Commentary
China’s “overcapacity, oversupply, and overproduction” are gaining increasing attention in the United States. All are related.
Beijing uses subsidies to produce more goods than market conditions will bear. Examples include electric vehicles (EVs), batteries, steel, cobalt, and low-tech semiconductors. These goods can be “dumped” in the United States and elsewhere at prices below the cost of production, which can drive U.S. companies out of business and cause workers to be laid off. Often, Beijing intends to do so.
Dumping is highly politicized and contested by the Chinese Communist Party (CCP), as well as both political parties in Washington, to the point of being part of various cross-cutting
propaganda campaigns in what amounts to a three-way game of chess. Domestic U.S. producers join in, seeking to compete with Chinese companies, including through lobbying for U.S. subsidies and tariffs that are themselves non-market measures. These measures are justified, argue our companies, because they counteract Chinese subsidies, thus bringing prices back to what they would have been had neither side used non-market measures. Two wrongs, in this instance, arguably make a right.
To get past the confusing rhetoric on both sides, we can drill down into what dumping means in particular instances. Household magnets, mattresses, and solar panels are all examples that have gotten extensive attention recently.
The simplest example of inexpensive Chinese manufacturing that puts U.S. citizens out of work is mattresses. A basic Serta Simmons 10-inch Queen
mattress, for example, can be purchased for as little as
$240 on Amazon at regular prices. The Amazon page notes that the origin of the bed is in the United States. All good.
But Chinese beds of similar size can be found for less than
$175, according to an industry source quoted by The Wall Street Journal. Some mattresses are reportedly manufactured in China and shipped via third countries like South Korea to avoid U.S. tariffs. Others come from factories in nearby allied countries or have an unclear provenance.
A 10-inch Elemuse queen bed lists on Amazon for about
$150 plus $50 shipping. This bed’s place of origin is listed as the “Lao People’s Democratic Republic.” Otherwise known as Laos, the country
borders China and is closely allied with Beijing. Some Elemuse beds are listed on eBay as made in China. The Elemuse Baby website, which sells crib mattresses, states that it is owned by an entity in Hangzhou city, Zhejiang Province, China.
Wages are lower on average in Laos, and the rate of poverty is much higher. So if Chinese companies move to Laos to make beds, they could pay lower wages and lower tariffs and make more profits while likely producing at an even cheaper price point than can be managed from China.
One can see that to compete, Americans are being asked to hit a moving target. Profits on mattresses produced in the United States are so low as to risk the closure of Simmons’s U.S. factories. Even with a 25 percent tariff on Chinese imports, hiring American workers at American wages is now cost-prohibitive. As a result, Simmons likely had to lay off U.S. workers. According to The Journal, Simmons cut about half of its U.S. workers, from 4,000 to 2,000, since 2018.
Magnets are another product that Chinese makers reportedly send to the United States at below the cost of production. Chinese magnets are used in common household items like headphones and televisions and are highly dependent upon rare earth elements (REE). China dominates the international market for REE and has used that dominance to try to influence other countries, including Japan. China’s ban on REE exports to Japan in 2010 didn’t go so well, though, as Japan started to build alternative supply chains.
Nevertheless, China still processes about
85 percent of global REE, giving it an edge in electronics manufacturing. Beijing tries to keep that edge by pricing its REE low to keep out other producers who could challenge its near monopoly. Prices for the REE, called neodymium-praseodymium oxide (NdPr), for example, dropped from about $176,000 per ton in March 2022 to about $50,000 per ton today, according to data provider Argus Media. At that price, it is hard for U.S. and Japanese manufacturers to make the long-term investments necessary to mine and refine the mineral. NdPr is the most profitable element of REE mining, so when its price is low, it is hard to turn a profit in many other related REE processing.
Solar panels are another major point of contention between the United States and China. Companies from China operating on U.S. soil will produce about 20 gigawatts worth of panels annually by 2025, according to Reuters. That is about half of U.S. needs. These factories are subsidized by the U.S. Inflation Reduction Act of 2022, just as are U.S. solar companies. There is no good reason for this. The United States should avoid subsidizing companies from adversary regimes that are militarily aggressive, or it risks making that adversary even stronger economically and, therefore, more of a military risk.
Unfortunately, the Chinese Communist Party (CCP) is following an aggressive economic and military strategy that is turning global markets inside out with subsidies and tariffs. A return to sanity, where two wrongs do not make a right, first requires the CCP and its allies to reverse its non-market and militarist strategies. Then, the United States and our allies could relax a bit as well. Two rights would then make a right.
Let’s tackle this task as a team.
