The National Development and Reform Commission has just confirmed that it will achieve this year’s declared growth target of five percent. But there is only one catch. It is well known that Chinese statistics should be taken with a grain of salt, especially official growth figures.
Whether five percent really means five percent, or perhaps just two percent, is almost impossible to determine with certainty. Especially in a country where even the former premier declared that he preferred to rely on alternative indicators to measure the economic strength of his country. These alternative indicators included, for example, the volume of rail freight, power consumption or bank loans – which later went down in history as the Li Keqiang Index.
Angela Köckritz has compiled some often bizarre sources that analysts and economists use to examine the authenticity of Chinese growth figures. There are no limits to creativity.
Today we also take another detailed look at the impact of possible US import tariffs of 60 percent on Chinese goods. In his analysis, János Allenbach-Ammann outlines the European Union’s options for countering the consequences of such tariffs, something it could also be hit with.
Brendan Kelly, former director for China economics issues on the US National Security Council staff, draws a geopolitical line between US tariffs, Europe and the world’s emerging economies. He sees the EU’s EV tariffs as just the first salvo in the emerging tensions between Brussels and Beijing.
Chinese statistics are known to be taken with a grain of salt, especially official growth figures. In a country where even former Premier Li Keqiang stated in 2017 that he preferred to rely on alternative indicators to measure his country’s economic strength: the volume of rail freight, power consumption and bank loans – which would later go down in history as the Keqiang Index – economists, citizens and consulting firms frantically look for alternative data.
The National Development and Reform Commission has just confirmed that it will achieve this year’s declared growth target of five percent. It said that “favorable circumstances” and “robust supporting factors” will continue positively influencing growth in the coming year. In reality, the circumstances may not be quite so favorable in light of a newly elected US President Donald Trump, who has declared that tariffs are the most beautiful word in the dictionary and mainly threatens to impose them on China. The nervousness of the Chinese leadership is also reflected in the fact that it is willing to engage in talks in a way that Europeans have not experienced for a long time.
So the upcoming economic data is eagerly anticipated – but which data can be trusted?
Typically, economists consult the Purchasing Managers Index (PMI), a survey-based indicator of business conditions that includes business performance, new orders, employment, costs, etc., providing useful information on the health of an economic sector.
For a while now, however, they have also been trying to verify the authenticity of official data using other data. As early as 2001, Thomas Rawski, an economic historian at the University of Pittsburgh, published a paper that examined the official claim that China’s gross domestic product rose by 34.5 percent between 1997 and 2001.
However, Rawski argued that in the same period, energy consumption fell by 5.5 percent and inflation declined by 2.3 percent. Employment among the urban population also barely increased. He estimates that the actual growth rate for this period was only a third of the official figure.
Hundreds of other studies followed. Recently, Luis Martinez from the University of Chicago Harris School of Public Policy published an interesting study in which he examined nighttime satellite images of countries worldwide from 1993 to 2013. If the satellite images are particularly bright, this usually reflects a high level of economic activity. The historical comparison also shows that economic growth usually goes hand in hand with brighter illumination.
Martinez found that authoritarian countries reported a much higher growth rate than their nighttime illumination rate would suggest. This was particularly the case in Ethiopia and China. He concludes that authoritarian regimes tend to exaggerate their growth rates. Not only because their power allows them to do so, but also because – in the absence of elections – they are particularly reliant on good economic performance to legitimize their rule.
Of course, people in China are most interested in the true rate of economic growth. For a while, employees of consulting firms would stand outside the gates of factories in China and count trucks to inform potential investors about the actual productivity of the companies.
The search for alternative economic data has become a popular sport on social media. Posts from drinking water suppliers complaining that they were selling much less water because construction companies were no longer ordering mineral water were met with great interest. The underlying logic: Since the quality of tap water in China is so poor that unboiled tap water is practically undrinkable, construction site workers drink mineral water.
If consumption was lower, the logic went, many migrant workers must have returned home. However, fewer workers meant less construction, which would inevitably have negatively impacted growth. In fact, some cities experienced a price war for water.
