Chinese Government Subsidies are Killing the American Green Movement

One of the biggest criticisms of the Go Green fever that has been sweeping through the nation over the last several years is the political nature of it all. It appears that this characteristic may ultimately bring the movement in its current iteration to an end, spawning an entirely rethought effort or otherwise halting the progress of related initiatives.

Panda Eating a Solar Panel

Photoshop by Andy from AET. Original panda image from thundafunda.com.

The latest news to disturb the movement to the greatest extent comes from The New York Times. Evergreen Solar, Inc., based in Marlboro, Massachusetts, recently announced that they would be laying off approximately 800 workers. The reason: shifting production to China.

Given the continued departure of the manufacturing sector from the American gross domestic product ever since the end of World War II, this dramatic move should not come as a major surprised to anyone. Indeed, costs of production are markably cheaper in China. With the price of solar panels plummeting relative to what they had cost just a few brief years ago, Evergreen cited the need to be able to compete in a global market as the basis for this decision.

So, how is this act of outsourcing any different from the countless similar acts taken over the last half-century? It’s the specific economic sector that Evergreen is a part of–not just manufacturing, but so-called green energy–that should be causing some alarm. The huge political backing behind green energy was given provided that jobs, especially in manufacturing, would be restored to the American people. Evergreen’s Massachusetts’s plant was constructed from scratch as recently as 2008, and yet the company is already shifting the job-heavy component of its presence overseas.

I’ve already elaborated on the threat that China poses to the American economy. I’m certainly not trying to propagate any frowned-upon efforts of fear-mongering, but I am compelled to share what solar power experts have stated, according to the article from the Times:

After many years of relying on unstable governments in the Middle East for oil, the United States now looks likely to rely on China to tap energy from the sun.

More Than Just Cheap Labor

Chinese Factory Workers

Laborers in a Chinese factory.

The fact that the Chinese are willing to work for a mere fraction relative to the American labor force is a widely-documented fact. The widespread nature of this detail has lead to frequent claims of its contribution to the departure of American jobs from American soil, subsequently transforming them into Chinese jobs in the factories of that nation’s eastern provinces. Unfortunately for authors of globalization is that any further attempts to utilize this once universal fact will have to find new sources of inspiration; Chinese wage rates have lately been starting to shift upwards. (This is also becoming considerably realized.) We must therefore consider another component of economic policy. Looked down on by the far right as an inflator of government budgets and favored dearly by the far left as a source capable of garnering widespread social support, government subsidies are to be regarded as a significant factor in the rise of China.

In the People’s Republic, state-operated banks as well as the central government provide subsidies for businesses and manufacturing. While specific figures concerning the subsidy of Evergreen in particular are simply not available, it has clearly combined with the trait of a cheap labor force to cause the company to migrate despite over $50 million in aid from the state of Massachusetts. In fact, the announcement to shut down the stateside plant was made after this aid package had already been received. Efforts are now being made to recover the funds as well as recuperate from the loss of the promise of more jobs.

Surely the great power that is the United States will find a way out of this. However, the solution is not a sudden competitive race of heightened subsidization programs. Instead, this situation points to our larger problem of a major trade deficit.

Fixing the Trade Deficit

The existence of our trade deficit with China is no secret. What is particularly upsetting is that little seems to be getting done in regards to boosting our net exports. Currently, that figure stands at a negative percentage of gross domestic product, ultimately meaning that we have effectively reduced our per capita income. In layman’s terms, we are making ourselves poorer. The problem is only further aggravated by the departure of jobs from America, as increased unemployment leads to a drop in the nation’s income on a per person basis.

Taxes

Are tax penalties the solution? It's an issue that ought to be debated far beyond a simple "yes" or "no."

One solution is to impose penalties on companies that choose to carry jobs overseas. The exact terms of such a law would be quite complex and variable depending on which of the major political entities decided to push any such action through Congress. Tax penalties for American companies shifting business overseas would bring in more government revenue. Penalties high enough would ensure that jobs were kept within our borders. Temporary relief could be provided in the form of public works-like projects, but the problem with those is their distinctive characteristic of being only temporary. Instead, it would be necessary for the government to reinvest the money into the economy. With this added revenue stream, the government would in fact be able to begin subsidizing business efforts.

This creates two problems. First, the argument that it would increase government revenues is based on the assumption that companies would continue to go overseas despite increased tax penalties. If companies are going to go overseas anyways, all that such taxes would do is decrease profits for these companies while jobs would continue to leave. This would only serve to contribute to the problem of declining gross national product (different from gross domestic product in that it evaluates income based on ownership rather than geographic location). Second, I oftentimes see this argument presented without the associated fact that a wide variety of goods in the American marketplace would see a significant increase in price. This increase comes from two potential sources: the increased cost of labor for goods that remain in production in the United States, and the passing on of tax penalties from the producer to the consumer for companies that end up leaving anyway. This ought to draw to our attention how the ever-increasing demands of labor unions are doing nothing but making the situation for this nation far worse. Higher prices are not all that bad of a trade off if jobs are kept in the country. In the long run this is indeed a preferable exchange–even more so provided that prices do not rise uncontrollably as a result of excessive labor demands. However, consumers must be prepared to accept such a transformation.

The Outsourcing Dilemma

It is for the aforementioned reasons that the issue of outsourcing, as well as combatting the Chinese subsidies that enable it, presents a significant dilemma. It is clear that action must be taken in order to counteract the effects of these handouts by the Chinese government. While the green movement within the United States could certainly use some refinement (no pun regarding oil intended) and should possibly be given a short while longer to prove itself as an economic stimulus, it hasn’t yet shown any progress towards its earlier politically-motivated promises. The key role that this particular dilemma plays in the spotlighted problem of unemployment should propel it to the forefront of American political discourse.

Send a message to the author of this post at andy@aneconomictheory.com.

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