In our third-year public economics class nearly 15 years ago we were told about an important feature that defined “public goods”. They were “non-rivalrous” in consumption, such that their availability or supply would not be affected by how many people used the good.
Unlike land, water and other commodities on earth, which can be encircled and made “property”, the sun would seem to be non-rivalrous property. Yet, the trade in the tools that make harnessing energy from the sun possible is far more “rivalrous”.
While I try not use this column to “talk shop”, but rather as a space to share, reflect and ruminate on the economic environment around us, it may be worth wading into what has by now become a messy, one-sided discussion on the appropriateness and envisaged effectiveness of the recently introduced solar panel tariff as an enabling, while protective, measure for domestic players to acquire specific capabilities in the value chain.
While I am not in favour of autarky and argue that you do need a generous dollop of duty-free passage of particular imports (used in the production of exports, for instance), the decision on what to do ought to be driven by the balance of evidence rather than a monastic belief in the virtues of free trade. Absent of this evidence free traders forget the true costs of ascendancy and superiority in markets.
China subsidies
Behind every cheap tradable good lies a raft of taxpayer and consumer-funded support. So too lies the debris of those firms that could not compete. China subsidises the fossil-fuelled electricity (40% of the input cost) used by polysilicon foundries, and Europe subsidises agricultural value chains and protects its markets through a raft of technical (and at times non-scientific) barriers.
What then is meant by one commentator’s advice to the new trade minister to “always defer to free trade”, when this seems better placed in a dusty textbook than the cauldron of real economic competition? We are in the throes of a global subsidy race underwritten by both left- and right-wing governments the world over, and parts of the commentariat proffer advice akin to “just give up”?
Over two decades, at least since the White Paper on renewable energy in 2003, the democratic government has sought to pursue not only changes in firm and household consumption of fossil-fuelled energy, but also to marry such shifts to the commercialisation of research into renewables and industrial activities in component assembly and manufacturing for wind, solar, hydro and biofuels.
A tariff in such a policy context, informed by these considerations and the typical trade case (infancy, substantive price disadvantages and low-capacity utilisation) is appropriate. To what degree it may be effective is something else altogether.
The acknowledgment by electricity & energy minister Kgosientsho Ramokgopa that the scale of public demand for renewables is critical to unlock the industrial, technological and skill upgrading opportunities associated with the transition, reflects an understanding of how we can best navigate this transition in a way that recognises we are not inanimate hostages of history.
There are a few likely or expected behavioural responses from key solar exporters arising from the Biden administration’s tariffs, Brussels’ subsidy probe and other measures in key markets that will make access to Chinese solar exports difficult.
Experience shows us that in such a context, along with the declining domestic demand and property crisis in China, it is likely that rising inventories in these sectors and in upstream raw material inputs and precursors may find an outlet in open markets such as SA. For where else, absent relative tariff and other protection, would they send these goods, and at what price?
To avoid protective measures in the developed world Chinese and other investors with sufficient intellectual and industrial capability in renewables may develop joint partnerships and production facilities at different levels of the value chain in countries that are nonaligned and have existing preferential access to developed market economies.
If both behavioural scenarios are likely it is the mark of a placid straw man argument to suggest that tariffs alone would make the second option materialise, while without tariffs the scale and severity of the first option is concerningly likely.
Unfortunately, we cannot be wedded to a monastic faith in free trade, when the counterparties with which we trade have never burdened themselves with the same credo in practice.
• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.
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