Taking it personally: rethinking the effectiveness of tariffs

On September 16, 2013, an article from the Wall Street Journal, reports and discusses the new 6.5% tariff imposed by China on U.S. solar-panel materials. This is thought to be China’s retaliation for a tariff imposed last year on Chinese-made solar cells.

Washington enacted the tariffs after determining that the Chinese manufacturers were dumping the goods in the U.S., and had received illegal subsidies. China claims that the tariff is a result of the U.S. dumping of polysilicon in the Chinese market, which accounted for 36% of Chinese polysilicon imports in the first half of 2013. Although China fell short of  earlier threats of imposing tariffs as high as 57%, the new tariff could be detrimental to U.S. manufacturers, especially since China is currently the world’s largest producer of solar panels and has announced plans to increase production for the next three years.

My thinking goes to the motivation and effectiveness of tariffs. Including this case, it seems that in many instances when tariffs are imposed, the result is political tension and retaliation. Thus, it seems the motivation of imposing tariffs is not fully derived from an economic sense, but also increasingly from a pride/power perspective. The goal of the tariffs has deviated from a regulatory role, to a tool of political chess. In this China-U.S. case, China has allowed for its national solar panel business to take a hit by raising the input prices of polysilicon, albeit exempting three U.S. manufacturers who they cited as only having received minimal subsidies. With countries, especially China, quite willing to participate in tariff wars, perhaps this classic regulatory tool is losing its value in the face of the exponentially interconnected global economy.

This text was written and presented by Mr. Sho Shino, Student at the McDonough School of Business of Georgetown University in the course on International Business (STRT-261-01) on September 18th, 2013. You can contact the author here.

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