or foreign investors (whose companies are likely included in your pension fund) would not recreate an American green industry, if it is economical to do so? Four percent of GDP is not an insignificant amount, but gross investment in fixed business equipment and structures runs at about $2 trillion a year or 8% of GDP (DEA data for 2022). Moreover, building an American green-product industry would not need to be done in only one year and some imports from other countries would anyway remain economical, especially on the manufacturing side. With more realistic assumptions, replacing Chinese green imports would probably be an easy feat in a relatively flexible economy, provided there is not too much government interference.

It would of course be better for many people in the world—from Chinese taxpayers to the American investors who have sunk money in firms that cannot compete with green largesse from China—if the Chinese state stopped intervening in its exporters’ businesses. The US government should work on this persuasion enterprise instead of going full Trumpian. And it should preach by example and show what a free economy is.

Any economist familiar with public choice economics knows that politicians and bureaucrats demonstrate by their behavior that they are generally as self-interested as ordinary individuals. Thus, the economist is not overly surprised to observe a politician blurting out absurdities. But anybody who believes in a free society is understandably scandalized by the most extreme cases of homo politicus. These politicians have no shame.

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On the featured image of this post, I had problems getting DALL-E to draw what I wanted. My idea for DALL-E was that Chinese solar panels and EVs were falling from the sky like manna; and that Commerce Department agents were trying to shoot the goodies and prevent people from collecting them. To get DALL-E half-cooperation, I had to explain to zir that the guns of the Commerce Department agents shoot roses. (It looks like the guy lying on the ground is a manna chaser who was hit by a rose straight in the heart.)