What Should America Do About Chinese Overcapacity?

An aerial view shows photovoltaic solar panels at Manston Solar Farm, in southeast England on March 18, 2024. (Photo by Daniel Leal/AFP/Getty Images)

Though the U.S. economy is still humming along (thanks in part to new immigrants), many in Washington are increasingly worried about waves of subsidy-fueled imports, particularly from China, swamping the U.S. manufacturing sector and thwarting the Biden administration’s grand industrial policy plans. In just the last few weeks, for example, we’ve seen U.S. officials warn of Chinese overcapacity and global gluts in lower-end (“legacy”) semiconductors, electric vehicles and parts, solar panels, and other goods. In the private sector, several manufacturing groups and unions have expressed similar concerns, with the United Steelworkers even requesting that the administration initiate a new “Section 301” investigation of Chinese shipbuilding subsidies. In most cases, the complainers’ solution to the purported problem is the same: more tariffs.

Leaving aside for a moment that at least some of these foreign subsidies have been driven by U.S. policy—especially our own subsidies, but also other things like export controls and tariffs—the subsidy/overcapacity issue is a real one, and not just in China. The last few years have seen an explosion in new government subsidies for state-preferred industries, and this “subsidies race” has undoubtedly boosted global manufacturing capacity for these products—regardless of actual demand for them. That last part is particularly important in China, whose leader Xi Jinping remains (bizarrely!) committed to pumping more cash into manufacturing even as the nation’s prolonged economic malaise dampens domestic consumption. The inevitable result is a lot of subsidized stuff piling up in the country with only one place left to go: overseas markets.

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