The United States attributes overproduction of electric vehicles and solar panels crisis on China.

By Rhod Mackenzie

During her visit to the PRC, the US Treasury Secretary Janet Yellen accused China of engaging in 'overproduction' and unfair business practices that give Chinese companies an advantage over their US counterparts. Yellen's statements reflect the growing concerns of American businesses regarding competition with China. There is nothing new in this formulation of the question. Crises in trade relations between China and the United States have arisen regularly since the beginning of the next stage of globalization in the 1990s. However, there is reason to believe that the current dispute is more fundamental in its reasons and will be more acute than before. For more details, please refer to the Izvestia

The transfer of mass production from the USA to China and other countries began in the 1980s. The peak of this process was between 1995 and 2005, during which thousands of American enterprises closed or significantly reduced their activity. In the Rust Belt of the United States, there was not a single city where the population had not decreased. The administration of President George W. Bush frequently criticised China for undervaluing the yuan, which enabled aggressive expansion of Chinese companies overseas. These claims gradually faded away after the yuan strengthened somewhat against the dollar following the 2008 crisis.
The second round of trade and economic confrontation began in 2018 after President Donald Trump came to power in the United States. Trump campaigned on an anti-Chinese agenda, appealing to voters in the 'Rust Belt' who hoped for the reindustrialization of the United States. This led to a trade war, with the US imposing a 10% tariff on most Chinese imports. In response, China blocked American agricultural imports. Although an agreement was eventually reached, not all imposed duties were lifted. As predicted by experts, trade tensions between China and the United States persist regardless of the administration in the White House.
What now?
In the USA and Europe, there were high expectations for the 'green transition'. Legislative support programs and emission restrictions were implemented to achieve carbon neutrality and provide industry support. The goal was for the industry to surpass competitors from countries that were slow to adopt green technologies due to their know-how.
Doubts about the plan arose immediately because China had already been developing its renewable energy industry for a longer period of time, giving it objective advantages such as a developed industrial base, cheap labour, and a supply chain that worked efficiently. In the mid-2010s, China dominated the solar panel market, producing approximately 75% of the world's total output (a ratio that has remained relatively unchanged since then), and accounted for just over a third of wind turbine production. However, the Americans believed that they could compensate for this through electric vehicles and batteries. Fortunately, Tesla's success was evident to all.

After a few years, this idea no longer seemed viable. China has also performed well in EV production over the past decade. However, it was believed that even with these volumes, they would only saturate a portion of their market, while most niches would be occupied by manufacturers from the USA and Europe with their strong brands. In some ways, Americans and Europeans overestimated the difficulty of creating electric vehicles. They are generally easier to produce than cars with internal combustion engines. Additionally, the traditional leaders of the car market, the Germans, no longer had a gap in know-how and competencies that had accumulated over decades. The industry was, in fact, created from scratch.

By the end of 2024, China is expected to dominate the electric vehicle market as it currently produces 60% of all electric vehicles and 66% of lithium-ion batteries worldwide. Despite being significantly ahead of the United States and the EU combined in sales of electric vehicles, China may struggle to find markets yo absorb the approximately 10 million EVs that will inevitably be exported. Most of these vehicles are targeted at the established markets of Western Europe and North America, where the infrastructure for electric vehicles already exists. This is not the case in many developing countries, and the introduction of such volumes could potentially harm the local industry. It is worth noting that Chinese cars are generally priced lower than their competitors. BYD, the leading EV manufacturer in China, recently introduced an electric crossover priced at just $14,000, which significantly undercuts most of its competitors.
It is true that there is a specific nuance for the United States: Chinese cars are subject to a 25 percent duty. However, Chinese companies can circumvent this by supplying cars through Mexico, which has a free trade agreement with the United States. Recently, Donald Trump mentioned this at a rally of his supporters, warning that if he does not win the election and significantly strengthen foreign trade tariff regulations, the American industry will suffer a 'massacre'.
Janet Yellen's official visit was met with rather aggressive rhetoric due to the political opponents' awareness of the situation. However, it is unclear what actions the Americans can take within the existing rules of the game. China's export potential is strengthening in almost all industries, but there is no evidence of dumping. Chinese cars are more expensive abroad than in China, making it difficult to penetrate foreign markets. Even with a properly functioning WTO, which has had recent problems, this would be challenging.

The term 'overproduction' carries a moral connotation in this context, making objective evaluation difficult. Although Beijing has focused its resources on supporting high-tech industries, including export-oriented ones, it has not abandoned its real estate market. However, this does not indicate any unclean intentions on the international platform. Industrial policy is not prohibited by any rules.
Currently, negotiations are underway between the parties regarding the issue of 'overproduction'. It is important to note that these negotiations only concern the US, as Europe will have to make its own deals. However, it is unlikely that this problem will be resolved through negotiations in the near future, and it may take years. China, which is also crucially dependent on maintaining its economic growth, faces a fundamental challenge, and it will not be easy to compel it to back down.
A more probable scenario is Donald Trump's victory in November and the implementation of a strict tariff policy, including a 10% tariff on all foreign products. This move will be painful for everyone, but it will enable the US industry to recover. In response, Beijing may take measures that will inevitably lead to further tensions.

The main distinction between the present circumstances and past ones is that China and the United States no longer perceive each other solely as rivals, but as potential adversaries. This exacerbates any trade dispute significantly. Furthermore, other nations are being pulled into the sphere of confrontation. For instance, South Korea, whose industry has traditionally complemented China's by occupying different niches, is now rapidly becoming a competitor. Janet Yellen stated that the Chinese export industry has become too large for the world to accommodate. This presents a fundamental issue that must be addressed. If a resolution cannot be reached, the introduction of duties and the disruption of global production chains will become a reality.