International Economics Case Study

This report analyzes the US-China solar panel trade dispute of 2011, focusing on the challenges faced by American solar panel producers due to Chinese competition. The analysis identifies key issues such as unfair trade practices (dumping) by Chinese firms, supported by government subsidies and low labor costs, leading to a significant market share loss for US producers. The report examines the impact of these practices on US producers, consumers, and the overall economy. It discusses relevant economic theories, including the theory of dumping, and analyzes factors affecting the identified issues, such as labor costs, demand and supply elasticities, and government policies. The report proposes tentative solutions, including the implementation of WTO anti-dumping policies and trade agreements to mitigate the negative impacts of Chinese competition. Contingency plans are also outlined to monitor the effectiveness of the proposed solutions. The conclusion summarizes the findings and emphasizes the need for strategic trade policies to protect domestic industries from unfair trade practices.

International economics
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Table of Contents
Introduction:...............................................................................................................................2
Analysis:.....................................................................................................................................2
Key issues and the underlying issues:....................................................................................2
Facts that affect the identified issues:....................................................................................4
Tentative solution to the problem and implementation:........................................................4
Follow up and contingency plans:..........................................................................................4
Conclusion:................................................................................................................................4
Reference:..................................................................................................................................6

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Introduction:
Ron Kirk was the then US Special Trade Representative during 2011 and once the signing
ceremony was over, he received his first heads up from the US Department of Commerce
secretary. It was Solar World Industries America, which is the largest solar panel producer in
US brought in allegation against the Chinese firm of solar panel seller that they are subject to
unfair trade and selling solar panels to US consumers promoting an unfair competition
(Everycrsreport.com, 2019). This paper is aimed to analyse the same situation based on the
economic theories and considering the non-profit academic settings given for analysis.
Through identifying the key issues, this paper will highlight the facts that affect the identified
issues and their tentative solution for the problem and implementation of the same. Through
identifying the follow up and contingency plans this paper will draw conclusive statement
regarding its finding.
This paper is aimed to analyse the
Analysis:
Key issues and the underlying issues:
There has been major set back for the US solar panel producer since 2011 once it has been
found that Chinese solar panel producers and the government penetrating the US market with
the aim to capture the market. With the extensive export subsidies by the Chinese
government and rapid growth in engineering technology backed by the low labour cost,
chinse solar panel producers has been able to capture 61% of the US solar panel market
forcing them to face fall in revenue, average revenue per sells and revenue per watt of
capacity (idsa.in, 2019). Though the US government supports the solar panel manufacturing
unit, yet in front of the Chinese manufacturers, US producers are tiny in operation and they
are not even able to compete with the Chinese producers. This is one of the main issues that
has can be identified from the given article.

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Secondly it can also be seen that owing to the lower price of the products, consumers of the
solar panel in US market are seemed to prefer Chinese products compared to the domestic
version of the same. This further allowed the Chinese producers to capture the market and
under the WTO rules US government cannot force the Chinese sellers to leave market. As per
the rules of the WTO, president of the signatory nations can enforce tariff in order to restrict
dumping of the producer by the other nation, however, under effective export promotion by
the Chinese government US government tariff is not effective in nature. Ultimately resulting
in the excessive dumping of the solar panels in the us market, leading the overall price of the
product fall over the year (reuters.com, 2019).
Figure 1: Fall in the solar panel price in the US
As per the above figure it can be seen that the price of the solar panel in the US market has
effectively reduced from $3 per watt to $1. This has been done by the excessive supply of the
solar panels by the Chinese producers. Fall in the price has reduced the domestic supply and

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the market has been overly captured by the foreign firms. This is the second issue that can be
identified by the given case (Hughes & Meckling, 2017).
These issues are harmful for the interest of the US economy as the growth in the Chinese
export in US economy has increased by a large extent during the recent decade. Under the
WTO norms, Chinese government promotes its products excessively allowing it to take
advantage of penetrating pricing strategy that force the US producers to leave market. Under
this situation, theory of dumping can be considered. As per the theory of dumping, once
country produce a goods or service and then the same is exported to other nation in higher
number so that the price of the same comes down. Same can be seen in the situation of solar
panel where the Chinese producer has exported solar panels in large numbers allowing the
price of the same to fall. This situation can be seen in case of aluminium, coal, raw materials,
electronic goods and for other products as well leading the US market to get flooded with the
Chinese product. Under this situation, US foreign reserve is deteriorating sharply and in
future Chinese products will enjoy monopoly over the US products (Zou et al., 2017). Thus,
this situation is harmful for the US government and it is essential for Kirk to take necessary
action.
Facts that affect the identified issues:
There are various facts, that affects the identified issues. As per the given article it can be
seen that US workers and labour cost for solar panels has deteriorated over the period largely
and capacity utilisation percent has deteriorated marginally from 2009 to 2011. Moreover,
elasticities of demand in the solar panel market has become -0.9, which means as the price
changes, demand changes negatively by a large amount. On the other hand, supply elasticity
for the domestic producer is as high as 5, which means the producers are willing to produce
the solar panels at a higher rate only.