The news that sales of pianos have recently plummeted by 15 percent also caused a stir. Although sales of other consumer goods have also been sluggish, the decline in pianos has been particularly drastic.
On the one hand, this is because they are consumer goods that are expensive but, unlike luxury cars, are much less suitable as status symbols. But above all, piano lessons are a boon that middle-class parents give their children to signal education, fine taste and higher status. A luxury that many would rather do without in times of tight budgets. Now that unemployment among young people is so high that the National Bureau of Statistics has not published it since last year, parents are worried that their child will find any – hopefully secure – job at all.
People are saving more again. While Chinese citizens’ consumption grew by an average of seven percent per year between 2015 and 2019, this rate could fall to three to four percent in the next five to ten years, writes the Rhodium Group. Especially if the leadership does not implement decisive fiscal reforms. Chinese households have again turned to saving, reaching a record 20 trillion US dollars this June.
This is also being felt by one important Chinese industry: hotpot restaurants. The fact that the beloved hotpot restaurant chains have recorded dramatic losses is a particularly clear sign that Chinese consumers have stayed away. According to a Financial Times report, the profits of Haidilao International, the world’s largest hotpot chain, fell by ten percent in the first half of the year. Chinese restaurant chains now plan to focus more on foreign business. At least that should be one investment in Europe’s critical infrastructure that is welcome everywhere.
Donald Trump’s new term as US President starts in two months. According to media reports, trade hardliner Robert Lighthizer will also play an important role in the new Trump cabinet. Moreover, Trump’s team has appointed Howard Lutnick as Secretary of Commerce in charge of the trade dossier. During the election campaign, Lutnick had spoken out in favor of funding tax relief by raising tariffs, among other things.
The EU must be prepared for Trump to make good on his threats, says Elvire Fabry, trade expert at the Jacques Delors Institute. “We don’t know how he will do it, but he will do it quickly,” she told Table.Briefings. During the election campaign, Trump had promised tariffs of 10 to 20 percent on all imports and a tariff of 60 percent on Chinese imports.
Tariffs of up to 20 percent would severely affect EU exports to the US, especially German exports: Ten percent of German goods exports go to the US, mainly in the pharmaceutical, automotive and machinery sectors. The ifo Institute estimates that German exports to the USA would decline by 15 percent.
German exports to China could also suffer, as China would export less to the USA. This is because many German products, such as machinery, are used in China to manufacture Chinese export products. If the country exports less, the demand for German machinery is correspondingly lower. There is also the risk that Chinese companies will redirect products that they can no longer sell on the US market to Europe, displacing local producers in the process.
The EU has a range of instruments at its disposal to defend itself against these tariffs: Its own tariffs against the US, trade defense instruments, the anti-coercion instrument and temporary, WTO-compliant safeguard measures.
The fastest way for the EU to react is to adjust its own tariffs. To do this, the Commission would have to present a proposal to change the customs tariffs for US imports, which would then have to be confirmed by a qualified majority in the EU Council. The Directorate-General for Trade has prepared a so-called “smart list” with which it can target sectors that are important to the Trump administration. The tariff increase can be calibrated in such a way that it corresponds to the overall damage of Trump’s tariffs for the EU.
However, David Kleimann, trade law expert at the think tank ODI Europe, warns that this reaction by the EU would violate WTO regulations. He argues that tariffs specifically targeting the USA ignore the WTO’s “Most-Favored-Nation” principle.
But there are other means: Since the last Trump administration, the EU has acquired a range of trade protection instruments that it could use to put pressure on the US. These include:
The EU Commission could initiate proceedings under these instruments, which would then put US companies at a disadvantage in EU procurement markets. However, these proceedings would not be a direct response to the tariffs.
The EU also has the anti-coercion instrument at its disposal. It would only be used against Trump’s tariffs if the US were to use them as a threat to force the EU or individual member states to make political concessions – for example, preferential treatment of US tech companies in the EU.
Should tariffs against China suddenly divert a large quantity of Chinese products to the European market, the EU could impose temporary tariffs or import quotas for the affected products. This is set out in the “WTO Agreement on Safeguards.” The EU had used this instrument in the first Trump legislature in response to the US tariffs on steel and aluminum.
