Title: China’s Industrial Overcapacity Threatens Global Trade Balance
Introduction:
The surge of subsidized and cheap exports from China has raised concerns among the U.S. administration, its allies, and American policy groups. These groups are urging U.S. lawmakers to implement stronger trade barriers against Chinese imports. The Alliance for American Manufacturing (AAM) recently released a hard-hitting report warning about the threats posed by Chinese overcapacity, emphasizing the need for immediate action.
China’s Model of State Capitalism:
According to the AAM report, overcapacity is a deliberate feature of China’s state capitalism model, not a mere coincidence. As the Chinese government aims to maintain social stability, it intensifies its state-led manufacturing efforts. This strategy has sent shockwaves through American manufacturing and factory workers. China’s goal is to fuel its growth by creating export surpluses, even using other markets like Vietnam and Mexico as indirect channels to flood the U.S. market with products.
Impact on U.S. Industries:
The AAM highlights how Chinese industrial sectors are rapidly capturing market share in strategic U.S. industries such as paper, glass, steel, and tires. These industries have experienced significant job losses and plant closures due to Chinese imports. The lobby urges the enforcement of Section 421 (China Safeguard) of the Trade Act of 1974, which allows temporary tariffs to mitigate disruptions caused by surges of low-cost imports from China.
Global Backlash:
Countries worldwide are pushing back against China’s overcapacity, especially in high-tech and clean energy sectors like electric vehicles (EVs), lithium batteries, and solar panels. The European Union recently announced additional tariffs on EVs imported from China, responding to unfair subsidies flooding their market. The United States has quadrupled tariffs on Chinese EVs and imposed new levies on other products to protect domestic manufacturing.
Adverse Effects on Global Economy:
U.S. Treasury Secretary Janet Yellen has emphasized the adverse effects of Chinese trade practices on American businesses and workers. She warns that Chinese overcapacity risks artificially overconcentrating supply chains, posing security and economic concerns. Major world powers like Italy, Brazil, Mexico, and Japan are also taking steps to protect their domestic industries from cheap Chinese-made clean-tech products.
Exploiting Other Routes:
China has been exploiting other countries to avoid U.S. tariffs and offload excess industrial capacity into foreign markets. Chinese companies are investing in Mexican manufacturing plants to access the U.S. market through the United States-Mexico-Canada Agreement. China has also increased its exports to Vietnam, where products can be reprocessed and then shipped to the United States or Europe with minimal or zero tariffs.
China’s Export Surge and Deflationary Impact:
Despite falling prices for many manufactured goods, China’s exports surged by 7.6 percent in May, marking the fastest growth in over a year. This rise in exports has led to a significant trade surplus. However, this export surge is causing deflationary impacts on the global market as China’s excess capacity is exported at lower prices than similar goods in other markets.
Future Challenges for the United States:
The AAM warns that China’s industrial overcapacity will continue to be a significant issue in 2024, posing a challenge for the United States. Despite substantial tariff barriers, heavily subsidized Chinese goods are still penetrating the U.S. market. Additional safeguards are needed to strengthen the trade system, support domestic growth, and preserve community-sustaining jobs in the United States.
Conclusion:
The concerns surrounding China’s industrial overcapacity and its impact on global trade are growing. Urgent action is needed to address this issue and protect domestic industries from unfair competition. By implementing stronger trade barriers and enforcing existing regulations, countries can mitigate the adverse effects of Chinese overcapacity and maintain a balanced global trade system.
