China’s industrial overcapacity has significant spillovers globally: US

China’s industrial manufacturing overcapacity has significant spillovers around the world, the Joe Biden administration said on Wednesday, noting that addressing these challenges may warrant taking defensive action to protect firms and workers — and the traditional toolkit of trade actions may not be sufficient.

“We are growing concerned that China’s enduring macroeconomic imbalances and non-market policies and practices pose a significant risk to workers and businesses in the United States and the rest of the world. We are worried that these features of China’s economy can lead to industrial overcapacity that has significant spillovers around the world and can compromise our collective supply chain resilience, given the resulting over-concentration in some manufacturing sectors,” Under Secretary for International Affairs Jay Shambaugh said.

The United States, along with its allies and partners in developing economies and advanced economies alike, share mutual objectives to address China’s policies that have negative economic spillovers to its firms, workers and economic resilience, he added.

“Addressing these challenges may warrant our taking defensive action to protect our firms and workers — and the traditional toolkit of trade actions may not be sufficient. More creative approaches may be necessary to mitigate the impacts of China’s overcapacity. We should be clear — defence against overcapacity or dumping is not protectionist or anti-trade, it is an attempt to safeguard firms and workers from distortions in another economy,” Shambaugh said.

“The best outcome, though, would be for China to acknowledge the growing concerns among its major trading partners and work with us to address them. We will take defensive action if needed, but we would prefer for China to take action itself to address the macroeconomic and structural forces that are generating the potential for a second ‘China shock’ for its major trading partners,” he said.

“China could boost consumption by strengthening its safety net, increasing household incomes and reforming its internal migration rules. It could better support services, not just manufacturing. It could reduce harmful and wasteful subsidies. These would all be in China’s interest and reduce tensions,” the Treasury official said.

In his remarks, Shambaugh said the US is not isolated in seeking to address negative spillovers from China’s non-market practices.

“The EU and Turkey have also recently imposed tariffs on Chinese EV imports. Mexico, Chile and Brazil have taken trade actions on Chinese steel, and India uses tariffs and other trade tools to defend its solar manufacturers from Chinese dumping. And while each country has their own concerns and needs, the underlying reason is undeniable,” he said.

“As the G7 leaders and finance ministers have stated — China’s overcapacity undermines our workers, industries and economic resilience and security. The United States will act and we will not be alone,” he asserted.

First Published: Jul 11 2024 | 7:29 AM IST