US tariffs bound to fail on false 'overcapacity' claims

On May 14, the United States increased tariffs on Chinese goods worth approximately $18 billion across sectors, including electric vehicles, solar cells and semiconductors.

The new tariff rates range from 25 percent to 100 percent, and are an attempt to stifle certain Chinese industries.

Previously, the US feigned to keep its commitment to the "San Francisco Vision" with visits to China by US Secretary of State Antony Blinken and Treasury Secretary Janet Yellen. Yet both of them cited "overcapacity" as a so-called concern during their visits, which were only to lay the groundwork for the tariff hikes.

Despite a preponderance of evidence debunking overcapacity by Chinese and international economists, including those from the US, Washington has unrelentingly raised tariffs, using its Section 301 investigation review report to seek justification on the global stage.

This is a clear example of trade protectionism, illustrating how the US generalizes the concept of national security and internationalizes its domestic partisan disputes.

Despite being prepared for such a scenario, it is important for China to thoroughly analyze and develop a response. Considering that the US is imposing tariffs as high as 100 percent on Chinese products, China must assess whether the competitiveness of China's affected industries will be significantly weakened, or if they will remain resilient, thus rendering the US move a futile exercise.

First of all, the US tariff hikes are a clear manifestation of unilateralism, trade protectionism and bullying tactics. Faced with diminishing competitiveness in sectors such as new energy, new energy vehicles and pharmaceuticals, the US has raised both tariff and nontariff barriers in an attempt to suppress Chinese enterprises and undermine the competitiveness of Chinese products, all in a bid to protect its own industries.

Yet, its imposition of additional tariffs more than five years ago, ranging from 5 percent to 25 percent on over $250 billion worth of Chinese products — including steel and aluminum — failed to bolster the competitiveness of US industries. It failed to support US reindustrialization efforts, nor achieved the goal of bringing industrial and supply chains closer to the US or "friendly "nations.

The US has extensively politicized, weaponized and instrumentalized economic and trade matters. In a bid to secure an electoral victory, the Democratic Party in the US has pulled out all the stops. After Donald Trump's proclamation that he would levy a 60 percent tariff on Chinese exports if elected, the Biden administration eagerly played the China card, taking over the proactive and aggressive stance by also imposing high tariffs on China, under the guise of "overcapacity "issues and claiming that China had not met the terms of the Section 301 investigation report.

By linking industries and production capacity to political and national security concerns, the US aims to comprehensively suppress China through high tariffs. This tactic is also employed by Biden during the current campaign season, resorting to the China card when domestic strategies fall short during an election year.

Such deeds will rebound on the US. The world today is still interconnected and far from insularity, and no country can thrive in isolation. Any nation that seeks to suppress others will inevitably harm itself in the process.

Over the past five years, the additional tariffs that the US has levied on Chinese goods have ultimately been shouldered by US consumers. This has led to an unprecedented inflation rate as high as 9.1 percent in the country, a level which has not been seen for four decades, and it has even spilled over to Europe.

Unless the US takes drastic measures to reduce tariffs, it will be very difficult for it to contain inflation. Unchecked inflation makes it difficult to lower high interest rates, leading to a continuous build-up of debt and financial risks.

Moreover, the hype surrounding the issue of "overcapacity" as a pretext for pressuring China is not only ungrounded, but also detrimental to the US itself.

The US claims that China has "excessive capacity". Yet even Yellen, with her background as an economist, finds it a hard sell. During her visit to China, she was repeatedly badgered on the topic by the media. Each time, she appeared visibly uncomfortable, frowning and stumbling over her words. That spectacle clearly highlights the challenge of upholding a false narrative — one that even she seems unable to convince herself of, let alone others.

China does not face an issue of overcapacity in NEVs. The narrative of overcapacity merely stems from the fact that China's NEVs are exceptionally competitive, outperforming peer industries in certain other countries, so are thus being labeled as being in a state of "overcapacity".

In terms of international comparison, the export volume of China's NEVs accounts for less than 15 percent of total output. In contrast, 75 percent of vehicles produced in Germany are exported, while the corresponding figures for South Korea and Japan are 70 percent and 50 percent, respectively.

Within the automotive industry, in which the global division of labor is becoming increasingly intricate, discussing so-called issues of overcapacity in China's NEVs fundamentally contradicts economic principles and real circumstances. The actions based on the Section 301 investigation report to increase tariffs have long been deemed illegal by the World Trade Organization.

Such US tactics are reminiscent of past strategies, yet the outcome may be an altogether different reality. At its core, the US is attempting to replicate its trade war strategy against Japan decades ago to exert pressure on China.

Late last century, as Japan's economic power neared that of the US, the latter launched a trade war imposing 100 percent tariffs on select Japanese products. The US now appears eager to re-enact the "triumph" of the Japan-US trade war, hoping to replicate a lost decade, or even two or three, for China.

However, the US seems to overlook the fact that the times have changed. Beyond the stark differences in political systems and market scale between China and Japan, the global landscape is undergoing transformations not seen in a long time, with technological innovation racing ahead at a breakneck pace.

China stands as the top trading partner for over 120 countries, and the Belt and Road Initiative engages more than 150 economies and 30-plus international organizations. In an era of pervasive economic globalization, protectionism and unilateralism are bound to backfire.

Moreover, China is pursuing an innovation-driven growth strategy, spearheading industrial innovation with scientific breakthroughs and bolstering new quality productive forces. For over a decade, China has topped the list of global patent applications, with R&D investment surpassing 2.64 percent of GDP.

The US actions against China will likely hasten China's independent technological innovation, shifting the global trade paradigm toward "Chinese technology" plus a "global market".

From the perspective of game theory and comparative advantage, the US approach of decoupling and de-risking will only result in its own isolation, rather than achieving success through suppression of others.

Based on past experience, the US will persist in imposing additional tariffs on China. Yet, such measures will ultimately prove ineffective.

The US is never the primary target market for China's NEVs, and these actions will only accelerate US decline relative to China's trading partners.

The imposition of high tariffs may provoke comprehensive countermeasures from Chinese enterprises and industries, including legal action. Individual cases will be handled by legal instruments, while at the industry level, appeals and resolutions will be pursued through the WTO.

According to the WTO's official website, the US has been the defendant in more cases than almost all EU countries combined, and it has largely been on the losing side in these disputes.

As China rises, encountering such suppression is inevitable. In response to the US moves, our enterprises need to take proactive and effective measures.

In addition to further enhancing the competitiveness of their products, Chinese enterprises must also wield legal and trade instruments to protect their interests. It is essential for them to actively participate in the formulation of rules, regulations, management and standards.

The views don't necessarily reflect those of China Daily.

The writer is a researcher and director of the cooperative research department of the Chongyang Institute for Financial Studies at Renmin University of China.