In May 2012, the U.S. Commerce Department imposed tariffs of 31 percent to 250 percent on Chinese solar-product imports, siding with companies including SolarWorld AG in the U.S. that said the items were sold below the cost of production. The Commerce Department sided with US-based solar panel companies, ruling their Chinese competitors were flooding the US market with government-subsidized products.

The ruling came after several US solar panel manufacturers, led by SolarWorld, asked the government to penalize Chinese companies for dumping low-priced products on US markets.

a. What are the welfare effect of the US tariffs on the Chinese and US economy? Please apply a graphical analysis. (12 credit points)

b. Can you show that the dumping of Chinese solar panels is a profit maximizing strategy for the Chinese companies? (10 credit points)