Good morning. Clay Chandler here, writing from Hong Kong.
All year senior officials from the U.S. and Europe have sought—without success—to persuade counterparts in Beijing that China has an “overcapacity problem.”
In Beijing last month, U.S. Treasury Secretary Janet Yellen warned that President Joe Biden could not allow U.S. manufacturers to be “decimated” by a “flood” of “artificially cheap Chinese products.” China’s foreign ministry bristled.
Two weeks later, the ministry rebuked Secretary of State Antony Blinken for using the O-word on his Beijing visit and accused the U.S. of “hyping up a false narrative.”
Chinese President Xi Jinping dismissed the idea entirely when he met with French President Emmanuel Macron and European Commission President Ursula von der Leyen this week. There is “no such thing as ‘China’s overcapacity problem,’” he said.
But the issue can’t be wished away.
Western leaders have focused their fears on solar panels, lithium batteries, and electric vehicles. China exported over $138 billion worth of such products last year, up 30% from 2022. Biden will reportedly impose additional tariffs on all three sectors next week.
In solar, China now accounts for 80% of global capacity. In 2023, China’s production capacity for finished solar modules soared to more than double what the world installed, forcing producers to slash prices. In Germany and the Netherlands, solar panels are so cheap they’re being used to build garden fences.
Similarly, China now makes 70% of the world’s lithium-ion batteries. Last year, Chinese exports jumped 28% to $65 billion.
But Western leaders are most worried about EVs. China exported 1.2 million “new energy” vehicles last year, making it the world’s largest exporter of cars. Hardly any of those vehicles were sold in the U.S. thanks to a 25% tariff. But in the EU, where the tariff is 10%, China’s EV market share tops 8% and could reach 20% by 2027. EU regulators may call for higher duties. The Rhodium Group, a research firm, estimates Chinese EVs would still be “highly attractive” to European buyers at a tariff of 30%.
Chinese officials maintain China’s green energy companies export so much because they’re so efficient. Sure, China has provided state support for clean energy companies—but the U.S. and Europe do that too. Besides, many argue, China’s clean energy expansion is helping the world meet critical sustainability goals and should be celebrated, not feared.
In Foreign Affairs, Rhodium’s Daniel Rosen and Logan Wright contend those arguments miss the larger point: China’s economy has stalled, and instead of prioritizing domestic demand, Beijing continues to prop up Chinese companies and encourage them to ship excess production overseas. The essay’s grim conclusion: China, Europe, and the U.S. are locked “on a dangerous course of trade confrontation in 2024, with a high probability of trade defense actions.”
More news below.
Clay Chandler
clay.chandler@fortune.com
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This edition of CEO Daily was curated by Nicholas Gordon.