Evidence of the dangers of protectionism

One of the dangers for a country implementing protectionist measures is the risk of retaliatory action. We have only to look at US-China trade relations to find plenty of evidence for this. The US objects to what they see as a Chinese policy of deliberately holding down the value of the yuan in order to boost Chinese exports. However, in addition to this they also object to government subsidies which the Chinese government give to some of their producers in order to help lower their production costs and so make their goods even more competitive in world markets.

At the end of February President Obama set up a new ‘trade task force’ to investigate and crack down on unfair practices by American trading partners, in order to avoid harm to US businesses, and aiming particularly at China. An example is the solar panel industry which claims that Chinese manufacturers have benefited from government subsidies which helps them keep their costs low. The Chinese manufacturers agree that this is the case, but point out that producers in other countries, such as Germany, also receive investment subsidies from their government. How is this for a tit-for-tat argument, reported from a BBC article on the dispute:

The price of solar panels dropped more than 30% in 2011 - a fall linked to the cheap product made in China.

Although this has been bad for US manufacturers, it is good for the people who install solar panels.

While a significant number of solar panel makers have gone bankrupt in the US, thousands of jobs are being created to install them.

One reason for so many jobs being created is that there are subsidies in the US to encourage people to install solar panels.

That has prompted China to announce it is looking into US government support for renewable energy, just weeks after the US Commerce Department accepted an industry petition to investigate whether solar panels from China were unfairly priced.

According to Gordon Brinser Chief executive of US producer Solarworld “If we don’t stand up now and put a stop to this trade war that China started, Chinese solar industry will have a monopoly”.
Is he right to claim that China started it?

The US Senate has just voted to uphold the ability to impose duties on imports of subsidised products from China. Some 80,000 jobs are said to be protected by current duties which cover steel, aluminium, paper, chemicals and other products from China, and they says that “We need to maintain these countervailing duties and strongly enforce our trade laws to level the playing field for US businesses and workers.”

Whoever started it, and whatever the World Trade Organisation says about support for free trade, this issue is not going to go away anytime soon!