Remarks by National Economic Advisor Lael Brainard on Responding to the Challenges of China’s Industrial Overcapacity
Center for American Progress
As Prepared for Delivery
It is a pleasure to join you at the Center for American Progress.
Today, I want to talk about the President’s investment agenda and the trade enforcement that is necessary to make sure American jobs and investment are not undercut by China’s unfair trade practices.
The President came to office with a plan to grow the economy from the middle out and bottom up—a sharp departure from the trickle-down approach of the prior administration. On his watch, we are seeing record investment in clean energy and advanced manufacturing.
Investment must be paired with trade enforcement to make sure the comeback we are seeing in communities around the country is not undercut by a flood of unfairly underpriced exports from China. We have learned from the past. There can be no second China Shock here in America.
Earlier this week, the President announced important enforcement under Section 301 of our trade laws to raise tariffs against China’s unfair trade practices in vital industries of the future. Today, the Administration is taking additional action to prevent circumvention of tariffs in the solar industry.
By contrast, the President opposes Republican proposals to impose across-the-board tariffs on all goods from all countries, even those that play by the rules. They would cost an average family up to $1,500 every year, according to analysis done here at CAP.
America’s Domestic-Led Recovery
After inheriting an economy with millions out of work, broken supply chains, and a surge in inflation from pandemic-era disruptions, the President secured major legislation that has supported a strong recovery. Investment, growth, and productivity are up, while unemployment is down. Wages have grown faster than prices, but the cost of living is too high, and we are fighting to bring it down.
We saw the unacceptably high cost of relying on a single foreign source for critical inputs when the dramatic supply shocks associated with the pandemic and Russia’s war on Ukraine caused a surge in inflation and widespread shortages. The President’s historic investment laws – the Bipartisan Infrastructure Law, the Chips and Science Act, and the Inflation Reduction Act – are strengthening the supply side of our economy. Private sector investments in manufacturing plants are at record highs, reversing previous disinvestment, and manufacturing employment is up by nearly 800,000, after declining during the previous administration.
China’s Export-Led Recovery and Industrial Overcapacity
Today, at a time when a strong U.S. recovery is underway powered by domestic consumption and investment, there are signs that China is exporting its way to recovery. China is using the same playbook it has before to power its own growth by investing in significant industrial overcapacity and flooding global markets with artificially cheap exports.
We saw what happened in the wake of the first China Shock, which harmed factory towns all over our country. Twelve years ago, here at the Center for American Progress, I discussed my concerns that China’s unbalanced investment- and export-driven growth model was imposing costs on growth in America and globally. I noted that “only by moving from an economy dependent on external demand and exports to one driven by domestic consumer demand” could China achieve its long-term growth goals consistent with broader global growth.
China’s share of global manufacturing is now approaching 30%, enabled by a combination of non-market practices, including forced technology transfer and intellectual property theft, and discriminatory rules..
Sectors prioritized by the central government are flooded with investments backed by ambitious local governments. Since investment has been redirected away from the property sector, state banks have been encouraged to provide underpriced credit to priority industries.
The U.S. Trade Representative’s (USTR) Section 301 report on China documents evidence and cites sources from around the world of ways that China acquires foreign technology through forced transfers, cybertheft, and other means.
China is now simply too big to play by its own rules. China’s industrial capacity and exports in certain sectors are now so large, they can undermine the viability of investments in the U.S. and other countries. Indeed, many of our partners around the world are raising the same concerns about the effects on their own industrial sectors.
As noted in the USTR’s 301 review, “China now produces 70 percent of the world’s electric vehicles, accounts for over 80 percent of battery manufacturing capacity, [and] controls around twice as much 50-180nm semiconductor manufacturing capacity as the next largest producer…”
In part, China’s overcapacity is achieved by firms selling at or below cost—enabled by policy decisions that unfairly depress capital, labor, and energy costs. China accounts for over 50% of global steel production at a time when the emissions intensity of Chinese steel production ranks among the world’s highest.
Between 2017 and 2021, China’s production across the solar supply chain outpaced every other country in the world combined. By the end of this year, the global supply of solar panels is expected to outpace global demand by roughly three-fold, largely driven by Chinese policies to continue expanding investment despite overcapacity and sharply declining prices.
China’s industrial overcapacity undermines market-based innovation and competition, as well as our workers and supply chain resilience.
Markets need reliabledemand signals and fair competition for the best firms and technologies to be able to innovate and invest in clean energy and other sectors. The Chinese government has made clear that China’s massive investments in electric vehicles, solar panels, and batteries are an intentional strategy to effectively capture these sectors. By undercutting global prices for these goods, Chinese policy-driven overcapacity disrupts the necessary demand signal that would enable market-based investment to be viable. Similarly, if firms cannot safeguard the intellectual property they develop, it undercuts market-based incentives to invest in R&D.
Second, a new cycle of Chinese policy-driven overcapacity and export surges could have adverse consequences for our workers. Analysis suggests the first China Shock was associated with the loss of nearly a million manufacturing jobs. It is vital to use legitimate enforcement tools to make sure a second China Shock does not happen again.
