China and the West broke a decades-old pattern of troubled trade relations over the weekend with a landmark deal to settle a trade dispute between China and the EU involving Chinese manufactured solar panels. Leaders in China and the West should use this breakthrough agreement as a template for resolving future trade disputes, turning to compromise rather than destructive accusations and punitive tariffs to end their disagreements.
Trade between China and the West has grown rapidly over the last two decades following China’s economic reforms to create a more market-oriented economy. The EU and the US are now China’s two biggest trading partners, with combined exports to both markets totaling more than $700 billion last year – greater than China’s entire exports a decade ago. Disputes are almost inevitable with such rapid growth, and many of those are related to China’s policies of State support for many big companies and key industries.
The solar panel dispute began two years ago when the sector suddenly plunged into a downward spiral after nearly a decade of explosive growth. A major cause of that downturn was a rapid buildup of capacity in China, as China rolled out favorable policies like tax incentives and cheap loans to promote development of a cutting-edge sector with big growth potential. As prices tumbled, a growing number of companies in the US and Europe went bankrupt, with many blaming cheap imports from China for their woes. Washington opened an investigation into the matter, which ended with the imposition of antidumping tariffs against Chinese manufacturers last year. The EU followed with its own investigation, and announced its own tariffs this spring.
Written by Doug Young. To read the full article, click here.