Let´s not stand up to the Chinese

It looks like the EU Commission might not get its way with the plan to put anti-dumping measures on solar panels from China.
18 governments out of the EU27 are against, reports the Financial Times.
Good.
Not because China deserves to get away with their silly threats of retaliation.

No, it´s good because anti-dumping measures are a really bad idea. It would hurt Europe more than it would China.

It can´t possibly come as news to the European Commission that punishing foreign companies for delivering goods or services at a lower price than our European industry, is pointless.
Sure, it looks like a brilliant idea.
As far as I know, Chinese producers could well be relying on the state to be able to perform at such low cost, making the competition with European rivals grossly unfair. So why not punish the Chinese with an extra duty of 20-30% on the price to put things right again?
Because it doesn´t work.

Studies have shown this. Again and again.
The first thing that happens is that the European consumer ends up paying more for the product in question.
Here´s a number from a study on the benefits of EU anti-dumping policy: With every 1 euro gained in the protected European industry, European users and consumers pay, on average, 4.5 euro in higher prices and tariffs.

Secondly, European producers of parts of the product or the service being punished, take a hit when prices of the product they help to build, go up.
The world has changed. No product or service is purely from any one country anymore, it´s all mixed up. When the EU slapped duties on Chinese clothes some years ago, every European clothes chain and designer was severely hurt since Europeans nowadays design clothes but have them produced in China.
More often than not, Chinese products carry European design or software or spare parts.

Here´s an example (from Insee, Paris) that explains it quite clearly. An Apple iPhone produced in China carries so many parts and software produced elsewhere that out of the $187.51 price, only $20.75 ends up in China and $22.88 in the USA. $16.08 goes to Germany, $80.05 to Korea and $47.75 to “other countries”.

This is just as true for services as a recent study into the Swedish online game Minecraft has showed.

So if you put antidumping taxes on a Chinese-built IPhone, who do you hurt?

Thirdly, experience has shown that as soon as you cut out somebody else by punitive duties, importers from other third countries muscle in on the market and take the market shares that the Chinese have lost.

Going back to that first study again, it seems that when the EU punishes some third country producer with extra duties, the protected European industry sector gains, on average, 1 percentage point of the EU market share. Producers in third countries however, not subject to anti-dumping duties (non-targeted countries) gain, on average, as much as 8 percentage points of the EU market share.
In other words, maybe the low market share for European industry is due to something else than just prices. Maybe they need to look again at what they´re doing.

So. Bad for the European industry, bad for the European consumer and bad for the global climate (things are going really well on the installation of solar energy front, being number-one new source of electricity generation installed in Europe for the last two years, increasing European capacity from 4.5 GW in 2005 to more than 70 GW today).

And it would be bad for Europe as a whole as it would mean loss of at least 220 000 jobs, if you want to believe Afase – the part of European solar industry that campaigns against the anti-dumping measures on Chines imports.

All that for the pleasure of punishing the Chinese?
It´s not worth it.


 

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