Following months of political wrangling, the European Commission has opened the door to a trade war with the second-largest economy in the world after imposing levies on Chinese solar panels.
The commission believes that China is responsible for exporting solar panels to the European Union (EU) at sub-market rates. Although making a substantial loss on sales to the EU, Chinese manufacturers are able to control the market by outselling European manufacturers. If no attempt were made to level the playing field, China would soon dominate the market, giving it control over prices and distribution, which is exactly why the commission has imposed an anti-dumping tariff on solar panels imported from China.
But how will China respond? Beijing had already warned the European Commission that anti-dumping measures would hurt the economic interests of both China and the EU. Germany had also advised against imposing levies on solar imports from China, arguing that the situation could be resolved through negotiation. But the commission exercised its power to enforce emergency measures regardless.
President of the Commission, Joss Manuel Barroso, explained that below-cost Chinese solar panels are crippling manufacturers in Europe. The commission appears intent on fostering a more competitive marketplace in the EU, so the decision to impose a levy of 11.8 per cent on solar panels imported from China may seem reasonable. The problem is that Beijing is more than capable of responding in kind by imposing levies on EU member states that have leant their support to the measures.
The Director of the European Centre for International Political Economy (ECIPE), Hosuk Lee-Makiyama, noted that the EU is the world’s “most subsidised economy”, so China will find no shortage of targets to aim at if it decides to retaliate to the levy, which is set to rise to 47.6 per cent in August unless politicians can broker a deal.
The anti-dumping measures may have an adverse effect on the solar industry in Europe. Some 25,000 jobs rely on the continued supply of cheap solar panels, which have driven economic policy in the UK. The low cost of solar PV was a major factor behind the British Government’s decision to reduce Feed-In Tariffs (FITs) from 43.3p/kWh to 15.44p/kWh, for example. Might the anti-dumping tariffs do more harm than good?