“The EU has the tools to spite the United States,” says Elvire Fabry. However, she is worried that Trump could try and divide Europe. For example, he could target economic sectors that are only important for certain member states. “The most important thing is that the EU stands united against Trump,” she said, adding that there is currently less cohesion between Germany and France than during the last Trump administration.
A strong European position is also hampered by the fact that Chinese interests are also involved. In the past, individual countries have repeatedly backed out when the EU should have stood united against Beijing. This was most recently the case when the EU Commission decided to impose tariffs on Chinese EVs, and the member states appeared as a divided community.
MEP Daniel Caspary (CDU) takes a more optimistic view of the situation. “Whenever we are in difficult times, the EU moves closer together,” he told Table.Briefings. Even if the US tariffs would “massively damage” the EU, Europe would have to take a very close look at whether it should also impose tariffs against the US. This makes him sound as cautious as Friedrich Merz, leader of the Christian Democratic Union (CDU), who recently warned at an event organized by the Jacques Delors Centre in Berlin against reacting to Trump with isolationism.
French Renew MEP Marie-Pierre Vedrenne sounds a different note. She believes that Europe should “prepare for the worst.” She told Table.Briefings that the EU must prepare itself mentally for the confrontation and introduce tariffs as soon as Trump makes good on his threats. “We must not be afraid to use our instruments. If we never use them, they will lose their deterrent effect.”
Coordinating a response between the EU member states to Trump’s possible tariffs is still in its infancy. EU diplomats have yet to agree on a uniform approach. The first steps towards a common approach could be taken in today’s meeting of the Council of Trade Ministers in Brussels. However, no concrete progress is currently expected.
Chinese engineers and scientists have developed a cable winch system for use at extreme depths. The machine is said to be able to lay submarine cables at depths of up to 11,000 meters. This would theoretically make it possible to place cables precisely at the deepest points of the Mariana Trench in the Pacific Ocean, for example.
The machine is a joint project between Dalian Ocean University and several Chinese engineering and high-tech companies. According to a statement from the university, the Haiwei GD11000 can be used to conduct research at “the greatest depths in all the world’s oceans,” said chief scientist Li Wenhua according to the South China Morning Post.
The optical cable winch system can lower underwater robots for deep-sea exploration and pull them back to base. The previous record for the deepest submarine cable was held by the Italian company Prysmian, which announced in July that it had laid a cable at a depth of 2,150 meters. aiko
While President-elect Donald Trump’s tariff threats are likely to dominate headlines in the near term, China’s industrial overcapacity remains a larger, core challenge for the global economy and trading system in the coming years. With recently implemented tariffs by advanced and emerging economies, and Chinese responses and macro stimulus, how this issue may evolve over the next few years is becoming clearer – with significant geopolitical implications.
On October 29, a month after US tariffs targeting China’s overcapacity went into effect, the European Commission imposed its own tariffs on Chinese electric vehicles (EVs). While these actions attracted significant media attention, China’s recent World Trade Organization complaint against Turkey’s EV tariffs – a case underscoring China’s failure to discourage major emerging markets from following the lead of developed economies – passed largely under the radar.
At the same time, the surge in Chinese overseas manufacturing is reshaping the global economy and China’s role within it. China’s latest stimulus plan demonstrates that despite the government’s acknowledgment of weak domestic demand, macroeconomic rebalancing remains off the table. The policies driving China’s overcapacity – and the resulting trade tensions – are probably here to stay.
While the US-China trade war may return to the fore with Trump’s promise of 60 percent tariffs on imports from China, China’s overcapacity is ultimately likely to be felt more acutely in other major economies. Structural trends suggest that the European Union could bear the brunt of a new China shock and ensuing trade tensions. As Europe’s trade conflict with China escalates, the EU’s EV tariffs – which faced resistance from some member states – may prove to be just the opening salvo.
