The article deals with the raise of a tariff on Chinese solar panels Essay

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The article deals with the raise of a tariff on Chinese solar panels

US commerce department brings heavy tariffs against Chinese solar panels

Investigation finds China kept prices low with subsidies, but some in US warn tariff will slow adoption of solar energy

The Obama administration imposed heavy tariffs on Chinese solar panels on Thursday, after finding that China is flooding the market with government subsidised products.

The preliminary decision, that China had dumped solar products on the US for less than the cost of manufacture, will result in tariffs of between 31% and 250% on Chinese imports.

It was seen on Thursday as a mixed blessing.

US solar panel makers, who brought the original complaint, are expected to benefit. But the tariffs, by forcing up prices, are expected to slow the adoption of solar power more generally.

There were also fears the move could lead to a broader US-Chinese trade war.

In its decision, the US commerce department said it would impose tariffs of about 31% on about 60 Chinese solar panel exporters which participated in the investigation, including Wuxi Suntech and Trina Solar. Other manufacturers will face tariffs of just under 250%. The levies will be retroactive for 90 days.

The tariffs were in addition to fees ranging from 2.9% to 4.73% imposed last March.

Chinese government subsidies helped drive down the price of solar panels by 80% over the last five years, and by 40% in the last year alone. The price drops drove some US solar panel makers – such as Solyndra – to collapse.

The seven US-based solar panel makers which brought the complaint said the ruling from the commerce department would help American companies hold their own against Chinese competitors. The solar panel makers were struggling against Chinese competition, and weakening demand in Europe.

“Today’s decision is expected to have an impact on the US marketplace for Chinese manufacturers since it will begin to remove the advantage they have had as a result of their illegal trade practices,” the Coalition for American Solar Panel Manufacturing said in a statement. The statement went on: “However, it will not disrupt solar growth or solar installations in the United States.”

But that is precisely the fear of other industry analysts. The falling costs for solar panels also made solar power more competitive with other sources of energy. The US solar industry grew by 109% last year.

Jigar Shah, who heads the Coalition for Affordable Solar Energy, told reporters Thursday’s ruling will mean higher prices for consumers and will set back the adoption of solar.

He also warned that China might retaliate against American manufacturers, sparking a trade war. Chinese officials have protested in the past at American accusations of unfair pricing and threatened to take America to the international trade court or WTO.

“We think it’s raising taxes 31% on solar cells, and we think it’s going to increase solar electricity prices in the US precisely at the moment that solar power is becoming competitive,” Shah said.

The article deals with the raise of a tariff on Chinese solar panels and their impacts on the market, as well as general tensions between the U.S. and China. A trade war is implied to be on the rise.

The situation is, “that China had dumped solar products on the US for less than the cost of manufacture, will result in tariffs of between 31% and 250% on Chinese imports.”(line 5-6) .

The industry in the U.S. is protected because of “’ the advantage they have had as a result of their illegal trade practices,” (line 24-25) As shown in Diagram 1, price increases from P to P+t, The share of the market from domestic producers increases from Q1 to Q3, shown by revenue g to a+b+c+g+h and the imported share decreases from Q2Q3 to Q3Q4 shown by a revenue decrease from h+i+j+k to i+j. US Government revenue of this tariff is d+e and there is a dead-weight loss of welfare, as consumer surplus f is lost. World efficiency decreases by c, due to less efficient competitors producing a greater share of the Quantity supplied to the market, which is a misallocation of resources, hence undesirable. Winners of this are clearly the domestic producers, as their revenue increases hugely; the losers are Chinese solar panel producers, which have less share of the revenue.

This can cause structural unemployment in China. But not only China loses out, also domestic consumers have less choice and the price rises to P+t, so that this might cause inflation. But this measure is effective to prevent the dumping, as “China is flooding the market with government subsidized” (line 4) Solar Panels. Also losers of the tariff could be U.S. energy producers, which are reliant on solar panels, so that this is a major threat to environmental sustainability, because efficiency of solar power is driven down, thus substitutes become more attractive and PED gets more elastic. As it were “the falling costs for solar panels” (line 28) made the solar panels more attractive to the industry and now the tariff leads to “higher prices for consumers” (line 32).

Seeing the advantages for the U.S. producers, they appreciate the tariff, because the heavily subsidized Chinese solar panel economy otherwise would drive them out of business in the longrun, shown by Diagram 2.

The Chinese producers gain market-share as S (domestic) shifts to S(domestic+subsidy), illustrated by the increase in area from a to a+b+e+f+g . The foreign market share falls from b+c+d to c+d. The occurring inefficiency through the subsidization is g, as this is the difference between S(world) and S(domestic) also here, there is structural unemployment in foreign supplier’s countries and consumers are affected by taxes, as they fund the subsidies. Therefore as a consequence the taxes might rise. This might lead to increased transport and therefore constraints to environmental sustainability as well.

Seeing both governments “working” against each other with protectionist measurements is not only harmful to the world as an economy, but also to the domestic economies of both countries. Although they could simply shift their labour in the U.S., if the restriction of labour mobility is non-existent and therefore structural unemployment would only be a short run factor, both spend their resources on this trade war, which is simply inefficiency and a misallocation of resources, hence a big threat to sustainability, because this trade war could in several years not only be about solar panels but a whole range of products, which affects a great number of people, seeing that the U.S. and China are the two biggest economies. This trade war is further reinforced by China wanting “to take America to the international trade court or WTO” (line 35).

So rather than producing what both countries have comparative advantages in, the U.S. commerce department tries to save a “sunset” industry, as the demand in Europe declines and Chinese competitors produce at prices lower than the manufacturing cost.

Concluding, both governments work against with counter-veiling protectionist measures, which must be critically evaluated as they slow down the economy. Although the U.S. can save more market share for them by using the measures, a lot of efficiency is lost and the resources could be allocated into sectors with comparative advantage, hence a problem of economic structure, as inefficient producers should close down. More importantly it is a threat to environmental sustainability, as it hinders the adoption of “green energy” with higher prices,“precisely at the moment that solar power is becoming competitive,”. (line 37-38).

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