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Creative ideas needed to stop Chinese overcapacity: US official

Creative ideas needed to stop Chinese overcapacity: US official

A senior Treasury official says the United States may need to take “more creative” positions than tariffs alone to protect American industries and workers from China’s excess industrial capacity.

Jay Shambaugh, the Treasury’s assistant secretary for international affairs, told a meeting of the Council on Foreign Relations on Wednesday that Chinese manufacturing has become “decoupled” from domestic or global economic demand, creating exports that threaten jobs in the U.S. and other countries.

The economic diplomat said traditional trade defence tools, such as the Section 301 tariffs recently increased by President Joe Biden, may not be sufficient to address such challenges.

SEE ALSO: China switches to ‘green’ steel production as EU tariffs loom

“More creative approaches may be needed to mitigate the impact of China’s excess capacity,” Shambaugh said. “We need to be clear: Defending against excess capacity or dumping is not protectionist or anti-trade; it is an attempt to protect businesses and workers from disruptions in another economy.”

Shambaugh did not elaborate on further steps the Biden administration may need or be considering.

Belt & Road subsidies

Earlier on Wednesday, a bipartisan group of lawmakers and steelmakers called on Congress to pass new legislation that would apply U.S. anti-dumping and anti-subsidy duties on Chinese goods produced by Chinese companies in third countries.

The “Leveling the Playing Field 2.0” bill, introduced by Rep. Terri Sewell, a Democrat, and Rep. Bill Johnson, a Republican, would also allow China’s Belt and Road subsidies for projects in other countries to be counted in anti-subsidy cases.

The Biden administration on Wednesday also announced a new effort with Mexico to combat China’s circumvention of U.S. steel and aluminum tariffs, by New North American “Melted and Cast” Standard for Steel Imported from Mexico to the US.

Shambaugh’s comments reinforced concerns expressed by U.S. Treasury Secretary Janet Yellen during a trip to China in April, when she warned that China’s overinvestment and overproduction capacity in key sectors was unacceptable.

The trip Biden predicted steep rate increases on a range of Chinese goods, including electric vehicles, solar panelssemiconductors and critical minerals.

‘Persistent overinvestment’

He defined China’s excess capacity as “production capacity that exceeds domestic demand and is disconnected from global demand,” resulting from persistent overinvestment facilitated by extensive state support.

According to him, China’s production capacity in certain sectors far exceeds global demand forecasts. These include solar panels, lithium-ion batteries and electric vehicles. The capacity utilisation of Chinese factories also fell, while the share of loss-making companies increased to 28% of listed Chinese automakers.

“These conditions would not occur in a normal market economy. What we are seeing is a fundamental disruption driven by government policy,” Shambaugh said.

It would be better if China worked with other countries to address their concerns and curb excess capacity, thereby increasing efficiency and productivity, expanding the social safety net and enhancing the efficiency of domestic demand.

“We will take defensive measures if necessary, but we would prefer to see China take action on its own to address the macroeconomic and structural forces that generate the potential for a second ‘China shock’ to its major trading partners,” Shambaugh said.

E-commerce platform Temu says it is facing
Temu is facing a lawsuit in Arkansas over claims it is high-risk malware. It could also face a law restricting its ability to ship goods to the U.S. if Congress changes a key trade rule (Reuters photo).

Asks for minimum rule to be established

Shambaugh’s comments come as support appears to be growing among U.S. lawmakers and Biden administration officials for a change to the program, which would allow buyers to import up to $800 worth of foreign goods per day without paying duties.

Homeland Security Secretary Alejandro Mayorkas called for a “legislative solution” to the minimum exception “and exploiting that exception” — reportedly the first time a top Biden official has said he hopes Congress will limit the rule, according to a report from International trade today (ITT) on Tuesday.

Mayorkas said the whole idea that de minimis imports are insignificant is wrong.

“De minimis is based on a false premise, which is that low value means low risk,” he was quoted as saying, adding that if people could stand next to Customs and Border Protection inspectors and see what the agency is uncovering — things like narcotics, ghost guns and “all kinds of contraband” — they would be shocked.

Chinese e-commerce giants such as Shein and Temu are accused of abusing the rule and flooding the country with one million parcels of cheap retail goods per dayaccording to a Time report in February.

The flow of goods has reached a point where CBP leaders have urged the government to reduce the number of shipments to “a manageable level.”

Customs officials last month proposed changing the rule, the ITT report said, and some Republican lawmakers also suggested disallowing Chinese goods from qualifying for the trade exception altogether.

House Speaker Mike Johnson reportedly said this week that he plans to bring a bill to a vote this year that includes a change to the de minimis provision, an idea that was welcomed by Republicans on the Senate Finance Committee and the textile industry.

Temu, Shein and other Chinese e-commerce companies also appear to be facing problems import duties on goods exported to the European Union.

  • Reuters with additional input and editing by Jim Pollard

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Jim Pollard

Jim Pollard is an Australian journalist who has lived in Thailand since 1999. He worked for News Ltd newspapers in Sydney, Perth, London and Melbourne before travelling around South East Asia in the late 1990s. He was senior editor at The Nation for more than 17 years.