According to the article, China is being accused by the EX. 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 impose anti-dumping measures to reduce the damage to its domestic industry. The EX. is already imposing a protectionist measure, tariffs.
These are defined as a tax that is charged on imported goods and are considered as the most Orion type of anti-dumping measure. Before applying tariffs, the country consumed O-SQ Solar Panels at the price of the world (PA), but domestic firms were producing only O-IQ and the rest (IQ-SQ) were imports. When the tariff is imposed, S (World) shifts upward by the quantity of the tariff to S (World)+Tariff. This produces prices to go up to Pa+T and the total quantity demanded of Solar Panels falls to O-SQ.
Because of the shift in the world’s supply curve, domestic producers now produce from O-SQ and their revenue increases from g to g+a+b+c+h. Foreign reducers now supply SQ-SQ, but even when their products now have a higher price, they have to pay the amount of the tariff to the government and thus, their revenue falls from h+I+j+k to only I+j. As a result, the government receives tariff revenue of date. However, there are some issues that come with the application of this measure.
First, is the dead-weight loss of welfare produced by the loss of consumer surplus, because even when consumers keep the amount “k” that they would have spent on Solar Panels, the new consumer surplus (equivalent to “f’) is not purchased. Secondly, now the EX. would produce IQ SQ 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 EX. 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 EX. imposed the tariff, Germany would produce O-IQ units of Solar Panels domestically and would import IQ-SQ units of Solar Panels from China. Now with the new tariff, Chinese Solar Panels become more expensive than those produced in the EX..
This would make Germany to produce O-SQ units of Solar Panels itself and import SQ-SQ units from the ELI. Now there is an overall fall in the quantity demanded of Solar Panels of SQ-SQ units and so a loss of consumer surplus. Moreover, a misapplication of the world’s resources is produced since IQ-SQ nits Of solar panels are now being produced by less efficient German producers and the production of SQ-SQ units has transferred from efficient Chinese producers to relatively inefficient EX. producers.
It is true that, if the EX. can prove that dumping has damaged its industries, they are allowed, under international trade rules, to impose anti-dumping measures. However, it is very difficult to prove whether or not a foreign industry has actually been guilty of dumping. Furthermore, the ELI has the most subsidized economy in the world and it is arguable that when they subsidize a product, it is actually a ease of dumping because the price doesn’t reflect the actual costs of the EX. producers.