Classic Government Economics: Subsidize Demand, Restrict Supply.

Name the field:  Housing, education, health care.  In most any industry you can name, the sum of the government's interventions tend to subsidize demand and restrict supply.  In health care for example, programs like Medicaid, Obamacare, Medicare, and others subsidize demand while physician licensing, long drug approvals and prescription requirements, certificates of need, etc restrict supply.

If you are wondering why, it turns out that most government regulatory processes are captured by current incumbents, who work to get the government to subsidize customers to buy their product or service while simultaneously having the government block upstart competitors, either foreign or domestic.  For example in housing, existing homeowners form a powerful lobby that limits housing supply through restrictive zoning while demanding that the government subsidize mortgage interest (as well as low-cost mortgage programs) and give special tax treatment to capital gains from homes.   The result in every industry is supply shortages and rising prices.

Yesterday, we saw another classic example.  Federal, state and local governments have spent billions of dollars over the last decades subsidizing solar panel installations in homes and businesses.  But now, they are also simultaneously restricting the supply of solar panels:

President Donald Trump is once again burnishing his protectionist bona fides by slapping imported solar cells and washing machines with 30% tariffs - his most significant action taking aim at the world's second-largest economy since he ordered an investigation into Chinese IP practices that could result in tariffs.

Acting on recommendations from US Trade Representative Robert Lighthizer, Trump imposed the sliding tariffs. Solar imports will face a 30% tarifffor the first year, then the tariff will decline to 15% by the fourth year.It also exempts the first 2.5 gigawatts of imported cells and modules, according to Bloomberg.

And... who would have guessed that Elon Musk would be on the receiving end of another government crony handout?  The patron saint of subsidy consumption will get yet another, as Tesla's solar city is currently building a large domestic panel manufacturing plant, an investment decision that makes little sense without tariff protection.

  • SamWah

    Regulatory capture uber alles!

  • GoneWithTheWind

    That is disingenuous. They are not restricting supply. While I agree they should end the subsidy I disagree that stopping China from dumping will restrict supply. It may take awhile for American companies to gear up to fill that supply BUT if we had not outsourced/offshored PV in the first place there would be no problem today. So this is the fix, or more correctly the first step in the fix.

  • Francis Menton

    Well, there are always farm subsidies.

  • davesmith001

    You don't understand the term "supply" as used by economists.

  • GoneWithTheWind

    I think I do. Perhaps you don't understand the point I made.

  • John Moore

    China is violating free trade rules, like usual. A tariff on their solar cells makes perfect sense, since it is our government penalizing their government for interfering in free trade, and the Chinese do this as part of their hostile national security strategy against the US. It is part of their strategic use of "soft power."

    I don't know if Musk wins or loses on this. Solar City (an abomination for sure) presumably buys a whole lot of cheap Chinese solar panels.

  • Stan Jackson

    How does this tariff help domestic solar? Do the tariffs really have anything to do with the products themselves, or is this just more of Trumps chess game?

  • Robert

    you really don't.

  • Rick C

    Warren loves free trade so much he never stops to ask where Americans will get the money to pay for cheap goods when they don't have jobs.

  • Mike Powers

    We'll get it by welfare handouts! Paid for by taxing businessmen! Like Warren! 😀