Does high sales mean overcapacity? The United States will impose additional tariffs on Chinese electric vehicles

On May 14, the U.S. government announced that it would impose additional tariffs on Chinese electric vehicles and other products. According to the White House official website, the tariffs on Chinese electric vehicles will increase from the current 25% to 100%.

The landing of the boots also confirmed the U.S.'s ploy to practice protectionism in the name of "overcapacity."

For some time, American and Western politicians have been hyping up the so-called "overcapacity theory" of China's new energy in the international public opinion arena, claiming that China is dumping new energy vehicles and other green products overseas at low prices.

"Risk removal theory", "China peaking theory", "overcapacity theory"... In recent years, the United States and the West have been continuously concocting discourse traps targeting the Chinese economy. The "overcapacity theory" that focuses on China's new energy industry is contrary to common sense and ignores facts upon closer inspection.

First, describing comparative advantage as overcapacity is a typical double standard.

In the context of globalization, the prices and sales of international commodities are determined by the global market. In a real market environment, global commodities and factors flow freely, and countries form their own comparative advantages according to their own characteristics. International division of labor, cooperation, and exchange of needs are what international The basic laws of industrial division of labor also promote the maximization of production efficiency and people's welfare.

Currently, China's many new energy technologies and equipment manufacturing levels lead the world, and its products are of high quality and low price, and are widely popular in the international market. If China's industrial advantages gained through innovation and competition are denigrated and suppressed as "overcapacity," then the United States, which dominates the global high-end chip market and continues to increase subsidies, must first review its own overcapacity? According to Wang Wenbin, spokesperson of the Chinese Ministry of Foreign Affairs, this means in Chinese terms "Only state officials are allowed to set fires, and ordinary people are not allowed to light lamps." In American terms, it means "You can't imitate what I do, but you must do what I say."

Secondly, saying that production capacity is overcapacity when sales are large is confusing the public.

Whether there is overcapacity or not depends on the relationship between supply and demand. This is common sense. Today, in the context of global energy green transformation, whether in China or globally, the high-quality production capacity of the new energy industry is not surplus, but seriously insufficient.

Take new energy vehicles as an example. According to estimates by the International Energy Agency, global demand for new energy vehicles will reach 45 million units in 2030. This number is more than three times last year's global sales and nearly five times China's output last year.

From a market perspective, China's domestic demand for new energy market consumption is very strong. This can be felt at the Beijing Auto Show where global new energy vehicle giants gathered together some time ago and "queued for 40 minutes to move to the main entrance of the exhibition hall."

Judging from the data, China's new energy vehicle exports accounted for only 12.5% ​​of total production last year. In contrast to other countries, half of Japan's car production last year was sold abroad, and 20% of German car production was sold domestically and 80% was sold abroad. In contrast, accusing China of "overcapacity" already seems absurd.

Third, regarding the changes in the industry as a global threat is an ostrich mentality that covers its eyes and ears.

The development and upgrading of any industry has its cyclical rules. Technological innovation brings about improvements in production efficiency and upgrading of consumer demand. At this time, companies often expand investment and add new production capacity to seize the market. However, the backward production capacity has not yet been cleared, and it seems that the production capacity is insufficient. The surge is actually an industrial metabolism under full market competition. When high-quality production capacity stands out and backward production capacity withdraws from the market, supply and demand will maintain a dynamic balance. This is also common sense in economics.

In the long run, if the global new energy market can achieve free competition on the supply side and deregulation on the demand side, it will not only accelerate industrial upgrading and iteration, but also bring about many positive externalities such as a general improvement in global consumer welfare and green economic and social transformation. China's new energy industry has developed real skills in open competition and represents advanced production capacity. It not only enriches global supply and alleviates global inflationary pressure, but also makes a huge contribution to the global response to climate change and green transformation.

Obviously, like any previous argument that denigrates China's economy, the "overcapacity theory" is another false narrative based on geopolitical considerations by the United States and the West. This kind of routine of setting the tone, labeling, and playing cards may appear to be engaging in unilateralism and protectionism, but in essence, it is still intended to contain China's development.

Faced with overt and covert attacks and a more complex external environment, China must not only do a good job in itself and anchor the development direction of industrial upgrading and green transformation; it must also use swords to fight, clearly expose the conspiracy of the United States and the West, and resolutely defend its own rights and interests.

On May 14, the spokesperson of the Chinese Ministry of Commerce stated that the U.S.’s increase in Section 301 tariffs violated President Biden’s commitment to “not seek to suppress and contain China’s development” and “not seek to decouple and break links with China” and was also inconsistent with the agreement reached by the two heads of state. The spirit of consensus will seriously affect the atmosphere of bilateral cooperation. The United States should immediately correct its wrongdoing and cancel the additional tariffs imposed on China. China will take resolute measures to defend its rights and interests.

When discussing economic issues, we must return to common sense in economics. We should start from economic laws and look at production capacity issues objectively and dialectically. If we use "fair competition" as an excuse to engage in protectionism, it is naked bullying.