Solar Panels and Tariffs

The US and China rely heavily on each other for trade but retaliatory protectionist policies continue to be a recurring theme between these two nations that prevent the free movement of goods and services between the two countries. Allegations that the undervalued Yuan gives an unfair advantage to Chinese exporters, twinned with high US unemployment has led to protectionist American responses and a tariff (tax on imports) on Chinese solar panels to protect this strategic and growing industry. The move followed a review by the US Commerce Department which in a preliminary decision claimed that Chinese firms are benefiting from unfair export subsidies.

This tariff reduces the number of imports from Q1-Q2 (before tariff) to Q3-Q4 (after tariff), leading to an increase in domestic supply and protecting domestic employment. It also raises government revenue as can be seen in the diagram below.

The US commerce department said it would impose tariffs of 2.9% (on Suntech solar cells) to 4.73% (on Tina solar panels) and the commerce department could impose heavier penalties in May when it is due to decide whether China is dumping solar panels at prices below their actual cost. Interestingly there was some relief from Chinese manufacturers given that they believed the tariff could be as high as 100 or 200% and so ‘effectively blocking Chinese-made solar panels from the US market’ but the ruling in May may bring greater concerns.

A good up to date example to use in upcoming exams but keep your eye out for further retaliatory protectionist policies between the US and China.