A couple of days ago the White House announced that the President issued a 30 percent tariff on imported solar cells and modules, citing unfair competition from the Middle Kingdom.
Today, thanks to very generous, and likely unsustainable subsidies, China produces about 60 percent of the world’s solar cells and 70 percent of the world’s solar modules.
That being said, it should be noted that only about ten percent of solar imports to the US come from China. Most actually come from Korea and countries in southeast Asia. They’re just run by Chinese companies.
Nonetheless as we’ve seen so far with this administration, the president believes protectionism is the way to go. Most competent economists would disagree, including Murray Rothbard who once successfully made the argument that protectionism always ends up hurting the consumer by limiting competition. Such an act rewards domestic operations that simply cannot compete in a free market.
As we unravel the tangled web of protectionist argument, we should keep our eye on two essential points: (1) protectionism means force in restraint of trade; and (2) the key is what happens to the consumer. Invariably, we will find that the protectionists are out to cripple, exploit, and impose severe losses not only on foreign consumers but especially on Americans. And since each and every one of us is a consumer, this means that protectionism is out to mulct all of us for the benefit of a specially privileged, subsidized few—and an in efficient few at that: people who cannot make it in a free and unhampered market
It should also be noted that this protectionist move issued by the Trump administration could actually end up killing off about 20,000 US jobs this year and disrupt billions of dollars that have been earmarked for solar investments.
As investors, we have to be conscious of what this means. Unfortunately, we still don’t know exactly how this is going to affect US solar stocks over the long term.
We do know that if the price of solar increases for consumers (which it now will), then it is likely we’ll see a decrease in solar installations. How much of a decrease is still unclear. Although early estimates from Greentech Media indicate an eleven percent decrease in US solar PV installations over the next five years.
So if you’re in the solar space, it’s still a toss up as to how this year will go, but it’s certainly going to be a risky road to travel.
At the moment, I’m not messing with solar cell or module stocks. The only exposure I have to solar is through Hannon Armstrong Sustainable Infrastructure (NYSE: HASI), which invests in wind, solar, and efficiency projects in the US. These projects are supported by long term power purchase agreements with high credit quality utilities and corporations. So the solar projects from which it profits are already operational, and it’s well enough diversified to focus on new wind and energy efficiency projects if the economics determine that’s the way to go.
In terms of a renewable energy play, it’s also fairly safe, has performed quite well over the years, and pays a nice six percent dividend.
