Decades of deep government subsidies have fueled auto overcapacity that even Chinese automakers can’t contend with. Now, they’re exporting the pain.
In the halcyon days of the 2010s, China was General Motors’ (GM) biggest market, with sales peaking to 4 million in 2017. Since then, the dream that China could continue to yield enormous growth has dimmed by the year, culminating in a reported major reset for the American auto maker and plans to partner with Chinese state-owned car manufacturer SAIC.
But GM is far from the only foreign car manufacturer struggling to turn a profit in the Chinese market. Legions of automakers, including Chinese companies, have gone bust amid government subsidy bloat.
In 2023, only a third of Chinese automakers met their annual sales goal as zombie factories litter the Chinese manufacturing ecosystem. It’s the natural product of the billions of dollars that Beijing has poured into the auto industry without regard for consumer demand.
Unfortunately, all of this fuels a global glut of cheap Chinese autos that the European Union and the United States are attempting to fend off with tariffs.
As the Alliance for American Manufacturing warned in February, China has leveraged every trick in the book to unfairly advantage Chinese automakers and dump its excess industrial output on foreign shores.
This surplus poses an “existential risk” to the U.S. auto industry, we warned in that report, which preceded the Biden administration’s investigation into the national security risks of connected cars made in China and other countries of concern. Despite these efforts, Beijing is wheedling its way into the U.S. market through third-party countries, like Mexico, our report finds:
“Chinese EV overcapacity is estimated to be between 5 and 10 million vehicles per year. And with significant state support implicit for Chinese auto companies, the U.S. tariffs at their current rate will ultimately be overcome. China is in the midst of a foreign investment spree of its own, not unlike the one undertaken by Japan’s auto giants in the 1980s. It is meant to position Chinese automakers for the benefits of regional trade agreements and sidestep import restrictions.”
Alarmingly, American companies like GM could soon end up contributing to China’s auto dumping, China auto industry analyst Michael Dunne cautioned in a recent newsletter:
“Global automakers had set up joint ventures and built massive plants in China to sell to Chinese consumers. With sales of non-Chinese brands there now dropping fast, Americans and Europeans feel that they must convert those plants to ship products to markets worldwide.”
However, new measures coming down the pike could make dumping in the United States more difficult, at least when it comes to more advanced cars. In the coming weeks, the Commerce Department is expected to issue a proposed rule that would bar Chinese software in automated and connected vehicles in the U.S., Reuters reported earlier this month. But it will take more than that to keep cheap Chinese autos from radically tipping the playing field in the American marketplace.
Millions of U.S. autoworker jobs stand at risk if we fail to stymie the flood of Chinese autos that will swath the world. Enacting legislation like the Leveling the Playing Field Act 2.0 and reinstating Section 421 import surge protection would go a long way in blocking several of Beijing’s most insidious and harmful trade practices.
Check out our auto report for more policy proposals and listen to Dunne’s conversation on The Manufacturing Report podcast for further insight into how Beijing positioned its auto industry to dominate the global market and eradicate foreign competition.