Third, the concentration in China of control over high value-added components of supply chains for key industries could undermine our resilience. Supply chains that become overly dependent on a few nodes of production are susceptible to geographically localized shocks. The pandemic laid bare what occurs when the United States—and the world—becomes entirely dependent on Chinese exports for goods like medical equipment. Given the scale and significance of the clean energy transition, we must guard against concentration risks in our supply chains.
Coupling Investment and Enforcement in Key Industries of the Future
The President’s agenda combines investment in industries of the future with enforcement of our trade laws to give our workers and businesses a fair chance to compete. Imposing tariffs in selective sectors under Section 301 of our trade laws ensures the investments and jobs in EVs, batteries, vital medical equipment, steel and aluminum, semiconductors, and solar spurred by the President’s historic laws are not undercut by a flood of unfairly underpriced exports from China.
Last year, China exported roughly 5 million ICE and electric vehicles, becoming the world’s largest auto exporter. Similarly, the subsidized production of electric vehicle batteries and battery components is so high that China is expected to produce more than four times its domestic demand.
The IRA and BIL include important programs to encourage domestic investment all along the supply chain for lower emissions vehicles along with consumer incentives.
Tariffs on Chinese EVs will be increased to 100% to prevent a surge of unfairly underpriced exports and to enable automakers and autoworkers in the US to compete fairly. Tariffs will be increased to 25% on batteries and battery components to diversify supply chains and give domestic companies an incentive to continue to develop cutting edge technologies.
In the solar sector, bolstered by the IRA, the private sector is undertaking a record investment boom in American solar manufacturing. China dominates more than 70 percent of all segments of the solar energy supply chain, including 97 percent of global silicon wafer capacity. And China’s continued loss-leading production and investment threaten to drive out foreign producers that have to meet market return hurdles.
To guard against that, tariffs on Chinese solar cells and panels will be increased to 50%. In addition, today’s announcement reimposes a 14.25% tariff on bifacial solar modules and confirms the end of the solar bridge on June 6, helping to ensure against trade circumvention. Today’s announcement will also help to clarify guidance on domestic content for the solar supply chain under the IRA.
In the legacy semiconductors industry, China is also quickly building overcapacity through state support. According to some estimates, within the next three years, the country could account for roughly one third of the world’s production of legacy chips—resulting in inordinate concentration of the supply of semiconductors used to power everyday technologies the world depends on.
These chips are vital to national security no less than economic security. After decades in which America stood by while semiconductor manufacturing moved abroad in response to government subsidies, the CHIPS and Science Act is enabling businesses to invest in semiconductor manufacturing in America again for the first time in decades. And tariffs on Chinese legacy semiconductors will increase to 50% to enforce against a surge of Chinese imports that benefit from the country’s nonmarket industrial targeting.
A Better Path Forward
Today, we are at a turning point. The President is leading the way on an approach that invests in America and stands up for American workers against China’s unfair practices, following years of trickledown policies that hollowed out too many factory towns around the country.
The Administration is committed to responsibly managing competition with China, as demonstrated by the President’s regular discussions with President Xi, along with the recent visits by the Secretary of State and the Secretary of Treasury. We are committed to cooperating with China to meet the world’s most pressing challenges, including by supporting the deployment of clean energy technologies. Within that broader context, it is important to enforce our trade laws against China’s unfair nonmarket practices to prevent harm to American workers and businesses.
Many foreign partners, including the EU, Brazil, South Africa, Thailand, and India, have started or publicly considered trade actions of a similar nature. We will work with G-7 and G-20 partners to advance our common interest.
China’s industrial footprint is more complex today than during its previous export surge. Today’s actions to support U.S. solar manufacturers, which include ending tariff exemptions and monitoring imports from countries found to be circumventing trade enforcement measures, will help ensure that China is not able undercut U.S. manufacturers simply by moving its factories.
In negotiating USMCA, the previous administration did not adequately address the potential transshipment of Chinese exports entering the U.S. market via Mexico. Mexico is an important partner to the US in many areas. We look forward to working with Mexico to address concerns that some Chinese steel exports appear to be flowing through Mexico, and some Chinese auto companies may be considering exporting vehicles and auto parts via Mexico. The USMCA review in 2026 would be an opportunity to further discuss this potential risk.
The President’s tough targeted approach combining investment and enforcement in key sectors is a sharp departure from the prior administration. The previous administration did not take action to invest in America and failed to follow through on securing the promised Chinese purchases or end to China’s unfair practices in its failed Phase One trade agreement with China.
Conclusion
The President has long believed in a middle-out bottom-up approach to growing the economy, and secured historic legislation to make it happen. The resulting private sector investments are reversing decades of disinvestment, creating pathways to goodmiddle-class jobs, and facilitating critical investments in innovation, infrastructure, and clean energy. The President’s approach is providing a model of how to deliver sustainable growth with good jobs and smart investments, but, for it to succeed, it is vital to enforce the rules that safeguard healthy market-driven competition.
Thank you.
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