China 'overcapacity' is a smokescreen for Western protectionism

“Overcapacity” has become the buzzword in Washington and Brussels. American and European policymakers insist China churns out far more steel, electric vehicles and green technology than it can absorb, flooding the world with subsidised goods.

Yet the economic data tells a different story: of double standards, protectionist impulses and a habit of moving the goalposts.

Start with steel. Western officials point to China’s massive output as proof of distortion. But China official data puts the capacity utilisation of its ferrous metals sector at 78.1 per cent for 2024 and 79.7 per cent last year, squarely within the range most in the European Union consider as healthy.

Compare that with the EU’s. Crude steel output last year fell to roughly 126 million tonnes, implying a capacity utilisation percentage in the mid-60s. Yet China gets slapped with the overcapacity label and the EU is preparing new safeguards effective on July 1 to slash duty-free quotas by 47 per cent and double tariffs to 50 per cent.

US political circles adopt an arbitrary alternative metric, branding any output exceeding domestic consumption as overcapacity. Try applying this standard to leading Western manufacturers. Germany produced 4.15 million cars last year and exported 3.17 million of them, over 76 per cent, while 42.2 per cent of cosmetics imported into China originate in the EU.

When the West produces at scale for the world, it is comparative advantage or innovation. When China does it, the vocabulary flips to dumping and excess capacity. If Washington and Brussels genuinely believe Chinese subsidies violate trade rules, the proper forum is the World Trade Organization. Instead, they bypass the multilateral process, hiding behind claims of economic security and “de-risking” to invent ad hoc standards that apply to one country alone.