Was the trade war justified? Solar PV innovation in Europe and the impact of the ‘China shock’

Low cost solar energy is key to enabling the transition away from fossil fuels. Despite this, the European Union followed the United States’ example in imposing anti-dumping tariffs on solar panel imports from China in 2012, arguing that Chinese panels were unfairly subsidised and harmed its domestic industry. This paper examines the effects of Chinese import competition on firm-level innovation in solar photovoltaic technology by European firms using a sample of 4,632 firms in 14 EU countries over the period 1999- 2018. I show that firms which were exposed to higher import competition innovated more. Further, I find that during the years following the trade war, firms with a higher existing stock of innovation became less innovative. The results imply that competition from China constituted a positive push for more innovation among European solar innovators, calling into question the rationale behind the trade war.