Just over a year ago, Group of Seven (G-7) finance ministers and central bank chiefs gathered in Niigata, Japan, to forge a new partnership aimed at “building resilient supply chains.” Although China wasn’t explicitly mentioned, the intent was clear: reducing dependence on the Asian manufacturing powerhouse.
Fast forward to today, trade tensions with China have intensified, and the European Union is investigating Chinese electric vehicle subsidies. In this context, the G-7 has adopted a new focal point in its strategy against China: “Overcapacity.”
This time, the G-7 has shed any pretense of subtlety. In a recent communique from their meeting in Stresa, Italy, they directly addressed the issue: “We express concerns about China’s comprehensive use of non-market policies and practices that undermine our workers, industries, and economic resilience. We will continue to monitor the potential negative impacts of overcapacity and will consider taking steps to ensure a level playing field.”
France’s Finance Minister Bruno Le Maire highlighted the global economic risks posed by an influx of cheap Chinese exports, echoing U.S. Treasury Secretary Janet Yellen’s calls for a united front against China.
China, in response, has signaled its readiness to impose tariffs of up to 25% on imported cars with large engines, reflecting its frustration. Additionally, Chinese Premier Li Qiang has attempted to sway Japan and South Korea towards cooperation with Beijing to maintain stable supply chains. Despite reaching an agreement on transparency and predictability in trade, Japanese and Korean firms are already diversifying their markets.
South Korean President Yoon Suk Yeol emphasized the commitment to establishing a safe supply chain and moving forward with a long-stalled free trade agreement.
Meanwhile, China’s state media has ramped up its rhetoric, criticizing the U.S. for its aggressive stance on China’s green energy sector. A commentary in the People’s Daily stated, “Global demand for clean energy capacity far exceeds supply. What threatens global efforts to tackle climate change is not too much but too little high-quality clean energy capacity. The U.S. attempt to suppress China’s clean energy industry essentially undermines the future of the earth and its inhabitants.”
As the conflict deepens, with President Joe Biden and his potential opponent Donald Trump both aiming to project toughness on China, expect “overcapacity” to become a common term in the discourse. Diversifying supply chains, a prominent theme of 2023, appears to be evolving into a more aggressive stance against China’s economic practices.
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