THE INCIDENCE OF TRADE WARS: EVIDENCE FROM THE US SOLAR INDUSTRY

Abstract

Trade wars between countries in the renewable energy sector have proliferated in recent years, potentially hindering the growth of the industry. This dissertation investigates the welfare effect of anti-dumping policies initiated by the US government against Chinese manufacturers. It focuses on the US solar industry, which has grown more than thirtyfold over the past ten years. Chapter 1 describes the policy background leading to the trade war, together with institutional details of the industry. Furthermore, it proposes a two-country theoretical model to formalize how anti-dumping policies affect the market in equilibrium. Chapter 2 estimates a structural econometric model with a differentiated demand system and marginal cost for solar manufacturing that incorporates the vertical structure between upstream solar manufacturers and downstream solar installers. The estimation results suggest large markups among solar manufacturers and installers. Chapter 3 conducts policy simulations and shows the impact of trade war on the US solar market. In particular, it considers different changes in anti-dumping duty and subsidy rates, and evaluates the welfare effect among different market participants. The results show the anti-dumping policy has decreased producer surplus and consumer surplus by around $874 million (in 2015 US dollars) and has increased the greenhouse gas emissions by 5.98 million tons for the period 2010 - 2015. The installation capacity of US solar market would have increased by 36.4% if there had been no anti-dumping policies. Compared with the large decrease in profits for Chinese solar manufacturers, US manufacturers benefit only slightly from the US anti-dumping policy. Chapter 4 further investigates the welfare effects of trade policies on the population of consumers, by using a random coefficient discrete choice model which captures the heterogeneity in consumer tastes for differentiated products. It then explores the welfare change among different groups of consumers. The results show that consumers who are relatively less sensitive to solar panel price (i.e., consumers who reside in areas with higher median income, a lower percentage of households with children and a higher proportion of democratic supporters) would benefit the most if there had been no anti-dumping duties. Chapter 5 concludes and discusses the issue of trade protectionism occurred in other industries.