In response to these pressures, Chinese exporters have turned their attention to developing economies, which accounted for more than 50 percent of China’s exports in 2023. This trend is expected to persist, further widening China’s trade deficits with major emerging markets. But while these countries benefit from cheap Chinese goods and direct investment, they are also increasingly frustrated by limited access to China’s markets, which jeopardizes their own industrial aspirations.
New US tariffs on China under Trump, who has also promised a 10-20 percent across-the-board tariff on all imports from other countries, will accelerate the shift of Chinese exports to emerging markets and the EU. This, in turn, would exacerbate these economies’ concerns about Chinese “non-market overcapacity” and trade imbalances.
Non-market overcapacity, though an imperfect term, captures three interconnected economic forces. For starters, China’s industrial policies promote strategic sectors and push for import substitution, systematically reducing foreign imports across multiple industries. At the same time, persistent macroeconomic imbalances weaken domestic demand and drive China’s massive trade surplus. Lastly, the global economy is highly dependent on Chinese supply chains, which heightens the risk of disruption and economic coercion.
China’s tightened export controls, particularly on critical raw materials whose supply it effectively controls, highlight the risks posed by this dependence. Some may argue that, given the urgency of addressing climate change, overcapacity in key green industries is not necessarily a bad thing. Yet this argument would be far more compelling if China allowed fair competition in other sectors and did not threaten foreign access to vital clean-energy inputs like graphite.
Through public messaging, multilateral engagement, and targeted tariffs, the US and EU have prompted a necessary reckoning with China’s industrial overcapacity, starting to address the problem before it wreaks havoc on industries and communities. Encouragingly, there are signs that Chinese firms have scaled back their expansion plans, owing to weak domestic demand and the growing difficulty of exporting excess capacity to international markets. While Chinese authorities have, as expected, largely denied the issue publicly, the external pressure has forced policymakers to take notice.
That said, addressing the complex global challenges posed by China’s overcapacity will require additional trade restrictions and innovative policy tools. The speed with which G7 countries were able to reach a consensus on this issue signals more coordinated action ahead. As the EU, the US, Japan, and India tighten restrictions on Chinese goods routed through third countries, imports from China are likely to face increased scrutiny on national security, environmental, and labor grounds. Meanwhile, supply-chain diversification – though still in its early stages – could create significant opportunities for developing economies elsewhere.
China’s primary response to these challenges has been increased foreign direct investment, largely welcomed by its trading partners. Some emerging-market governments have even lowered duties on Chinese EV companies that establish manufacturing facilities within their borders. But there are growing doubts about the scalability and effectiveness of this approach. Chinese authorities are reportedly pressing for planned EV and battery investments in Europe to be curtailed. In Thailand, Chinese EV companies have faced criticism for not sourcing from local suppliers.
More broadly, expecting Chinese firms to build large-scale manufacturing facilities in every major trading partner is unrealistic. And China’s weak labor market might make the authorities more reluctant to allow manufacturing jobs to move overseas. In fact, Bloomberg reported in September that China had advised automakers to keep certain EV technologies and production capabilities at home.
China’s recent policy shift toward stabilization measures to support the domestic economy and markets reflects a belated response to weak domestic demand and confidence. So far, however, government efforts to stimulate consumption – essential for sustainable long-term growth – have been limited to increased funding for an appliance trade-in program and a reduction in mortgage interest rates. Stabilizing the property sector could boost household confidence, but the government has shown little willingness to allocate the necessary resources.
Tackling China’s overcapacity problem will require rebalancing the economy and overhauling industrial policies. Despite government-affiliated economists’ growing discussion of innovative approaches, Chinese leaders remain opposed to essential reforms. As tariffs pile up and geopolitical tensions escalate, exacerbating China’s economic slowdown, they may eventually be forced to confront these structural issues.
Brendan Kelly, a former director for China economics issues on the US National Security Council staff, is a non-resident fellow on Chinese Economy and Technology at the Asia Society Policy Institute’s Center for China Analysis.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
Editorial note: Now more than ever, discussing China means controversial debates. At China.Table we aim to reflect the diversity of opinions to give you an insight into the breadth of the debate. Opinions do not reflect the views of the editorial team.
