U.S.+imposes+solar+duties+on+China+because+of+subsidies+by+Venus

TITLE OF EXTRACT: U.S. imposes solar duties on China because of subsidies

SOURCE: http://www.bbc.co.uk/news/business-17450718

DATE EXTRACT WAS WRITTEN: 21 March 2012

DATE CURRENT EVENT WAS WRITTEN: 24 March 2012

EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE: U.S. government claims that the subsidy that the Chinese government is providing for the solar panel companies lowers the original price of solar panels for about 5%. As the fixed cost of producing solar panels is lowered, the price of solar panels in the U.S. dropped more than 30% last year. In order to raise the price of solar panels, the U.S. government starts imposing 5% tariffs on Chinese solar panels. The government used the anti-dumping rules to justify its action of imposing tariffs on Chinese solar panels. These laws are designed to protect domestic producers from unfair foreign competition. The U.S. government hopes that by doing so domestic producers can be protected from unfair foreign competition.

VOCABULARY TERMS AND DEFINITIONS: Tariffs - A tax imposed by a nation on an imported good. Imports – Spending by individuals, firms, and governments for goods and services produced in foreign nations. Subsidies – A payment of funds (or goods and services) by a government, firm, or household for which it receives no good or service in return. Deposit - A sum of money placed or kept in a bank account, usually to gain interest. Output - The amount of something produced by a person or industry. Anti-dumping rules – To stop countries from selling excess goods in a foreign market at a price below cost.

DIAGRAMS:

EVALUATION: (Graph on the left) The market is in equilibrium with Qe being supplied and demanded at a price of Pe. After the subsidy is granted, the supply curve shifts vertically downwards from S1 to S1-subsidy. The producers lower their prices and increase output until a new equilibrium is reached, which is at the price of P1, where Q1 is both demanded and supplied.

(Graph on the right) In order to raise the price of solar panels, the U.S. government starts imposing 5% tariffs on Chinese solar panels. As a result, the price of solar panels for the consumers rises from Pe to P1.

Although the imposed tariff is only 5%, the U.S.’s reaction on raising price of Chinese solar panels may not be the best solution. With tariff imposed, there may be a risk of these two countries retaliating each other, thus driving price up for imported goods and finally hurts both consumers and exporters. The Chinese government should make a trade agreement with U.S. to prevent this from happening again.