Washington's 'overcapacity' narrative: A strategy to suppress Chinese industry

US Treasury Secretary Janet Yellen's recent visit to China has sparked a contentious debate surrounding the notion of "clean energy overcapacity." But what does this term truly signify? The question arises: who defines overproduction and decides surplus in the global market?

At the heart of the issue lies the definition of "overproduction" and the rightful arbiter of surplus in the global market. Industrial overcapacity, characterized by production capacity exceeding market demand, prompts introspection on the alignment of supply and demand dynamics. Industrial overcapacity, a subject of contention, points to a scenario where production capacity far exceeds market demand in a specific industry or sector. However, when viewed through the lens of global demand, major China-made products such as electric vehicles, batteries and photovoltaic (solar energy) systems witness robust demand, challenging the notion of overcapacity. The discourse on overproduction underscores the complexity of international trade dynamics and the imperative for nuanced assessments in a rapidly evolving global economy.

During her recent discussions with Chinese officials, U.S. Treasury Secretary Janet Yellen emphasized the Biden administration's demand to address China's industrial policies, which are perceived as a threat to American jobs. While advocating for stronger economic and trade collaboration between Washington and Beijing, Yellen's primary focus was on confronting China's "industrial overcapacity." She alleged: "When the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question."

The rise of electric vehicles, lithium batteries and solar cells as China's leading exports has intensified anxieties among Americans. Washington's rhetoric on China's overcapacity is viewed as a precursor to more protectionist measures aimed at shielding American companies from unfair competition. The Biden administration's efforts to target China's industrial policies signify a broader strategy to protect American jobs and promote unfair competition in the global marketplace.

Biden administration's accusation of China distorting markets implies China's market dominance through subsidies, a critique laden with irony given the billions the U.S. allocates in industrial subsidies and its discourse on industrial policy revival. Historically, no nation has industrialized without shielding itself and employing state-directed mechanisms, including subsidies. Washington's gratuitous insistence on using the pretext of "overcapacity" to sideline Chinese firms is a flawed strategy that undermines the principles of fair competition. Excluding China from the global supply chain won't enhance the competitiveness of American companies.

Washington's unabated anti-China campaign risks exacerbating bilateral mistrust and destabilizing fragile diplomatic gains. The policymakers in Washington are deliberately overlooking the fact that the expansion of China's production capacity and subsequent price reductions stem from intense market competition-a hallmark of a vibrant market economy. The inability of the US and Europe to match China's cost-effective production of new energy products underscores their own limitations. Attempting to curb Chinese exports through tariffs and non-tariff barriers flouts WTO regulations and may prove futile in the face of market forces.

China's dominance in clean tech production is undeniable. With a staggering 80 percent share in solar power and significant contributions to wind and hydroelectric energy, China is playing a pivotal role in driving the global transition to renewable energy. Many smaller nations lack the capacity to manufacture these crucial technologies, relying on China's expertise to facilitate their energy transition. However, the United States' insistence on steering countries away from China's cost-effective offerings raises concerns. By advocating for pricier alternatives, the US risks hampering its own transition to renewable energy while imposing unnecessary burdens on other nations. This approach will not only undermines the competitiveness of the US economy but will also face resistance from countries unwilling to bear the additional costs dictated by American preferences.

As clean energy technologies advance, the transition to EVs is becoming inevitable, posing a challenge particularly for developed nations resistant to change.  China's ability to provide accessible solutions underscores the necessity of cooperation and pragmatism in tackling global challenges. Rather than dictating terms, the US must engage in collaborative efforts that prioritize effective solutions and promote sustainable development for all nations.