When going sledding, going up the hill is usually the most annoying part – but the Lianhua Mountain Ski Resort in Changchun has now found a solution. The robot sled dog can pull people and their sleds up the hill. And it does so over and over again without ever getting tired.
The National Development and Reform Commission has just confirmed that it will achieve this year’s declared growth target of five percent. But there is only one catch. It is well known that Chinese statistics should be taken with a grain of salt, especially official growth figures.
Whether five percent really means five percent, or perhaps just two percent, is almost impossible to determine with certainty. Especially in a country where even the former premier declared that he preferred to rely on alternative indicators to measure the economic strength of his country. These alternative indicators included, for example, the volume of rail freight, power consumption or bank loans – which later went down in history as the Li Keqiang Index.
Angela Köckritz has compiled some often bizarre sources that analysts and economists use to examine the authenticity of Chinese growth figures. There are no limits to creativity.
Today we also take another detailed look at the impact of possible US import tariffs of 60 percent on Chinese goods. In his analysis, János Allenbach-Ammann outlines the European Union’s options for countering the consequences of such tariffs, something it could also be hit with.
Brendan Kelly, former director for China economics issues on the US National Security Council staff, draws a geopolitical line between US tariffs, Europe and the world’s emerging economies. He sees the EU’s EV tariffs as just the first salvo in the emerging tensions between Brussels and Beijing.
Chinese statistics are known to be taken with a grain of salt, especially official growth figures. In a country where even former Premier Li Keqiang stated in 2017 that he preferred to rely on alternative indicators to measure his country’s economic strength: the volume of rail freight, power consumption and bank loans – which would later go down in history as the Keqiang Index – economists, citizens and consulting firms frantically look for alternative data.
The National Development and Reform Commission has just confirmed that it will achieve this year’s declared growth target of five percent. It said that “favorable circumstances” and “robust supporting factors” will continue positively influencing growth in the coming year. In reality, the circumstances may not be quite so favorable in light of a newly elected US President Donald Trump, who has declared that tariffs are the most beautiful word in the dictionary and mainly threatens to impose them on China. The nervousness of the Chinese leadership is also reflected in the fact that it is willing to engage in talks in a way that Europeans have not experienced for a long time.
So the upcoming economic data is eagerly anticipated – but which data can be trusted?
Typically, economists consult the Purchasing Managers Index (PMI), a survey-based indicator of business conditions that includes business performance, new orders, employment, costs, etc., providing useful information on the health of an economic sector.
For a while now, however, they have also been trying to verify the authenticity of official data using other data. As early as 2001, Thomas Rawski, an economic historian at the University of Pittsburgh, published a paper that examined the official claim that China’s gross domestic product rose by 34.5 percent between 1997 and 2001.
However, Rawski argued that in the same period, energy consumption fell by 5.5 percent and inflation declined by 2.3 percent. Employment among the urban population also barely increased. He estimates that the actual growth rate for this period was only a third of the official figure.
Hundreds of other studies followed. Recently, Luis Martinez from the University of Chicago Harris School of Public Policy published an interesting study in which he examined nighttime satellite images of countries worldwide from 1993 to 2013. If the satellite images are particularly bright, this usually reflects a high level of economic activity. The historical comparison also shows that economic growth usually goes hand in hand with brighter illumination.
Martinez found that authoritarian countries reported a much higher growth rate than their nighttime illumination rate would suggest. This was particularly the case in Ethiopia and China. He concludes that authoritarian regimes tend to exaggerate their growth rates. Not only because their power allows them to do so, but also because – in the absence of elections – they are particularly reliant on good economic performance to legitimize their rule.
Of course, people in China are most interested in the true rate of economic growth. For a while, employees of consulting firms would stand outside the gates of factories in China and count trucks to inform potential investors about the actual productivity of the companies.
The search for alternative economic data has become a popular sport on social media. Posts from drinking water suppliers complaining that they were selling much less water because construction companies were no longer ordering mineral water were met with great interest. The underlying logic: Since the quality of tap water in China is so poor that unboiled tap water is practically undrinkable, construction site workers drink mineral water.
