China’s Overcapacity: Good Propaganda, Bad Reality, or Both?

Commentary

U.S. Treasury Secretary Janet Yellen said on June 13 that China has “overconcentrated supply chains” that threaten U.S. jobs and investment in green energy. This follows her comments while in China that underscored “the global economic consequences of China’s industrial overcapacity.”

The Chinese regime’s aggressive trade policies, including subsidies and dumping of products below the cost of production, “may interfere significantly with our efforts to build a healthy economic relationship,” Yellen said.

Is the claim of Chinese “overcapacity” in green investment, including electric vehicles (EVs), a form of trade war propaganda, real, or a bit of both? Could singling out China in this way be a result of Beijing’s aggression across not only economic but also military and diplomatic matters? Is it a cudgel used against China’s own trade barriers?

Strategic dumping destroys international competition with artificially low prices, so later prices can be pumped up to monopolistic levels. Overcapacity is a factory utilization rate of below 80 percent that leads to greater production, even at below production cost. It is typically caused by government subsidies and creates more industrial output than is justified by market conditions—something one would expect Democrats to welcome in the case of green tech. However, overcapacity typically lowers prices for exports with the effect of closing foreign factories, including in the United States.

China achieved what has been called “hyper-industrialization” by not only decades of government support that led to U.S. deindustrialization but also the accompanying sacrifice of Chinese citizens’ well-being. According to Lingling Wei at The Wall Street Journal, underfunding Chinese social services led to consumer fear of spending.

The Chinese Communist Party (CCP) risked the resulting savings for China’s over-industrialization and rapid militarization. Some subsidized industries, like steel production, were ultimately diverted to China’s military buildup. This simultaneously weakened U.S. and allied relative power and independent industrial capacity, making us vulnerable in case of emergency, like a pandemic or war.

U.S. and European politicians now understand and are determined to avoid a repeat in the next industrial wave, including electric vehicles. The CCP wants the same—as much as possible of the billions of dollars of profits and jobs that EVs produce. To get a jump on the competition, the United States and China subsidized EV development starting in 2009, followed by Europe since at least 2021.

While the West had a mature auto manufacturing base from which to build, Chinese automakers had inexpensive skilled labor and an alleged willingness to steal what intellectual property they needed. In self-defense, the Trump administration in 2018 imposed general tariffs of 25 percent on most Chinese goods. The Biden administration imposed a tariff of 100 percent on Chinese EVs in May.

Planned European tariffs announced on June 12 are relatively low, ranging from 17 percent to 38 percent. They would likely have to be at least 50 percent to bar Chinese EVs from Europe. The new EU tariffs are thus more of a warning to encourage Beijing to shore more manufacturing in Europe if it wants tariff-free access.

European carmakers could suffer from Chinese manufacturing in Europe, though they might also suffer from higher EU tariffs if the CCP retaliates. That explains why European carmakers oppose the tariffs.

Beijing has countered claims of its overcapacity by charging that Europe also has an “overcapacity” in pork, which is under an anti-dumping probe as of June 17. The CCP says that claims of Chinese overcapacity are selective and that other countries also subsidize their EVs. The regime implies that the concept of “overcapacity” is meaningless in a world of international trade in which all countries—such as Taiwan, which subsidized its semiconductor development—have an “overcapacity” in something that they trade on global markets.

Luckily for us, however, the United States and Europeans are not buying the argument. U.S. and EU tariffs simply correct the pricing of Chinese EVs, “leveling the playing field” to what it would have been had there been no subsidies, according to proponents.

Few in the West take a step back from the propaganda war to ask whether we really want a level playing field with communist China or whether, in claiming overcapacity, we cause confusion among our own public by desperately scrounging for any advantage that preserves the fig leaf of free trade while averting further deindustrialization.

A simple statement of fact that the Chinese regime is totalitarian, expansionist, and genocidal would be a truer and more effective reason to impose tariffs, not to mention more export controls, removal of China’s Permanent Normal Trade Relations status, and much more.

That’s advice that the U.S. administration should heed, and not prioritize maximizing U.S. corporate access to Chinese markets at the cost of ignoring the CCP’s malign nature.

As the trade war with China ramps up, expect more propaganda from all sides. There is usually some element of propaganda in every war, and the most effective propaganda typically includes a grain of truth.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.

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