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Henry Hewitt

Henry Hewitt

Henry Hewitt is an investment strategist and portfolio manager with 36 years of experience in renewable energy. He is also a seasoned writer having published…

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The Unintended Consequences Of Trump’s Solar Tariffs

Solar

There may not be blood, but there will be plenty of losses for those who still hold hope for an age that is passing away..

Soon after the Trump Administration announced a tariff would be imposed on imports of Chinese PV cells and modules, The New York Times ran a headline declaring this was a ‘threat’ to solar. What struck me was not that President Trump had done so much to harm solar, but that the Times knew so little about why this action will amount to nothing in the grand scheme of things — where the outcome is no longer in doubt that renewables will sweep all contenders (even the mightiest fossil fuels) from the playing field. 

A click upon the headline in question produced an improved result: the threat level was downgraded to ‘cloudy’. Well, yes, there are clouds in springtime, even in Seattle and London, but there are no hurricanes or tornadoes. (Not so far, anyway; pump a few more degrees into the oceans and that could change). As for the tariff itself, apparently the threat from Chinese PV production is slightly less grave than that from washing machines.

On the same day, the most knowledgeable among us, signaling from their lofty Colorado eyrie, pointed out that 50-cent per watt PV installations were coming around the mountain; it didn’t say if they would be riding six white horses — but let’s just assume that’s the case. Of course, they could be gold, in which case, four should suffice. India is exempt from the tariffs. While we are on the subject of knowledgeable sources, consider listening to the Greentech Media podcast on this matter (at the 11:05 minute mark). 

While we Americans are whining about ‘unfair’ trade practices (which has always been code for “those guys are better at this than us”), and Russians interfering in the decision-making process that millions of people go through before pulling the lever on the voting machines, the Chinese and their formidable leader, Xi Jinping, are building the next Silk Road.  Related: Texas Set For Another Oil Boom

This remarkable undertaking should not be underestimated. In fact, it should be closely examined for what it is: the path that leads to the Chinese Century… assuming that this next inning will only last 100 years and not 500 or 1,000. The irony, of course, is that the Trump administration, are by default Making China Great Again, and much faster than Xi Jinping probably could have hoped for when he stepped into the top job five years ago.

The American Century began when Theodore Roosevelt, charging up a hill, finally kicked the decrepit (and broke) Spanish imperialists out of our backyard — or lake, rather — where they were camped out for 400 years. As the Caribbean is to Americans and their territorial pride, the South China Sea is to the reborn and strengthening Chinese. It’s hard for them to understand what business it is that the Americans have here. World War II ended 72 years ago. Ike ended the Korean conflict 64 years ago.  (Note that military heroes hate war.) Would the Americans really go to war over Taiwan? 

The Romans, authors of the source code for the Anglo-American empire, called the Mediterranean “Our Sea”. Medi-terra is Roman for middle earth, and before the likes of Da Gama and Cook and the coming of satellites, it may have been possible to think they got it right. However, Rome had a somewhat provincial perspective and a better location a name like the Indian Ocean, the wet branch of the New Silk Road. The Indian Ocean, before the withdrawal of the Mings and the coming of the Portuguese around Africa, was always the middle earth sea, and the regular and consistent monsoon winds brought trade back and forth across the then civilized world. Camels did the heavy lifting across Asia. 

(Click to enlarge)

Ike was the key driver of the interstate highway system that not only employed millions for a generation building it, but also employed those who brought suburbs and shopping malls to the farthest reaches of the new paved network. He got the idea when he crossed the Rhine into Germany and realized what good wide roads meant for military action and security. Hitler wasn’t the first to see this; after all, once upon a time, all roads led to Rome, and good roads meant you could get a legion bristling with Roman steel wherever it was needed in a hurry. It was a business model that worked well for over 500 years.

The Asian Highway Network that’s now being built will do for most of the rest of the world what Ike’s superhighway did for us. Like Route 66 that sprang up along the way, there will be winners. A very promising one has to be the Port of Piraeus near Athens — that is the Western terminus of the great road. Furthermore, from an investment perspective, who doesn’t hate Greece? In other words, the news won’t get worse; there is no one left to convince that it is a terrible place to invest (i.e., sell), and didn’t we just bail those guys out?

