Protectionist Shadows over Solar Power

Negotiators have now reached a settlement in the EU's anti-dumping dispute with China. The solution, under which China will ensure a minimum price for the solar panels that it exports to Europe, is much less severe than EU import tariffs would have been; nonetheless, it is a bad outcome for consumers – and for the environment.

CAMBRIDGE – As July ended, a settlement was reached in the world’s largest anti-dumping dispute, with China agreeing to a minimum price for the solar panels that it exports to the European Union. The solution is much less severe than what had been the imminent alternative: EU tariffs on Chinese solar panels were set to rise to 47.6%, as a result of the European Commission’s “finding” that China – whose market share now stands at 80% in Europe – had been “dumping.” Nonetheless, the settlement is a bad outcome for consumers – and for the environment.

The China-EU dispute parallels a similar one between China and the United States. Last fall, the US introduced tariffs of 24-36% against Chinese solar-panel imports, after the Commerce Department determined that China had been “dumping” – which is generally defined as selling at a price below cost – into the American market. China, citing its own finding of US dumping of polysilicon – a key input in the production of solar panels – into its market, has already retaliated by imposing import tariffs that could exceed 50%.

The solar-panel disputes may sound narrow and esoteric, but they go to the heart of the long-running debate over globalization. Anti-globalization activists’ most powerful argument is that even if free trade is good for economic progress overall, it might undermine important public goods such as environmental protection. Under the well-known “race to the bottom” hypothesis, countries that are open to international trade are thought to adopt weaker environmental regulations than less open countries do.