Faced With Stagnant Domestic Growth, China Starts A New Global Trade War

By Mish Shedlock

China is going all in on exports to revive growth led by EVs. Trump vows to strike back with 60% tariffs.

Accelerated Global Trade War

The Wall Street Journal comments China Is Starting a New Trade War.

China is cranking up its massive export machine again, and this time there’s nowhere for competitors to hide.

A Massachusetts startup called CubicPV bet on silicon wafers, a high-tech component in solar panels. Buoyed by President Biden’s climate legislation enacted two years ago, with billions of dollars in tax credits and government loans, CubicPV announced plans in late 2022 for a $1.4 billion wafer plant in Texas.

Since then, China has nearly doubled its output of silicon wafers, way more than it needs. The extra wafers had to go somewhere—and they went overseas, pushing prices down by 70%. CubicPV had to halt its production plan early this year, putting engineers and other employees out of work, citing “a distorted market as a result of China’s overcapacity.”

The European Union’s recent decision to impose tariffs on imported Chinese electric vehicles is only the latest sign of deepening tensions. The U.S. earlier this year hiked levies on Chinese steel, aluminum, EVs, solar cells and other products. Turkey has jacked up duties on Chinese EVs, while Pakistan raised tariffs on Chinese stationery and rubber.

Chinese leader Xi Jinping ordered officials to double down on the country’s state-led manufacturing model, with billions of dollars in fresh subsidies and credit. He used a slogan to make sure officials got the message: “Establish the new before breaking the old,” or xian li hou po in Chinese.

China has added capacity to produce some 40 million vehicles a year, even though it sells only around 22 million at home. It’s on track to make around 750 gigawatts of solar cells this year, despite only needing 220 gigawatts domestically in 2023. And it is expected to account for 80% of the world’s new supply this year in basic chemicals such as ethylene and propylene, used to make garbage bags, toys and cosmetics—even though prices in China have been falling for 19 months, a sign of oversupply.

The International Trade Commission, a federal agency that analyzes trade issues, in June gave its initial go-ahead to an antidumping petition backed by American solar manufacturers who allege solar cells and modules made by Chinese companies are sold in the U.S. for below market value and unfairly subsidized.

Other parts of the world are bearing more of the brunt. European automakers have axed more than 10,000 jobs as more Chinese EVs arrive. Antonello Ciotti, chairman of PET Europe, a trade association for European makers of chemicals used in polyester fibers for clothing and recyclable containers, said European PET producers shed hundreds of jobs as firms slashed costs and production to deal with Chinese imports. The EU late last year imposed antidumping duties on certain imports of Chinese PET.

“Everybody makes stuff in China,” said Joerg Wuttke, former president of the European Chamber of Commerce in China and now a partner at Washington consulting firm DGA Group. “But nobody makes money.”

Two Guiding Principles

Two principles have guided Xi’s thinking, Chinese policy advisers say. The first is that China must build an all-encompassing industrial supply chain that can keep the domestic economy running in the event of severe sanctions by the U.S. and other Western countries. In the top leader’s views, advisers say, industrial security sits at the core of China’s stability as tensions with the developed world rise.

The second is a deep-rooted philosophical objection to U.S.-style consumption, which Xi sees as wasteful.

China’s first fear is well founded in reality. US sanctions on chips and AI technology have forced China to go it alone. It’s a US mistake to think it can cut off China from leading technology.

Should the US succeed, China would and could cut the supply or rare earth minerals the US needs to make phones, missile guidance systems, EVs, wind turbines, and advanced chips.

What About Dumping?

China is on track to make around 750 gigawatts of solar cells this year, despite only needing 220 gigawatts domestically in 2023.

But the US grows more corn and soybeans than it can eat.

If every country produced only what it could consume, global trade would be zero.

China has access to minerals needed to make solar panels and batteries for EVs. To meet energy goals, the US should be thrilled to get cheap solar panels.

But to save a few hundred jobs (that vanished anyway), Biden upped tariffs and mandated installers use US-made panels.

Another Green Energy Company Declares Bankruptcy

On August 10, I commented Another Green Energy Company Declares Bankruptcy, Thank Biden’s Tariffs

The attempt to force production of solar panels in the US resulted in prices so high that few wanted them.

No only did production vanish so did installation jobs.

Eh Tu Canada?

Reuters reports Canada to Impose 100% Tariff on Chinese EVs, Including Teslas

Canada, following the lead of the United States and European Union, said on Monday it will impose a 100% tariff on imports of Chinese electric vehicles and announced a 25% tariff on imported steel and aluminum from China.

“What is important about this is we’re doing it in alignment and in parallel with other economies around the world,” Trudeau said on the sidelines of a three-day closed-door cabinet meeting in Halifax, Nova Scotia.

Undaunted, China is accelerating production of EVs.

Ford Cancels Plans for Electric SUV, Expects a $1.9 Billion Loss

Please note Ford Cancels Plans for Electric SUV, Expects a $1.9 Billion Loss

Say goodbye to a vehicle that never should have been conceived in the first place. Customers don’t want it.

