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IB2 Economics
22 October 2015
International Trade IA
The article discusses how the European Union has imposed a five-year
tariff on the solar panel glass from China. A tariff is a tax charged on
imported goods. The tax imposed on any good will shift the supply
curve upwards by the amount of the take. When a tariff is imposed the
world supply curve will shift upwards, since its placed on the foreign
producers of the good and not the domestic producers.
Due to Chinas solar glassmakers controlling 30.5% of the European
Unions market, the European Union has levied a tariff of up to 36.1%
on the Chinese solar glassmakers for up to 5 years. Since China is
selling solar glass in the European Union below cost, China is
practically dumping. Dumping occurs when a country or the
manufacturers export a product to another country at price that is
either below the price charged in its home market or below its cost of
production. Chinas solar panel glass is believed to have increased
their share of the 200 million EU solar-glass market by 30.5%. The EU
claims that this is unfair and are blaming it on the government
subsidies the Chinese are receiving . The alleged cheap loans, tax
incentives, and land grants at below-market rates that the EU is

accusing China of has led them to imposing the 36.1% tariff on the
solar panel glass coming into the EU from China.

The affects of the tariff imposed on China can be shown in the

following graph:
Before the tariff was imposed,
the domestic production was 0Q1 while the imports were Q1Q2 and the solar panel imports
were from Q1-Q5. After the tariff
was imposed the S(world) shifts
up by 36.1% (amount of tariff)
to Sw+ tariff., therefore the
market price increases from Pw
to Pw+tariff. Since the price has risen total quantity demanded falls
from 0-Q5 to 0-Q4. Therefore, as the imports decrease, domestic
production increases from 0-Q1 to 0-Q2, resulting in the EUs revenue
to increase from g to g+a+b+c+h. The rest is supplied by Foreign
producers, which is now Q2-Q4. After the tariff is imposed the Solar
Panel Glass imported decreases from Q1-Q5 to Q2-Q4. This means that
their revenue falls from h+i+j+k to only i+j. The government now
receives the tariff revenue of d+e.

The imposition of the tariff has a number of advantages. For example,

it reduces the current account deficit. Since the imports of solar panel
glass has decreased this implies that the current account deficit of the
EU has decreased as well. Current account deficit is a measurement of
a countrys trade in which the value of goods and services it imports
exceeds the value of goods and services it exports. In the EUs case, by
reducing the imports of the solar panel glass it reduces its imports,
thus lowering the value of imports. As the import decreases,
aggregate demand increases. Aggregate demand is the total level of
demand for desired goods and services that makes up the GDP.
Aggregate demand is the sum up consumption expenditure,
investment expenditure, government expenditure, and net exports
(Exports-Imports). Now since the imports are reduced after the
imposition of a tariff, this means that the Aggregate demand will
increase based on the AD equation. This will lead to a shift in the AD
curve to the right, which is an increase in output. In addition, the tariff
could protect the domestic firms from the foreign completion overseas.
As mentioned, EU solar-glass producer such as Glasmanufaktur
Brandenburg suffer from material injury due to the subsidies and
dumped imports from the China. By imposing a tariff, the EU is
allowing their domestic firms to get the time and a chance to increase
their economies of sale in order to compete with the foreign firms. As
a result of protecting domestic firms from the competition overseas,

this will reduce domestic unemployment, which will aid the EUs
economy. On the other hand, there are some disadvantages of
imposing this tariff. The EU imposing this tariff could result in the solar
panel industry in the EU actually being harmed. This is because the
installment companies in the EU for solar panel glass suffer from loss
of margins due to the increase of price level. Another disadvantage is
efficiency loss. Since domestic production increases and the imports
from China decrease. During the process of the domestic producer
increasing more efficient world producers (the Chinese) will be
replaced by domestic producers in the EU, which leads to an efficiency
loss. All in all, a tariff in the short-run could reduce unemployment in
the EU and current account deficit. Howver, in the long-run could lead
to efficiency loss in the world and possibly a trade war between the EU
and China.

Works Cited

"EUSlapsTariffsonChina'sSolarGlassMakers."SouthChinaMorning
Post.N.p.,15May2014.Web.21Oct.2015.

http://www.scmp.com/business/commodities/article/1512315/eu-slapstariffs-chinas-solar-glass-makers