Last week the Department of Commerce imposed huge new tariffs on Chinese solar-panel companies after finding them guilty of dumping their products. This was a good decision for those companies competing with Chinese firms, but a disastrous one for everyone else. Dumping simply means that the Commerce Department has determined that the price is “unfair” because, as an example, the price of a good is different in domestic and foreign markets. Anyone can be found guilty of “dumping.”
Recently, my son needed new jeans; and my wife reminded me that I needed to replace my shabby, old summer polo shirts. So, the “boys” were sent off to Kohl’s to shop. Kohl’s had sent us a coupon for an extra 30% off; other shoppers had no coupon or only a 15% off coupon.
My son hates to shop and, although he knows what he likes, he is not brand conscious. I was stunned at the price of Levi’s Jeans, but pleased that he liked Lee’s Jeans at less than half the price of Levi’s.
Questions: If Lee’s are the same quality as Levi’s, is Lee’s engaged in unfair competition by selling their jeans at less than half the price of Levi’s? By sending us a 30% off coupon, was Kohl’s dumping their goods on the Brownsteins?
Before I answer these questions, I’ll ask a few more. I was pleased during the shopping trip to find at Kohl’s a full selection of Chaps polo shirts at 75% off. I thought this was an unusually good deal for so early in the summer season, and I was pleased to replenish my wardrobe. In comparison, down the street at the Tommy Hilfiger outlet, polos would cost me three times as much.
Questions: Was Kohl’s guilty of selling Chaps polos at an unfair price? After all, the Tommy Hilfiger outlet shop didn’t get my business that day. And although I didn’t buy that day at the Hilfiger outlet, isn’t the Hilfiger outlet dumping clothes because they are selling at a different price than in the city?
Or, consider this scenario. Shortly after my Inner-Work of Leadership book was published, an organization called and wanted to know if I could sell them 300 books at a discount? I was pleased to receive the call but a bit disappointed at how much they wanted to pay for each book. I didn’t hesitate however, and I gladly accepted the offer. These were 300 books that I would not have sold otherwise. Yet, I was selling my book at less than half the price that Amazon was charging for it.
Question: Was I guilty of dumping the The Inner-Work of Leadership?
I think most readers would answer no to all these questions. Most understand that competition dictates that one way to differentiate a product is by its price. Of course, price is not the only criteria by which consumers make decisions. But Lee’s and Levi’s were the same to my son; Chaps and Tommy Hifiger were the same to me; and the organization that brought my book made it clear that they had other book alternatives to consider.
Back to Chinese solar panels. To gain market share, Chinese companies have to sell for considerably less in order to offset the perception of inferior quality. As in the case of Lee’s and Levi’s, Lee’s has to sell for less in order to offset the superior brand recognition of Levi’s.
The market in China for solar panels is very tiny, so there is no way for the Commerce Department to correctly determine the Chinese domestic price. What is really going on here is that other solar-panel manufacturers are trying to block competition. The Wall Street Journal observes clearly:
The only winners here are Germany-based SolarWorld AG and the six other companies that filed for trade relief. SolarWorld is a high-cost producer that has struggled as European countries have slashed their solar-industry subsidies, thanks to soaring costs and fiscal pressure. Like steel makers and others that resort to dumping laws, SolarWorld is using government to raise costs for its competitors.
What about the Americans consumer? Thanks to inexpensive Chinese solar panels, American companies have been leasing to homeowners solar panels. The homeowner pays nothing for the installation or for the panels. Instead, they pay a monthly fee to the leasing company which is a fraction of their normal household electric bills.
So let’s review American energy policy. Subsidize environmentally disastrous and expensive energies such as ethanol and nuclear power. Subsidize politically connected solar firms, such as Solyndra, at the expense of their more efficient and non-politically connected competitors. And now, raise the costs for homeowners who are interested in converting to solar energy.
Why are politicians doing this? There are two likely explanations: One, they are economically illiterate and have no idea what they are doing. And two, they are more interested in receiving campaign contributions from those they subsidize than they are interested in the well-being of Americans.
Perhaps we are seeing the opening round of a US/China trade war. If so, Americans will blame China and the Chinese will blame Americans. Politicians on both sides will behave like arsonist as they pour fuel on the fire, and ordinary citizens of each country are the ones who will be burned.