Huge losses are exactly what one should expect when government rather than customers drive business decisions.

Despite huge subsidies, Ford still cannot make ends meet on EVs.

Yet, due to government coercion, Ford is forced to try, try, and try again. If and when Ford succeeds, it will have more production capacity than it needs because EVs have less parts and are easier to build.

At least $5 billion, and just for Ford alone, is now a sunken cost for an EV schedule that never should have been attempted.

Thank you President Biden, AOC, Elizabeth Warren, and everyone else who created this mess.

J.D. Vance’s Knockoff Theory of Manufacturing

The Wall Street Journal author Allysia Finley comments on J.D. Vance’s Knockoff Theory of Manufacturing

J.D. Vance isn’t weird, but his ramblings on economics are. The senator earlier this year dismissed economics as “fake” in a rant about modern refrigerators. He expounded at a rally last week in Henderson, Nev.: “We believe that a million cheap knockoff toasters aren’t worth the price of a single American manufacturing job.”

Pace Mr. Vance, U.S. manufacturing jobs aren’t leaving for China. They are shifting from the Rust Belt, Northeast and West Coast to Sunbelt states such as Nevada, Arizona, Texas and Florida, which have young and growing workforces, cheaper energy, lower taxes, right-to-work laws and proximity to trade partners, especially Mexico.

It’s true that U.S. manufacturing employment has declined since the start of the century. Mr. Vance blames China’s entry into the World Trade Organization, which gave Beijing increased access to the U.S. market. But that’s only part of the story. Technology also increased labor productivity, enabling manufacturers to produce more with fewer employees.

The combination of cheap Chinese imports and more efficient U.S. manufacturing kept prices down and increased Americans’ purchasing power. In the two decades before the pandemic, prices for clothes, furniture, appliances, toys and televisions declined, often sharply.

Twenty years of falling prices lifted living standards for tens of millions of Americans. Some 90% of American adults own a smartphone, and nearly the same percentage have air-conditioning in their home. Most who don’t have AC live in the North, where they rarely need it. More than 80% of homes have washers and dryers, and about a third have two refrigerators.

Americans are better off owing to millions of cheap toasters, smartphones, refrigerators and washing machines. But what about manufacturing workers who lost their jobs because of them? Such is the march of progress, from the invention of the cotton mill to the modern assembly line. Americans have long adapted by moving or finding other work.

Cheap labor isn’t the reason manufacturers are building new factories in the Sunbelt. Wages for manufacturing workers in Texas now rank among the highest in the country. Instead, they are foremost seeking a business-friendly environment, something China increasingly lacks, and a large pool of industrious workers who can pass a drug test.

Mr. Vance’s toaster line may win some votes, but his prescription for higher tariffs won’t bring back Midwest manufacturing jobs.

Someone gets it. Thank you Allysia Finley.

Massive Failure of Sanctions

On September 4, 2023, I noted US Sanctions Fail Again, China Now Produces Its Own Advanced Computer Chips

Trump and Biden both tried to cut off China’s supply of advanced microchips. The US wanted to knock Huawei out of the 5G market. Now, instead of China using US chips, it is producing its own chips.

China is far behind the US in chip technology. However, it is doing much better than the US expected.

China is producing some chips that the US dis not want China to have at all.

February 19, 2024: US Impounds Thousands of German Vehicles Over One Tiny Part Made in China

The US Blacklisted Xiaomi

On May 21, 2024 I commented  The US Blacklisted Xiaomi Three Years Ago Now it Makes EVs

Just three years ago, the Chinese company Xiaomi decided to build cars. It succeeded where Apple failed.

The US forced Xiaomi into a new sector after the U.S. government blacklisted it in January 2021 for what it said were ties to China’s military.

Attempt to Prohibit China’s Access to AI

On August 26, I commented China Gains Secret Access to Nvdia Microchips by Renting Computers

The US has blocked export of Nvdia chips to China. But where there’s profit, there’s a way.

Reason for the US failure goes back to my September 19, 2023: Lesson of the Day: Sanctions Don’t Work Because They Create New Markets

It is the best interest of middlemen in Greece, Russia, India, China, and Dubai to tell Biden to go to hell, so they do.

Critical Materials Risk Assessment by the US Department of Energy

Please consider a Critical Materials Risk Assessment by the US Department of Energy

The US Department of Energy has placed some of the rare earth minerals we need for weapons systems, windmills, batteries, and aircraft on a critical materials list.

Nearly all of them are mined or refined in China. Yet Biden just blocked production in the US.

Shades of Smoot Hawley and Global War Threats

Trump has threatened to escalate a global trade war against not just China, but the whole world with a 60 percent tariff on China and 10 percent on everyone else. He believes tariffs can replace the income tax.

It would be the biggest trade war since the 1930 Smoot-Hawley Tariff Act worsened the Great Depression. China could respond by cutting off US access to rare earth minerals. The word is on a collision course with China no matter who wins in November.

When trade ends, wars start.