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What we are reading

The debate over overcapacity

Published 23 April 2024

Yellen's Beijing meetings shed light on China's manufacturing overcapacity. US suppliers urge a reevaluation of US-EU export policies as they face significant losses due to export controls on semiconductors. The IMF examines industrial policies' impact on global trade amid shifting geopolitics. Check out our latest reading list.

US treasury secretary Yellen's recent meetings in Beijing put a spotlight on China’s manufacturing overcapacity.

While Reuters asks What overcapacity?, Natixis considers whether China’s excess capacity a problem or a solution for its economy?  The Rhodium Group sees overcapacity is at the gate and the Wall Street Journal reports that cheap Chinese steel exports are fueling a global backlash. The Financial Times reports that Secretary Yellen struggled to move the needle on trade in her visit, and the EIU says that Chinese industrial overcapacity has already peaked, per a Bloomberg report. 

Mentioned publications

  1. What overcapacity? – Marius Zaharia, Pasit Kongkunakornkul, Riddhima Talwani and Sumanta Sen, Reuters, April 11, 2024 
    Is Chinese manufacturing overproducing to the detriment of trading partners?  
  2. Is China’s excess capacity a problem or a solution for its economy? – Alicia Garcia Herrero, Natixis, April 10, 2024
    How is overcapacity measured? 
  3. Overcapacity at the Gate Camille Boullenois, Agatha Kratz and Daniel H. Rosen, The Rhodium Group, March 26, 2024 
    Anecdotal evidence points to overcapacity in China. 
  4. Flood of Cheap Chinese Steel Fuels Global Backlash – Jason Douglas, The Wall Street Journal, April 19, 2024 
    Biden is tripling a key tariff rate on Chinese steel imports. 
  5. How Janet Yellen struggled to move the needle on US-China trade – Claire Jones and Joe Leahy, Financial Times, April 10, 2024
    China is unlikely to shift course on manufacturing in the near term. 
  6. China Industrial Overcapacity Has Peaked, EIU Report Says Tom Hancock, Bloomberg, April 15, 2024
    China’s manufacturing overcapacity may have peaked but trade tensions will persist. 

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Export controls harm US suppliers 

A new Federal Reserve Bank of New York study finds evidence of a massive cost to US suppliers of export controls on semiconductors and semiconductor equipment. In Light Reading, Iain Morris reports that a full embargo on chip sales puts billions at risk for US suppliers. Matthias Bauer and Dyuti Pandya, writing for ECIPE, say that it’s time to rethink US-EU export controls for better cooperation.  Paul Triolo, writing in the Wire China, claims that in the US industry’s view, the Administration is moving the goalposts and causing confusion with export controls. 

Mentioned publications

  1. Geopolitical Risk and Decoupling: Evidence from U.S. Export Controls – Matteo Crosignani, Lina Han, Marco Macchiavelli, and André F. Silva, Federal Reserve Bank of New York Staff Reports, no. 1096, April 2024 
    Disruptions due to export controls may have wiped out US$130 billion in market capitalization for affected US suppliers, and caused a drop in bank lending, profitability, and employment. 
  2. US still makes billions in China chip sales, and it’s all at risk – Iain Morris, Light Reading, April 15, 2024 
    A full embargo on chips sales to China could curb sales and reduce the revenues of US chipmakers by around US$75 billion. 
  3. Time to Rethink Export Controls for Strengthened US-EU Cooperation and Global Trade Rules – Matthias Bauer and Dyuti Pandya, ECIPE, April 2024
    Export controls not only challenge free trade but can erode technological leadership. 
  4. The Industry View of U.S. Export Controls: Moving the Goalposts – Paul Triolo (Op-ed), The Wire China, January 14, 2024 
    The national security gains of the US export control effort are difficult to measure but the costs continue to mount. 

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Impacts of industrial policy and geopolitics on trade 

The International Monetary Fund is taking a hard look at the status and impact of industrial policies and geopolitics on global trade in a series of papers and blog posts. Anna Ilyina, Ceyla Pazarbasioglu, and Michele Ruta compile the resources and analysis the IMF is assembling, and find that industrial policy is back but the bar to get it right is high. Era Dabla-Norris, Daniel Garcia-Macia, Vitor Gaspar, and Li Liu report that industrial policy is not a magic cure for slow growth. Lorenzo Rotunno and Michele Ruta look at the trade spillovers of domestic subsidies. Gita Gopinath, Pierre-Olivier Gourinchas, Andrea F Presbitero, and Petia Topalova examine changing global linkages and see evidence of fragmentation between US and China-centered blocs.  

Mentioned publications

  1. Industrial Policy is Back But the Bar to Get it Right Is High Anna Ilyina, Ceyla Pazarbasioglu, and Michele Ruta, International Monetary Fund, April 12, 2024 
    Industrial policies are increasingly adopted but are they effective?  
  2. Industrial Policy Is Not a Magic Cure for Slow Growth – Era Dabla-Norris, Daniel Garcia-Macia, Vitor Gaspar, and Li Liu, International Monetary Fund, April 10, 2024 
    Fiscal support for innovation produces gains only under stringent conditions. 
  3. Trade Spillovers of Domestic Subsidies – Lorenzo Rotunno and Michele Ruta, International Monetary Fund, March 1, 2024 
    Subsidies promote both exports and imports, but in some economies promote exports more. 
  4. Changing Global Linkages: A New Cold War? Gita Gopinath, Pierre-Olivier Gourinchas, Andrea F Presbitero, and Petia Topalova, International Monetary Fund, April 5, 2024
    A new IMF paper finds evidence of fragmentation between US- and China-centered blocs. 

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