Economics Commentary: Eu to Impose Anti-Dumping Tariffs on Chinese Solar Panels.

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Commentary: EU to impose anti-dumping tariffs on Chinese solar panels.

Free trade versus protectionism is a topic of great debate in internal economics. The former takes place when there are no barriers to trade established by the government or international organizations. On the other hand, protectionism is the use of barriers to imports in a determined country and it is usually applied to protect domestic employment and firms.

According to the article, China is being accused by the EU of dumping, defined as the selling by a country of large quantities of a commodity, at a price lower than its production cost, in another country. In the case the accusation was proved, the government is allowed, under international trade rules, to
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Secondly, now the EU would produce Q1-Q3 units of Solar Panels in a more inefficient way compared to China, and thus “c” represents the inefficiency of the domestic producers and a loss of world efficiency.

Another issue with this measure is the creation of trade diversion with regards to Germany. As a member of a custom union the imposition of the tariffs to China are also compulsory for Germany, which is by far China’s greatest partner in the EU and, therefore, the production of Solar Panels for Germany would move from a low-cost producer outside the union to a high-cost producer inside the union.

Before the EU imposed the tariff, Germany would produce 0-Q1 units of Solar Panels domestically and would import Q1-Q4 units of Solar Panels from China. Now with the new tariff, Chinese Solar Panels become more expensive than those produced in the EU. This would make Germany to produce 0-Q2 units of Solar Panels itself and import Q2-Q3 units from the EU. Now there is an overall fall in the quantity demanded of Solar Panels of Q3-Q4 units and so a loss of consumer surplus.

Moreover, a misallocation of the world’s resources is produced since Q1-Q2 units of solar panels are now being produced by less efficient German producers and the production of Q2-Q3 units has transferred from efficient Chinese producers to relatively inefficient EU producers.
It is true that, if the EU can prove that dumping has damaged its industries, they are allowed,

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