On June 4, the European Commission announced its decision to introduce anti-dumping duty on solar panels imported from China. An interim punitive duty of 11.8 percent will apply to all Chinese solar panel imports starting from June 6, and the duty will be raised to an average of 47.6 percent two months later if the two sides fail to find a solution.

The EU's anti-dumping and countervailing investigation against China has become the largest trade dispute in the world. Solar products involved in the case account for 70 percent of China's photovoltaic output and 7 percent of trade volume between China and the EU, totaling more than $20 billion.

Worse still, thousands of Chinese solar manufacturers may be wiped out and more than 400,000 workers may lose their jobs.

On the other side, according to a survey by some European economic research institutes, the punitive duty on Chinese-made photovoltaic products would lead to declining demand in the EU and losses of 242,000 jobs and 27.2 billion euro ($35.3 billion) in additional value in three years.

Nonetheless, it is worth mentioning that the 11.8-percent tariff is much lower than originally expected, and China still can sit down with the European side for more discussions on solar panel prices within the next two months. To some extent, China's diplomatic efforts have worked. In addition, the EU is fragmented on the issue. Germany, the EU's largest economy, disagrees with levying punitive duty on Chinese solar panels.

Although the interim punitive duty is much lower than expected, the EU has nonetheless chosen to head down a path of protectionism despite China-EU trade amounting to hundreds of billions of dollars annually. The EU has decided to "protect" its local industries at the risk of starting a potential trade war.

Lose-lose results have already surfaced by the ongoing anti-dumping and countervailing duty imposed by the United States on Chinese solar products. In 2011, the United States imported 11 million solar cells from China each quarter, and when it came to 2013, the figure dropped to a mere 900,000. Its manufacturing industry and job market have not yet benefited much from the anti-dumping measures. Some analysts estimate that the U.S. production capacity for solar panels is currently 1,845 megawatts, lower that the 2,027 megawatts of the previous year. According to the Solar Electric Light Fund, American solar industry lost 8,200 jobs last year, or 22 percent of total employment in the field. Estimates are that only 2,600 jobs would be restored this year.

In response to the EU's assault, the Chinese Government has promised to take a tough stance. "If the EU insists on imposing duty orders on Chinese exports and severely hurting the interests of Chinese manufacturers, the Chinese Government will not stand by," said Chong Quan, deputy international trade representative with the Ministry of Commerce. "We have no choice but take any measure possible to protect the lawful rights of Chinese businesses."

In the face of unfair treatment by the EU, the Chinese Government has launched anti-dumping and countervailing investigations into grape wine from the EU as well as on polycrystalline silicon and automobiles. China may take more countermeasures on issues concerning investment and trade.

The EU should be aware that escalating the threat of a trade war is damaging to both sides.

This is an edited excerpt of an article by Zhou Zixun, an economic commentator, published in Securities Times