China’s staggering vehicle overcapacity is finding new means of entering the world market.
China’s auto companies are pouring resources into developing manufacturing capacity outside of China amid global pushback against China’s market-distorting overproduction, a new report from research organization BloombergNEF finds. Notably, this new investment is focused on building factories overseas that are capable of manufacturing vehicles from start to finish, rather than assembling Chinese-made auto parts at overseas sites.
Company announcements show that Chinese automakers’ full-process manufacturing capacity is set to double from an annual production capacity of 1.2 million vehicles across nine countries in 2023 to an eye-popping 2.7 million vehicles across a dozen countries by 2026.
From Bloomberg:
“BYD Co., China’s best-selling car brand, along with Chinese state-backed manufacturers Chery Automobile Co., Changan Automobile Co., GAC Auto Corp. and SAIC Motor Corp., announced 10 new or expansion projects for their overseas plants from 2023 through to Aug. 31, BNEF said. Popular locales include Thailand, Indonesia and Brazil.”
The Biden administration has largely shielded the U.S. auto industry from the worst of China’s enormous excess vehicle production with a 100% tariff on Chinese electric vehicles (EVs) and a ban on vehicles with Chinese-made connected technology. And, clearly, White House officials are well aware of the dangers that lie ahead as comments from White House Economic Adviser Lael Brainard highlighted last month:
“‘China is flooding global markets with a wave of auto exports on the back of their own overcapacity. We saw a similar playbook in the China shock of the early 2000s that harmed our manufacturing communities, and this administration is determined we will not see a second China shock,’ Brainard said to the Detroit Economic Club. ‘That means putting safeguards in place now before a flood of unfairly, underpriced autos undercuts the ability of the U.S. auto sector to compete fairly on a global stage,’ she added at the Detroit event.”
But the United States has suffered the tragic consequences of failing to stop Beijing’s market distortion far too many times (America’s steel, glass, paper and tire industries have seen this up close and personal). China’s scaling up of circumvention efforts should be a call to action. The U.S. must at the very least maintain tariffs on Chinese auto imports, but also strengthen and modernize our trade tools with legislation like Leveling the Playing Field Act 2.0, which would streamline circumvention investigations and expedite remedies.
The U.S. auto industry is too critical to both our nation’s economy and security to cede to Beijing’s plans. As we warned in a February report:
“The domestic auto industry, with its millions of American workers and intricate ties to hundreds of other industries, is integral to American manufacturing. It is simply too important to the country’s economic security to be exposed to such blatantly unfair competition. The commercial backdoor left open to Chinese auto imports should be shut before it causes mass plant closures and job losses in the United States.”
Unfortunately, closing these entry points will become ever more difficult as Chinese auto factories penetrate overseas markets, something that former President Trump has mistakenly invited in the United States. Increasingly, the phone call is coming from inside the house when it comes to the specter of Chinese auto overcapacity. These upcoming Chinese auto factories based in Thailand, Sweden, Mexico and more are cloaked in the flags of other nations, but very much fulfill Beijing’s mission — to undercut its global competitors with artificially cheap Chinese autos and seize control of the world auto market.