If consumption was lower, the logic went, many migrant workers must have returned home. However, fewer workers meant less construction, which would inevitably have negatively impacted growth. In fact, some cities experienced a price war for water.
The news that sales of pianos have recently plummeted by 15 percent also caused a stir. Although sales of other consumer goods have also been sluggish, the decline in pianos has been particularly drastic.
On the one hand, this is because they are consumer goods that are expensive but, unlike luxury cars, are much less suitable as status symbols. But above all, piano lessons are a boon that middle-class parents give their children to signal education, fine taste and higher status. A luxury that many would rather do without in times of tight budgets. Now that unemployment among young people is so high that the National Bureau of Statistics has not published it since last year, parents are worried that their child will find any – hopefully secure – job at all.
People are saving more again. While Chinese citizens’ consumption grew by an average of seven percent per year between 2015 and 2019, this rate could fall to three to four percent in the next five to ten years, writes the Rhodium Group. Especially if the leadership does not implement decisive fiscal reforms. Chinese households have again turned to saving, reaching a record 20 trillion US dollars this June.
This is also being felt by one important Chinese industry: hotpot restaurants. The fact that the beloved hotpot restaurant chains have recorded dramatic losses is a particularly clear sign that Chinese consumers have stayed away. According to a Financial Times report, the profits of Haidilao International, the world’s largest hotpot chain, fell by ten percent in the first half of the year. Chinese restaurant chains now plan to focus more on foreign business. At least that should be one investment in Europe’s critical infrastructure that is welcome everywhere.
Donald Trump’s new term as US President starts in two months. According to media reports, trade hardliner Robert Lighthizer will also play an important role in the new Trump cabinet. Moreover, Trump’s team has appointed Howard Lutnick as Secretary of Commerce in charge of the trade dossier. During the election campaign, Lutnick had spoken out in favor of funding tax relief by raising tariffs, among other things.
The EU must be prepared for Trump to make good on his threats, says Elvire Fabry, trade expert at the Jacques Delors Institute. “We don’t know how he will do it, but he will do it quickly,” she told Table.Briefings. During the election campaign, Trump had promised tariffs of 10 to 20 percent on all imports and a tariff of 60 percent on Chinese imports.
Tariffs of up to 20 percent would severely affect EU exports to the US, especially German exports: Ten percent of German goods exports go to the US, mainly in the pharmaceutical, automotive and machinery sectors. The ifo Institute estimates that German exports to the USA would decline by 15 percent.
German exports to China could also suffer, as China would export less to the USA. This is because many German products, such as machinery, are used in China to manufacture Chinese export products. If the country exports less, the demand for German machinery is correspondingly lower. There is also the risk that Chinese companies will redirect products that they can no longer sell on the US market to Europe, displacing local producers in the process.
The EU has a range of instruments at its disposal to defend itself against these tariffs: Its own tariffs against the US, trade defense instruments, the anti-coercion instrument and temporary, WTO-compliant safeguard measures.
The fastest way for the EU to react is to adjust its own tariffs. To do this, the Commission would have to present a proposal to change the customs tariffs for US imports, which would then have to be confirmed by a qualified majority in the EU Council. The Directorate-General for Trade has prepared a so-called “smart list” with which it can target sectors that are important to the Trump administration. The tariff increase can be calibrated in such a way that it corresponds to the overall damage of Trump’s tariffs for the EU.
However, David Kleimann, trade law expert at the think tank ODI Europe, warns that this reaction by the EU would violate WTO regulations. He argues that tariffs specifically targeting the USA ignore the WTO’s “Most-Favored-Nation” principle.
But there are other means: Since the last Trump administration, the EU has acquired a range of trade protection instruments that it could use to put pressure on the US. These include:
The EU Commission could initiate proceedings under these instruments, which would then put US companies at a disadvantage in EU procurement markets. However, these proceedings would not be a direct response to the tariffs.
The EU also has the anti-coercion instrument at its disposal. It would only be used against Trump’s tariffs if the US were to use them as a threat to force the EU or individual member states to make political concessions – for example, preferential treatment of US tech companies in the EU.
