In the short term, the EU should revoke its threat of imposing punitive tariffs on China. In the long run, all major trading countries, including the United States, should reform their anti-dumping laws that are easy to provoke meaningless disputes.
Currently, Europe is following the bad example of the United States. Last year, the United States accused China of illegally subsidizing solar panels exported to the United States and dumping it at low prices. The United States imposed tariffs on solar panels exported to China. And EU Trade Commissioner De Gucht follows the example of the United States, raising tariffs by more than 40%.
Many EU member states oppose De Gucht's proposal, not only because their environmental ministers like cheap solar products, but also because these trade officials are worried about bigger trade wars. It is because the balance of trade interests is very complicated. Adding tariffs on Chinese solar panels can help European solar panel manufacturers, but it will damage the EU solar industry. These companies rely on low-cost Chinese solar panels and sell their parts polysilicon to Chinese solar panel manufacturers.
The key issue is the definition of dumping. Existing trade regulations cannot define what is low cost and what is predatory low price. Sales below cost are not necessarily anti-competitive. When the producer has excess capacity and the product lacks demand, sales below the cost price are taken for granted. But with a lower-cost sales monopoly market and subsequent price increases, this is a predatory low price, which is different from the previous example. Predatory low prices should be constrained.
In fact, predatory low prices are rare because demand determines production. If more production companies flood into the industry, the strategy of squatting will fail. Solar panel production is a competitive industry because the barriers to entry into the industry are lower. In addition, all analysts believe that the industry is currently facing overcapacity because production is increasing rapidly and demand is being suppressed. So the theory of predatory low prices is extremely unreasonable.
International trade regulations control the vast majority of trade protectionism that will be self-defeating, but the so-called anti-dumping is an exception. They can easily launch anti-dumping actions and raise tariffs for narrow interests, but they harm the public interest. In the matter of anti-dumping, both the EU and the United States need to abandon the need to make them go astray, and take a long-term view: trade policy should be used to promote competition, not for self-interest.
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