Realize that the term “Greek bailout” is a bit of a misnomer; it was a bank bailout. Banks made bad loans. Fortunately, for them, the oldest principal in banking still holds: A rolling loan gathers no loss. (Thanks to the great Stan Salvigsen for that insight.). What will undoubtedly lose, at some point, after decades of mismanagement and a sobering realization that its keepers don’t know the score, is the world’s reserve currency. It should be clear who’s up next, and it isn’t bitcoin. 

(Click to enlarge)

The dollar peak coincided with the Trump inauguration

Just this month, the governor of China’s central bank met with the Saudi finance minister to determine when the Chinese would start to pay for oil with Yuan, not dollars. In case you were asleep and did not hear it, the bell has tolled. In fact, the recent rise in the price of crude above 70 may have more to do with dollar woes than economic strength, though this is always an arguable matter. Drillers in the Eagle Ford don’t care.

Forget the noise about Russia and bitcoin, which more than anything else seems to be a symptom of a world that is rapidly losing faith in paper money and the people and institutions responsible for creating and managing it. Bitcoin is not a currency, nor a store of value, nor a unit of exchange. And until China embraces it, which may never happen, it will mostly be a fascinating conversation piece and trading mechanism for many who have more dollars than sense. (The best thing about financial manias is that they drastically reduce the amount of actual currency before coming to an exhausted rest. You should seriously consider trading your bitcoins for a piece of Greece while you can.)

Related: Qatar LNG Booms Despite Embargo

George Washington was right. In his farewell address (edited by the great Alexander Hamilton, architect of American financial might), he said that an enlightened public was the key to the success and endurance of the American republic. By enlightened he meant educated, not Buddhist meditation.  Considering that The New York Times itself doesn’t yet seem to understand the lay of the land, one suspects the ghost of our Great Father is rattled. Rest, perturbed spirit; the Energy Wars will be won by the good guys. 

(Click to enlarge)

Go Solar, young man. If you want jobs, look no further.

As for the currency, Mr. Hamilton, the news is not so good. But for solar specifically, and those who work in the business, the wind still sits fair, and it’s getting stronger (political theater notwithstanding), as this impressive chart indicates. There’s no reason to think this historic trend can or will be stopped.

By Henry Hewitt

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  • Justin on January 30 2018 said:
    The analysis above is incomplete.

    “Greek bailout” is a misnomer? It was a bank bailout because banks made bad loans? You forget to mention who they made the loans too that went bad..... That would be the Greek government.

    Also the highway development that China proposes throughout Asia isn't even on a fraction of the scale that the US went through under Ike. The Interstate Highway System (which also doesn't include Route 66 which was established in the 1920s) cost in today's dollars about 470 billion. China has pledged 40 billion to their Silk Road in comparison which also includes developments of ports and air corridors plus Asia is much larger than the US.

    The Americans are the world police, the world military and still hold a commanding economic lead. At best China can hope to reignite a cold war duality again however they are a long ways off from this yet and its unlikely the US would sit back and let this occur.

    At best can be considered a very large regional player.
  • Douglas Houck on January 30 2018 said:
    Just so we are all on the same page.

    The Chinese Belt and Road Initiative (BRI) currently has a total of 900 separate projects which have been earmarked at a cost of $900 billion, according to the China Development Bank.
    See: http://time.com/4992103/china-silk-road-belt-xi-jinping-khorgos-kazakhstan-infrastructure/

    from the World Economic Forum:
    "...Beijing says it will ultimately lend as much as $8 trillion for infrastructure in 68 countries. That adds up to as much as 65% of the global population and a third of global GDP, according to the global consultancy McKinsey."
    https://www.weforum.org/agenda/2017/06/china-new-silk-road-explainer/

    Say what you want about the BRI but it is on a scale of immense proportions. Much larger than anything the US has undertaken.

    China has no desire for a "cold war" and will surpass the US in economic terms (GDP) by 2040.

    Still too early to say what the solar tariff will actually mean, but the author is correct. Renewables, including solar are here to stay and will gain more and more market share.
  • A.West on February 08 2018 said:
    The BRI, is proposed, it is also as Pakistan had recently decided too costly, as the monies lent will be a debt they owe, Chinese will build it and maintain it, and have control and tax it/derive financial benefit at a high percentage. Many countries may decide that the price is too high, and the sovereignty loss is too much. Do you really believe it is likely that they will as a whole stick their neck in a noose. Some projects, but not nearly all of them will be done. what about then countries try to nationalize and revolt their section, or hold it hostage i.e. Ukraine.

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