Commentary: Trump needs partners when it comes to China’s overcapacity

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SINGAPORE: The United States has been investigating many major trading partners for industrial overcapacity. Yet several of those under US scrutiny – including India, Japan and South Korea – have now joined Washington in calling out that very same problem of which they are accused.

In October, 14 economies added their signatures to a US-led joint statement calling for coordinated action to eliminate industrial overcapacity. Being careful not to read too much into a non-binding multilateral statement, this could suggest a shift from what Brookings Institution calls “collective handwringing” about trade.

The statement did not explicitly name China, but its vast manufacturing prowess has long been a common worry. The joint statement, though, goes beyond expressing concern. 

The signatories have agreed to establish platforms to examine excess capacity in five sectors: cars and electric vehicles, batteries, chemicals, foundational semiconductors and solar panels.

They have also committed to technical discussions to explore possible coordinated measures to defend their economies from the negative impact on trade and workers.

FACING CHINA SHOCK 2.0

China’s export of its excess capacity hollowed out parts of domestic manufacturing and cost jobs in many major economies following China’s entry into the World Trade Organization (WTO) in 2001 and its hyper-subsidised industrial policy.

No global appetite existed then to address the “China Shock”.

“Many key trading partners were unwilling then to forgo the Chinese market or to bend WTO rules to address the building overcapacity threat,” noted former US trade negotiator Kellie Meiman Hock in a discussion we had.

Now, major economies around the world face China Shock 2.0 when it comes to manufacturing in the low-carbon economy.

Made in China 2025, an initiative launched in 2015, positioned China to dominate key high-tech sectors of the global economy and reduce Chinese reliance on foreign technologies. It largely succeeded. Industrial subsidies, low-cost capital, preferential access and other policy actions spurred production in these sectors.

Domestic demand cannot support this huge output. China exports these goods to power economic growth, raising concerns about dumping. 

The surge in Chinese electric vehicle exports now hits hard globally, and in the European Union in particular, because the US restricts Chinese imports of these goods. Chinese-made vehicles accounted for about one in five battery-electric cars sold in the EU in 2025, nearly half of which were Chinese brands.

Concerns with unfair trade practices by China and actions to counter them are global. Bert Hofman and Tan Chia How in a forthcoming paper find a majority of the trade measures taken against China now come from BRICS and other developing countries, not the EU and US. 

IN COOPERATION MODE

It came as no surprise, when the US initiated investigations into unfair trade practices in March, that they included China. 

Specifically, the US was looking into “structural excess capacity and production in manufacturing sectors” to examine whether foreign industrial policies and practices harm US commerce. Fifteen other economies, including Singapore, are under Section 301 investigation as well.

Five of those under US investigation – the EU, India, Japan, South Korea and Mexico – nevertheless signed this latest joint statement.

President Donald Trump’s "America First" trade policy has been marked by a US shift from working with partners to “executive-driven, coercive unilateralism," as Deborah Elms, Head of Trade at the Hinrich Foundation, described it to me.

Yet there is no fundamental contradiction in countries facing Washington’s scrutiny while joining it to tackle China. They have their own reasons to worry about Chinese exports undermining domestic manufacturers, regardless of whether they accept the US allegations against themselves.

That the signatories joined the US shows they recognise that they need US leadership when it comes to dealing with China. Mr Trump may not prioritise working with other countries to achieve his goals, but here at least his administration appreciates that working with partners to address challenges from China is more effective than taking the country on alone.

The principle that “either we hang together or be hung separately” applies the same here as it did for the American Revolution or the basis for the founding of ASEAN. A coordinated effort would prevent other markets from being used as a backdoor.

COORDINATION WILL BE COMPLICATED

The Trump Administration damaged the global rules-based trading system on which these middle powers depend, but they still need US help to protect their economies from Chinese competition. 

“Middle powers must act together, because if we're not at the table, we're on the menu," Canadian Prime Minister Carney said in January in Davos.

“We have yet to see any meaningful collective security action by the Middle Powers. The US remains indispensable to deter Russia and balance China,” former Singapore diplomat Bilahari Kausikan told me. 

"While the Middle Powers have more agency on trade than they do on their national security or AI, this power is limited,” he added.

“The joint statement is encouraging because it recognises that successful action requires US alignment with its partners,” Barbara Weisel of the Carnegie Endowment for International Peace analyzed in a discussion we held. “But coordination will be complicated not only by the US Section 301 investigation on structural overcapacity but by potential Chinese retaliation or other efforts to play countries off against one another to discourage collective action.”

NOT AN END TO TRUMP TRADE PRESSURE

Seeking to reduce US trade deficits by imposing tariffs on its trading partners will undoubtedly remain central to Mr Trump’s trade policy. 

And while those same partners will continue to look to diversify away from the US, this joint statement suggests they are even more alarmed by the economic threat posed by China’s export heft.

Still, don’t expect the US to close its Section 301 investigation into Singapore or other partners as a result of this nascent cooperation. Mr Trump never takes tariffs off the table. 

But the joint statement on excess capacity shows a growing interest by the US and its partners in taking coordinated action to address a common economic threat. 

The middle powers may endeavour to uphold the rules-based trading system without heavy reliance on the US or China. But when it comes to protecting their domestic markets from a China Shock 2.0, working with the US remains their most effective option.

Steven Okun serves as CEO of APAC Advisors, a geostrategic and responsible investment consultancy based in Singapore. He served as Deputy General Counsel at the US Department of Transportation in the Administration of President Bill Clinton.