China’s Overcapacity and Dumping: How Beijing’s Subsidies Drive U.S. Companies Out of Business

China’s overcapacity, oversupply, and overproduction have become a growing concern in the United States. These issues are interconnected and stem from Beijing’s use of subsidies to produce more goods than the market can sustain. Examples of these subsidized goods include electric vehicles (EVs), batteries, steel, cobalt, and low-tech semiconductors. The surplus of these goods allows China to “dump” them in the United States and other countries at prices below the cost of production, which can lead to the closure of American companies and the loss of jobs.

Dumping, as a practice, is highly contested and politicized by both the Chinese Communist Party (CCP) and political parties in Washington. It has become part of propaganda campaigns in a complex three-way game of chess. Domestic U.S. producers also engage in this competition, lobbying for subsidies and tariffs to counteract Chinese subsidies. These non-market measures are justified by U.S. companies as a way to level the playing field and bring prices back to what they would have been without any intervention. However, this approach of “two wrongs make a right” is debatable.

To better understand the dynamics of dumping, let’s examine specific examples. Household magnets, mattresses, and solar panels have recently gained significant attention. One clear example of inexpensive Chinese manufacturing hurting American workers is mattresses. While a basic Serta Simmons 10-inch Queen mattress made in the United States can be purchased for around $240, Chinese-made mattresses of similar size are available for less than $175. Some Chinese mattresses are shipped through third countries or nearby allied countries to evade U.S. tariffs. Others have unclear origins or are produced in countries closely allied with Beijing, such as Laos. Chinese companies that move their operations to Laos can take advantage of lower wages and tariffs, allowing them to produce mattresses at an even cheaper price point.

This situation puts American manufacturers in a difficult position. The low profits from domestically-produced mattresses make it challenging to sustain U.S. factories. Even with a 25 percent tariff on Chinese imports, hiring American workers at American wages becomes cost-prohibitive. As a result, companies like Simmons have been forced to lay off workers. Simmons, for example, has cut its U.S. workforce from 4,000 to 2,000 since 2018.

Magnets are another product that Chinese manufacturers reportedly sell in the United States below the cost of production. These magnets, which are used in household items like headphones and televisions, rely heavily on rare earth elements (REE). China dominates the global market for REE and has used this dominance to exert influence over other countries. However, Japan has started to build alternative supply chains to reduce its dependence on China following a 2010 ban on REE exports. Despite this, China still controls around 85 percent of global REE processing, giving it an advantage in electronics manufacturing. By selling REE at low prices, China keeps out potential competitors and maintains its near monopoly. The price of neodymium-praseodymium oxide (NdPr), a crucial REE, has dropped significantly from about $176,000 per ton in March 2022 to around $50,000 per ton today. This pricing strategy makes it difficult for U.S. and Japanese manufacturers to make long-term investments in mining and refining REE.

Solar panels are another contentious issue between the United States and China. Chinese companies operating in the U.S. are projected to produce about 20 gigawatts of panels annually by 2025, which is roughly half of U.S. demand. These Chinese factories benefit from subsidies provided by the U.S. Inflation Reduction Act of 2022, just like U.S. solar companies. This practice of subsidizing companies from adversarial regimes raises concerns about strengthening the economic power of these adversaries, which in turn poses a greater military risk.

Addressing China’s aggressive economic and military strategies requires a return to sanity. Both the Chinese Communist Party and its allies must reverse their non-market and militaristic approaches. Only then can the United States and its allies relax their own measures. It is crucial to move towards a situation where “two rights make a right.” By working together, we can create a more balanced and fair global market.