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Trade tensions rise as China floods Europe with cheap goods

Trade tensions rise as China floods Europe with cheap goods

The increasing unease surrounding China's surplus production capacity inundating the European Union with inexpensive products is sparking a fresh confrontation in the ongoing trade war between the West and Beijing. This conflict originated when Washington initiated import tariffs back in 2018.

Brussels' trade policy is now evolving to become more defensive, considering the potential global repercussions of China's developmental model, primarily centered on production and debt.

Over the past year, Chinese policymakers have indicated their intention to boost domestic demand as a more substantial driver of economic growth. This move aims to lessen the second-largest global economy's historical reliance on infrastructure and real estate.

However, China redirected financial resources from real estate to manufacturers instead of households, raising concerns about surplus production capacity. This shift has deepened deflation in factories and prompted the European Union to initiate an investigation into the electric vehicle sector.

China's current trajectory is positioned to result in additional trade conflicts. A case in point is the Swiss solar panel manufacturer Meyer Burger, which warns that intense competition from China may force the closure of its production plant in Germany.

Gunter Erfurt, the company's CEO, points out, "Chinese manufacturers intentionally sell goods in Europe well below their own production costs. They can afford to do so because the solar industry in China has been strategically subsidized with hundreds of billions of dollars for years."

Pascal Lamy, former head of the World Trade Organization and currently a professor at the China Europe International Business School, emphasizes that excess production capacity inevitably creates problems. "We have recognized that this is a structural problem, stemming from the fact that part of the Chinese production system is not driven by market dynamics but by investments directed by the Communist Party of China," he acknowledges.

It is precisely this investment-driven model that has led to an overabundance of production capacity in critical Chinese sectors, such as steel. More recently, this trend has extended to the production of electric vehicles in the automotive industry and technologically advanced goods.



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