Should tariffs against China suddenly divert a large quantity of Chinese products to the European market, the EU could impose temporary tariffs or import quotas for the affected products. This is set out in the “WTO Agreement on Safeguards.” The EU had used this instrument in the first Trump legislature in response to the US tariffs on steel and aluminum.
“The EU has the tools to spite the United States,” says Elvire Fabry. However, she is worried that Trump could try and divide Europe. For example, he could target economic sectors that are only important for certain member states. “The most important thing is that the EU stands united against Trump,” she said, adding that there is currently less cohesion between Germany and France than during the last Trump administration.
A strong European position is also hampered by the fact that Chinese interests are also involved. In the past, individual countries have repeatedly backed out when the EU should have stood united against Beijing. This was most recently the case when the EU Commission decided to impose tariffs on Chinese EVs, and the member states appeared as a divided community.
MEP Daniel Caspary (CDU) takes a more optimistic view of the situation. “Whenever we are in difficult times, the EU moves closer together,” he told Table.Briefings. Even if the US tariffs would “massively damage” the EU, Europe would have to take a very close look at whether it should also impose tariffs against the US. This makes him sound as cautious as Friedrich Merz, leader of the Christian Democratic Union (CDU), who recently warned at an event organized by the Jacques Delors Centre in Berlin against reacting to Trump with isolationism.
French Renew MEP Marie-Pierre Vedrenne sounds a different note. She believes that Europe should “prepare for the worst.” She told Table.Briefings that the EU must prepare itself mentally for the confrontation and introduce tariffs as soon as Trump makes good on his threats. “We must not be afraid to use our instruments. If we never use them, they will lose their deterrent effect.”
Coordinating a response between the EU member states to Trump’s possible tariffs is still in its infancy. EU diplomats have yet to agree on a uniform approach. The first steps towards a common approach could be taken in today’s meeting of the Council of Trade Ministers in Brussels. However, no concrete progress is currently expected.
Chinese engineers and scientists have developed a cable winch system for use at extreme depths. The machine is said to be able to lay submarine cables at depths of up to 11,000 meters. This would theoretically make it possible to place cables precisely at the deepest points of the Mariana Trench in the Pacific Ocean, for example.
The machine is a joint project between Dalian Ocean University and several Chinese engineering and high-tech companies. According to a statement from the university, the Haiwei GD11000 can be used to conduct research at “the greatest depths in all the world’s oceans,” said chief scientist Li Wenhua according to the South China Morning Post.
The optical cable winch system can lower underwater robots for deep-sea exploration and pull them back to base. The previous record for the deepest submarine cable was held by the Italian company Prysmian, which announced in July that it had laid a cable at a depth of 2,150 meters. aiko
While President-elect Donald Trump’s tariff threats are likely to dominate headlines in the near term, China’s industrial overcapacity remains a larger, core challenge for the global economy and trading system in the coming years. With recently implemented tariffs by advanced and emerging economies, and Chinese responses and macro stimulus, how this issue may evolve over the next few years is becoming clearer – with significant geopolitical implications.
On October 29, a month after US tariffs targeting China’s overcapacity went into effect, the European Commission imposed its own tariffs on Chinese electric vehicles (EVs). While these actions attracted significant media attention, China’s recent World Trade Organization complaint against Turkey’s EV tariffs – a case underscoring China’s failure to discourage major emerging markets from following the lead of developed economies – passed largely under the radar.
At the same time, the surge in Chinese overseas manufacturing is reshaping the global economy and China’s role within it. China’s latest stimulus plan demonstrates that despite the government’s acknowledgment of weak domestic demand, macroeconomic rebalancing remains off the table. The policies driving China’s overcapacity – and the resulting trade tensions – are probably here to stay.
While the US-China trade war may return to the fore with Trump’s promise of 60 percent tariffs on imports from China, China’s overcapacity is ultimately likely to be felt more acutely in other major economies. Structural trends suggest that the European Union could bear the brunt of a new China shock and ensuing trade tensions. As Europe’s trade conflict with China escalates, the EU’s EV tariffs – which faced resistance from some member states – may prove to be just the opening salvo.
