The Chinese economy has been slowed by the collapse of the country’s real estate market and past pandemic lockdowns, prompting Chinese President Xi Jinping to try to jumpstart growth by ramping up production of EVs and other products, making more than the Chinese market can absorb.
This strategy further exacerbates tensions with a U.S. government that claims it’s determined to strengthen its own manufacturing to compete with China, yet avoid a larger conflict.
“China’s factory-led recovery and weak consumption growth, which are translating into excess capacity and an aggressive search for foreign markets, in tandem with the looming U.S. election season add up to a perfect recipe for escalating U.S. trade fractions with China,’’ said Eswar Prasad, professor of trade policy at Cornell University.
China’s production of EVs and other green products are “coming to be seen by the U.S. as a zero-sum game in which China plays the spoiler that could hamper a U.S. manufacturing revival,’’ Prasad said.
The Europeans are worried, too. The EU launched an investigation last fall into Chinese subsidies and could impose an import tax on Chinese EVs.
After Xi’s visit to France last week, European Commission President Ursula von der Leyen warned that government-subsidized Chinese EVs and steel “are flooding the European market. … The world cannot absorb China’s surplus production. Therefore, I have encouraged the Chinese government to address these structural overcapacities.’’
The Biden administration views China with subsidies of its own manufacturing as trying to globally control the EV and clean energy sectors, whereas it says its own industrial support is geared toward ensuring domestic supplies to help meet U.S. demand.
“We do not seek to have global domination of manufacturing in these sectors, but we believe because these are strategic industries and for the sake of resilience of our supply chains, that we want to make sure that we have healthy and active firms,” Treasury Secretary Janet Yellen told reporters Monday.
The tensions go far beyond a trade dispute to deeper questions about who leads the world economy as a seemingly indispensable nation. China’s policies could make the world more dependent on its factories, possibly giving it greater leverage in geopolitics. At the same time, the United States says it’s seeking for countries to operate by the same standards so that competition can be fair.
For it’s part, China maintains that the tariffs are in violation of the global trade rules that the United States originally helped establish through the World Trade Organization.