Opinion | The real agenda behind America's 'overcapacity' complaints

By Tom Fowdy

During the past week, US Secretary to the Treasury Janet Yellen made an official visit to China. Although she spoke of "economic cooperation" between the two countries, her most notable and explicit message was a complaint that China's exporting of electric vehicles (EVs) and other renewable energy goods constituted "overcapacity," claiming that the rate of production exceeded "domestic demand" and thus China was "dumping" these products on foreign markets at a price below which the US deemed to be acceptable. Yellen's demands were clear, that China exports less, with both the US and EU having coordinated their scrutiny of Chinese EVs alongside unfavorable media coverage.

It should be no surprise that the US is reacting with such hostility to Chinese EV exports, after all, Washington has taken a deeply protectionist turn against China for many years now and has resorted to bad faith and malicious practices in order to push for market exclusion against Chinese products, in what is an effective admission that it cannot feasibly compete on level terms. Therein lies the problem. The so-called "concerns" are more so political and hegemonic, than they are economic. The US, once the champion of free trade and open markets, has retreated from its longstanding principles only because it no longer dominates the markets in question. China isn't at "overcapacity" and nor is it "dumping", rather it simply has a more competitive and effective manufacturing system.

First, it is completely misleading to claim that China's production of EVs is overcapacity. China has the largest manufacturing base in the entire world which is capable of meeting not only the domestic demand of 1.4 billion people but also global demand in addition to it. In having built up this system, it has established integrated supply and logistic chains, it has subsequently developed a capacity that allows it to match a large demand, with a large supply. By mathematical logic, the size of the market it is serving combined with production efficiency means the costs of production are substantially lower across the board because it is easier to reach a profit margin for every supplier involved. This is why manufacturing in China is substantially cheaper than in the US or Europe, not because of so-called "state subsidies."

In doing so, China already has the largest Electric Vehicle market in the world which as of 2023 is valued at $319 billion and is growing at 5.6% per annum on average. Now, part of Yellen and the media's narrative deliberately pushes the assumption that Chinese "consumer sentiment" is low and the economy faces a poor situation. This is a lie. China's consumer growth ranked at 7.2% in the year 2023 and already constitutes $6.6 trillion of the entire Chinese economy. It was the largest source of China's growth, standing at 82.5% of the GDP increase last year. Where is this "weak consumer sentiment" that Yellen speaks of, that thus forces China to produce at "overcapacity?"

Second, the West is being deliberately misleading in their approach to Chinese EVs as they are failing to disclose that their own demand for renewable energy products is surging far beyond that which they can capably produce. The West has ironically been the driver of some very ambitious climate-related goals, of which they have put ample pressure on China to follow, and many countries have set goals to even abolish the sale of new fossil fuel cars by certain dates. Despite this, it is obvious these countries do not have the resources, supply chains, or manufacturing capacity to feasibly meet their own demands. Worse still, many Western countries, especially in Europe, have been struck by a severe crisis of inflation over the past two years that has driven up energy costs, which has even led to a reversal of manufacturing in countries such as Germany.

The reality is that Western countries simply cannot afford to produce EVs on the scale they are required, which has created a gap in the market leading to an appeal for more affordable, yet superior quality Chinese products. This isn't "overcapacity" or "dumping", it is fair competition which is a product of China's longstanding industrial advantages. Even though such trade is in fact environmentally and economically favorable to Western countries, it is regrettable that their politicians are choosing to put politics and protectionism over humanity and are exploring pricing Chinese electric vehicles out of the market. For the US, this is clearly motivated by domestic politics. It is after all an election year, and the Biden administration wants to be seen as protecting American jobs, especially the automobile industry, when key states such as Michigan could win or lose the vote. In this case, it seems probable the US is building up consent for some kind of tariffs or levies. However, for Europe, to follow Washington on this march will again be another self-imposed economic disaster. China isn't playing unfairly, China is playing by the rules they have set and is providing public goods to the world. China's production of electric vehicles and other renewable energy goods is the best asset the world has against climate change, and to push back against it is pure, short-sighted absurdity.

The author is a well-seasoned writer and analyst with a large portfolio related to China topics, especially in the field of politics, international relations and more. He graduated with an Msc. in Chinese Studies from Oxford University in 2018.

The views do not necessarily reflect those of DotDotNews.

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