SHOCKWAVES: The Ripple Effect of China’s Industrial Overcapacity on American Manufacturing and Factory Workers


Overcapacity is a feature, not a bug, of China’s model of state capitalism.

As the Chinese government maneuvers to maintain social stability and regain the economic growth it enjoyed before a national real estate crisis, it is doubling down on its models of state-led manufacturing.

China intends to let export gluts drive its growth. It is even using other markets as backdoors to ship its excess capacity to the United States. Countries like Vietnam and Mexico have become routes for Chinese manufacturers to flood the American market with the products they have difficulty sending here directly.

That, in turn, is raising justifiable fears in the United States of a China Shock 2.0; a deluge of low-cost import competition that could again close tens of thousands of U.S. factories and lay off millions of U.S. manufacturing workers.

If U.S. policymakers sit idly by, this shock could be American manufacturing’s last stand.

The Takeaways

  1. American industries like glass, paper, and tires have been largely decimated because of China's massive overcapacity and the failure of U.S. policymakers and officials to properly respond. Now U.S. industries like steel, solar, and autos are at risk.

  2. In recent years, the United States has stepped up its efforts to counter China's overcapacity, including via new tariffs announced by the Biden administration. It still may not be enough.

  3. A comprehensive policy strategy is needed to ensure American industry can compete and win in the 21st century, including deploying new trade enforcement tools; working closely with allies to mitigate Chinese overcapacity; enhancing and enforcing domestic content requirements; and continuing to invest in strategic industries.