Stop Us If You’ve Heard This One Before

By Elizabeth Brotherton-Bunch
Sep 05 2023 |
An electric car lithium battery pack and power connections. Getty Images

China’s overcapacity in everything from solar panels to steel has devastated U.S. industry. Now there’s a glut in Chinese electric vehicle batteries.

Since President Biden took office, there have been roughly $134 billion worth of new factory announcements in the electric vehicle (EV) and battery sectors. Thanks to industrial policy like the Inflation Reduction Act, companies from around the globe have been incentivized to invest in U.S. production — and the hope is all these new investments will ensure the United States will build and maintain a thriving electric vehicle manufacturing industry.

But there’s a familiar threat on the horizon.

While it’s been exciting to watch American growth in planned EV production over the past year, it’s important to remember that the United States is largely playing catchup. China dominates global electric vehicle manufacturing — and the EV battery industry in particular.

And now there’s a glut.

China’s EV battery industry is dealing with a serious overcapacity problem, one that Chinese leader Xi Jinping even expressed some worry about. That’s been the case for months now, but all that overcapacity is starting to get additional attention because China’s economy is currently in pretty rough shape, which means that there’s a drop in EV sales in China. And that means there’s nowhere in China for all those EV batteries to go.

As the Force Distance Times wrote:

What’s China to do about the overcapacity? It is already eating into manufacturers’ margins and sending lithium chemical prices tumbling.

One possibility is to redirect resources towards energy storage; major players like CATL, BYD, and Svolt have all made moves on that front.

Another alternative is to export the overcapacity abroad. “Compared with the field of energy storage, overseas markets have greater potential to accept domestic transfer of production capacity,” writes the state-run China Youth Daily. “Opening up overseas market channels will quickly alleviate the pressure on production capacity.”

That also means undercutting foreign competitors and flooding global markets.

Exporting overcapacity abroad is a go-to play for China’s government, a tactic that China has deployed time and time again — and one that has decimated U.S. industry along the way.

Chinese overcapacity devastated the U.S. solar industry, which was thriving in the first decade of the 21st century only to be undercut by a flood of cheap Chinese solar imports. Twenty years ago, the U.S. made 22% of the world’s supply of solar panels; it now makes just 1%. The United States is currently spending billions of dollars to try to rebuild some of the production we had less than two decades ago.

Chinese overcapacity devastated the American steel industry, which saw dozens of plant closures and tens of thousands of layoffs thanks to wave after wave of surging Chinese imports, driven by China’s out-of-control steel overcapacity problem. It wasn’t until Section 232 tariffs were placed on global steel imports that American industry stabilized.

And now Chinese overcapacity is threatening to devastate America’s burgeoning EV battery industry before it even gets off the ground. In many ways, U.S. battery makers are in an even more vulnerable position, as most of them are still in the process of getting their factories up-and-running and don’t have the established resources to take on China’s egregious practices.

Make no mistake, exporting overcapacity is part of the Chinese Communist Party (CCP) strategy to dominate global markets. When they don’t have consumers at home to buy their products, China’s state-owned companies just export it abroad, pricing it as cheaply as possible and putting American companies out of business.

They may not make a profit, but that’s not really the goal, anyway. The important thing is that China seized global market share and has a virtual monopoly in a key industry.

The United States has seen this game play out before — and this time, we’re already behind the ball. Given that we know a surge in cheap Chinese EV batteries is headed our way, U.S. policymakers and officials need to do everything possible to shore up U.S. industry and take on China’s unfair trade practices.

That starts with continuing to implement industrial policy, but it also must include robust trade enforcement. The United States cannot be afraid to impose its own trade laws and impose stiff penalties if warranted.

We know what the CCP plans to do. But we don’t have to let them get away with it.