Interpretation:

Free trade is when there are no barriers between countries restricting them from trade in
goods and services that were placed in by the government and protectionism being, when
there are barriers between countries imposed by the government. These consists of import
tariffs, import quotas and a minimum price on imports.
I will be focusing on the effects a tariff will bring to the U.S.A.
A tariff is essentially a tax implemented on another country’s imports. This will cause the
price of the imports to rise and will give domestic industries a better chance to turn profits.
This is also why companies “Suniva”[1] and “Solar World”[2] are pushing for the tariff as
they are in financial crisis.

The effect of a tariff when put in place are as follows, the domestic production increases from
(0, Q1) to (0, Q3), with their revenue increasing from g to g+a+b+c+h. Imports before the
tariff produced at (Q1) to (Q2) after the tariff they produce at (Q3) to (Q4) with their revenue
decreasing from h+i+j+k to d+e+i+j although they have to pay the tariff to the government
which is d+e. The demand for the imports shift from (Q2) to (Q4) as the prices for the
product has increased from Pw to Pw + 25 cents or Pw + 32 cents. The blue triangles
represent welfare losses through dead-weight loss of welfare (f) as (Q4, Q2) quantity of solar
imports are no longer demanded and thus decreases consumer surplus, and inefficiency in the
production of the product (c) as (Q1, Q3) are now produced by inefficient producers rather
than foreign but efficient producers.
With the “previous tariffs on Chinese imported solar energy products being insufficient”[3], a
new tariff of 25 cents on solar cells and 32 cents on solar panels per watt, will surely increase
the price of those products and decrease dumping on the American economy. For domestic
producers this is essential to gaining the most amount of profits as the large amount of tariff
will cause an excess in demand as mentioned before, and will cause prices for domestic
products to increase to meet the new supply. It will also bring greater employment in those
companies pushing for the tariff. One last improvement would be the government receiving a
larger tax revenue enabling them to subsidise schools etc. For a better long run in education
Although with the increase in prices of the product, consumers are losing out on cheaper
products and also being reduced in the variety of choice.
It is also argued that the tariff will cause “greater job losses compared to job gains”[4]
because, there are businesses that depend on low price solar energy products to be able to
keep their costs low such as installation businesses’. With the increase in price they will have
to lay off workers to cut down production costs. Causing disputes between firms about the
possible tariffs.
Another dispute this will cause is between further trade between the U.S.A and China if
America puts a tariff on Chinese products. It won’t take much for China to do the same.
Causing segregation between the countries.
One large cause that will affect the long run globally is that, one of the reasons the tariff is
being suggested is that local companies can’t compete with the foreign companies as they
aren’t producing effectively enough. As one company has already signed for bankruptcy and
this is a call for last measures to try and stay in business. The inefficiency the tariff will cause
can be seen on the diagram through (c) triangle which is known as welfare loss. The other
triangle represents the dead-weight loss of welfare (f).
One solution to this is that the U.S.A could see what they produce more effectively than
China and focus on producing that instead of solar powered energy but then creating trade
agreements with china to trade the two goods.
Although with trading there are bound to be great amounts of job losses but at least the two
countries will be more efficient in what they produce. Or job training subsidised by the
government would increase the efficiency of domestic producer making it possible for them
to compete with foreign producers/ imports.
There are two other options to be discussed (quota, minimum price) although as they all
involve increasing the price of the imports they will have almost the exact same outcomes as
the imposition of tariffs.

[1] Reuters article. Line, 14

[2] Ibid. Line, 14
[3] Ibid. Line, 23
[4] Ibid. Line, 30