Despite Washington’s best efforts to stem the unbridled flow of China-made goods into the U.S. market, the wave of imports continues to find a way to consumers’ doorsteps.
That could spell calamity for American manufacturers, according to a newly released report from the Alliance for American Manufacturing, which warned that “a deluge of low-cost import competition… could again close tens of thousands of U.S. factories and lay off millions of U.S. manufacturing workers.”
According to the group’s research, “Overcapacity is a feature, not a bug, of China’s model of state capitalism.” Amid a national real estate crisis and the softening of its export dominance, the country is pushing hard on state-led manufacturing to drive growth. China saw exports decline by 4.6 percent last year—the first contraction in dollar terms in seven years—with the U.S. leading the pack in the pull-back in sourcing. American imports from China dropped 13 percent in 2023 to $500.3 billion, the steepest decline in 30 years.
China is eager to stop the downward trend. Not even the continuation of Section 301 tariffs—or President Joe Biden’s implementation of new duties on solar cells, semiconductors and electric vehicles—is deterring the country from targeting U.S. consumers, AAM wrote.
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“Overcapacity and overproduction are problems across China’s vast manufacturing sector, where dedicated state support combines with low rates of household consumption to create an environment where many industries produce far more than the Chinese market will absorb,” the report said.
While this imbalance is nothing new, “the result is almost always the same: The excess is exported, often at a loss. It is manufacturers and workers in market economies around the world that receive the sharp end of this largesse.”
Meanwhile, the U.S.’ traditionally open markets have represented fertile ground for the surpluses of stuff being produced in China. Even now that Washington is evincing a protectionist philosophy when it comes to trade, China is “using other markets as backdoors to ship its excess capacity to the United States,” AAM stated. “Countries like Vietnam and Mexico have become routes for Chinese manufacturers to flood the American market with the products they have difficulty sending here directly.”
China has shown it has no qualms with subverting U.S. trade objectives to advance its goals. “Chinese economic strategy clearly favors export-led growth over internal consumption, and repeated attempts to tap into U.S. domestic spending programs make clear doing so is a Chinese policy priority,” the report stated.
According to AAM, “policymakers’ shortsightedness” has also facilitated China’s import surges in the past. For example, the Clinton administration—along with a bipartisan Congress—granted China Permanent Normal Trade Relations in 2000. The move allowed the communist country to ascend to the World Trade Organization (WTO) and evade yearly tariff reviews. Throughout the ensuing decades, China has engaged in state-sponsored industrial espionage, allowing it to undermine American industries—but it faced few repercussions.
One pivotal moment that solidified the country’s foothold in the U.S. market took place in the wake of the 2008 recession. With U.S. liquidity limited and the government engaged in deploying economic relief, “China saw the opportunity to expand its industrial footprint. And it did,” the report said. “Simultaneously snapping up distressed companies and establishing state-owned and -controlled companies in the American market, China played the long game for industrial dominance.”
According to Radarlock, an economic research organization, “First, Beijing sought footholds in the U.S. market that would allow Chinese players, through local presence and local influence, consistently to evade U.S. tariff and non-tariff barriers for the long-term.” After establishing those objectives, China worked to acquire technological and material resources cheaply. Then, “Beijing targeted strategic footholds in U.S. infrastructure and supply chains that promised long-term access to American resources and leverage over American systems.”
Today, China’s ambitions have not changed—if anything, they have deepened. The country “has no plans to turn to domestic consumption as a growth model; heavily subsidized, export-led manufacturing is its tested vehicle,” AAM wrote. “Its industries will eagerly sell into foreign markets at a loss to build market share, because it can then exert dominance over those markets. The goal is control.”
Moving forward, AAM said the U.S. government must take a more proactive stance in modernizing trade laws and hitting back at China’s economic aggression.
The group recommended reinstating Section 421 import surge protection. The provision, which expired 11 years ago, allowed Washington to leverage tariffs and other restrictions against China when imports increased at such a rate to cause U.S. market disruptions and impact American producers. The group also recommended strengthening the legislation to cover third-country production.
It also pushed for an update of U.S. antidumping and countervailing duty tools; leveraging Section 301 punitive duties to a greater degree where appropriate; strengthening rule-of-origin laws within new and existing free trade agreements (FTAs); fully enforcing policies that compel U.S. agencies to buy domestic products; incentivizing clean energy projects, and more.
According to a May poll of over 2,000 U.S. adults by Morning Consult, 80 percent believe the federal government should take a stronger stance against unfair trade practices.
“The United States must continually update its policy framework for addressing overcapacity, particularly as China seeks to route its excess production through countries that enjoy beneficial trade relations with the United States,” AAM wrote. “While the nature of China’s unfair trade practices shifts from time to time, the goals are always clear: to disrupt global norms, weaken American economic security, and seek growth at the expense of others.”