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Apart from these, there are other factors like governmental subsidy program to enhance the
production of solar panel, and anti-dumping projects of the government to reduce the scope
of Chinese producers’ market penetration. However, effective export subsidy and the export
promotion has enhanced the Chinese producer to enter the US market effectively with the
penetrating pricing strategy (Brewster et al., 2016).
Thirdly, US solar energy companies has faced a large set back once the President Obama’s
1705 Clean Energy program become bankrupt during 2011 august leading the solar panel and
solar energy producing firms to face a massive glow. This has made all the producers un
protected in front of the Chinese aggression.
Tentative solution to the problem and implementation:
As per the tentative solution of the issue Ron Kirk need to take anti-dumping policy defined
by the WTO and the GATT agreement. As per the WTO, it must be showcased that the price
of the dumped import is much lower than the exporter's domestic price. If it proved that the
Chinese government has been taking unfair trade practice, then the same can be charged for
the loss of the US solar panel producer. On the other hand, US and Chinese government can
bring in trade pact so as to reduce the dumping. However, counter tariff imposition cannot be
option for the US government as it will lead to further fall in the price and loss in the
suppliers’ interest.
Follow up and contingency plans:
Through the implementation of the new policies, if the price of the products tends to rise and
the domestic supply elasticity tends to fall, it can be considered that the implementation of the
new strategy is successful. On the other hand, fall in the dumping of the Chinses imports can
be considered as the useful implementation of the new policies taken by the Jon Kirk.

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Conclusion:
From the above explanation it can be seen that the US government has lose its solar panel
market in front of the Chinse penetrating pricing strategy and dumping policies. Though the
government of US has tried to revise the situation after the GFC, yet it has failed to do so.
Due to the fall in the price of the US consumers has preferred to have the Chinese solar
panels leading the demand of the US solar panel producers fall. This further lead to the
deteriorating situation for the producer once there was bankruptcy in Obama clean energy
program. However, Ron Kirk being new special trade representative of US can follow the
anti-dumping strategy and trade agreement to reduce the tension between the two states.

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Reference:
Brewster, R., Brunel, C., & Mayda, A. M. (2016). Trade in Environmental Goods: A Review
of the WTO Appellate Body's Ruling in US‒Countervailing Measures (China). World
Trade Review, 15(2), 327-349.
China installed 18 percent less solar power capacity in 2018. (2019). U.S.. Retrieved 5 June
2019, from https://www.reuters.com/article/us-china-solarpower/china-installed-18-
percent-less-solar-power-capacity-in-2018-idUSKCN1PB09G
China’s Big Push for Solar Energy | Institute for Defence Studies and Analyses.
(2019). Idsa.in. Retrieved 5 June 2019, from https://idsa.in/issuebrief/china-big-
push-for-solar-energy-cpurushothaman-31121
Hughes, L., & Meckling, J. (2017). The politics of renewable energy trade: The US-China
solar dispute. Energy Policy, 105, 256-262.
U.S. Solar Photovoltaic Manufacturing: Industry Trends, Global Competition, Federal
Support. (2019). Everycrsreport.com. Retrieved 5 June 2019, from
https://www.everycrsreport.com/reports/R42509.html
U.S. Solar Photovoltaic Manufacturing: Industry Trends, Global Competition, Federal
Support. (2019). Everycrsreport.com. Retrieved 5 June 2019, from
https://www.everycrsreport.com/reports/R42509.html
Zou, H., Du, H., Ren, J., Sovacool, B. K., Zhang, Y., & Mao, G. (2017). Market dynamics,
innovation, and transition in China's solar photovoltaic (PV) industry: a critical
review. Renewable and Sustainable Energy Reviews, 69, 197-206.

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