How do we deal with Chinese overcapacity?

Chinese industrial overcapacity creates significant structural friction in global trade, forcing the US and EU to navigate a delicate balance between economic security and market access. Experts define overcapacity not merely as a surplus of goods, but as a symptom of China’s state-led model, which lacks effective corporate exit mechanisms and prioritizes self-reliant high-tech manufacturing. While the US employs broad, restrictive barriers, the EU is experimenting with sector-specific managed trade, such as recent agreements on hybrid vehicles. However, these measures offer only temporary relief. Long-term stability depends on whether China can transition toward a consumption-driven growth model and whether Western nations can develop a coherent, sector-differentiated strategy that addresses legitimate security vulnerabilities without triggering a destructive, full-scale trade war.