In response to these pressures, Chinese exporters have turned their attention to developing economies, which accounted for more than 50 percent of China’s exports in 2023. This trend is expected to persist, further widening China’s trade deficits with major emerging markets. But while these countries benefit from cheap Chinese goods and direct investment, they are also increasingly frustrated by limited access to China’s markets, which jeopardizes their own industrial aspirations.
New US tariffs on China under Trump, who has also promised a 10-20 percent across-the-board tariff on all imports from other countries, will accelerate the shift of Chinese exports to emerging markets and the EU. This, in turn, would exacerbate these economies’ concerns about Chinese “non-market overcapacity” and trade imbalances.
Non-market overcapacity, though an imperfect term, captures three interconnected economic forces. For starters, China’s industrial policies promote strategic sectors and push for import substitution, systematically reducing foreign imports across multiple industries. At the same time, persistent macroeconomic imbalances weaken domestic demand and drive China’s massive trade surplus. Lastly, the global economy is highly dependent on Chinese supply chains, which heightens the risk of disruption and economic coercion.
China’s tightened export controls, particularly on critical raw materials whose supply it effectively controls, highlight the risks posed by this dependence. Some may argue that, given the urgency of addressing climate change, overcapacity in key green industries is not necessarily a bad thing. Yet this argument would be far more compelling if China allowed fair competition in other sectors and did not threaten foreign access to vital clean-energy inputs like graphite.
Through public messaging, multilateral engagement, and targeted tariffs, the US and EU have prompted a necessary reckoning with China’s industrial overcapacity, starting to address the problem before it wreaks havoc on industries and communities. Encouragingly, there are signs that Chinese firms have scaled back their expansion plans, owing to weak domestic demand and the growing difficulty of exporting excess capacity to international markets. While Chinese authorities have, as expected, largely denied the issue publicly, the external pressure has forced policymakers to take notice.
That said, addressing the complex global challenges posed by China’s overcapacity will require additional trade restrictions and innovative policy tools. The speed with which G7 countries were able to reach a consensus on this issue signals more coordinated action ahead. As the EU, the US, Japan, and India tighten restrictions on Chinese goods routed through third countries, imports from China are likely to face increased scrutiny on national security, environmental, and labor grounds. Meanwhile, supply-chain diversification – though still in its early stages – could create significant opportunities for developing economies elsewhere.
China’s primary response to these challenges has been increased foreign direct investment, largely welcomed by its trading partners. Some emerging-market governments have even lowered duties on Chinese EV companies that establish manufacturing facilities within their borders. But there are growing doubts about the scalability and effectiveness of this approach. Chinese authorities are reportedly pressing for planned EV and battery investments in Europe to be curtailed. In Thailand, Chinese EV companies have faced criticism for not sourcing from local suppliers.
More broadly, expecting Chinese firms to build large-scale manufacturing facilities in every major trading partner is unrealistic. And China’s weak labor market might make the authorities more reluctant to allow manufacturing jobs to move overseas. In fact, Bloomberg reported in September that China had advised automakers to keep certain EV technologies and production capabilities at home.
China’s recent policy shift toward stabilization measures to support the domestic economy and markets reflects a belated response to weak domestic demand and confidence. So far, however, government efforts to stimulate consumption – essential for sustainable long-term growth – have been limited to increased funding for an appliance trade-in program and a reduction in mortgage interest rates. Stabilizing the property sector could boost household confidence, but the government has shown little willingness to allocate the necessary resources.
Tackling China’s overcapacity problem will require rebalancing the economy and overhauling industrial policies. Despite government-affiliated economists’ growing discussion of innovative approaches, Chinese leaders remain opposed to essential reforms. As tariffs pile up and geopolitical tensions escalate, exacerbating China’s economic slowdown, they may eventually be forced to confront these structural issues.
Brendan Kelly, a former director for China economics issues on the US National Security Council staff, is a non-resident fellow on Chinese Economy and Technology at the Asia Society Policy Institute’s Center for China Analysis.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
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