By Zhong Caiwen
Recently, some American politicians have been unreasonably hyping up the false narrative of “overcapacity” in China’s new energy sector, accusing China of exporting excess capacity to the world.
Such narrative is merely rhetoric fabricated by the U.S. to protect its domestic industries, and to tarnish and suppress the Chinese economy. It is essentially an excuse to justify protectionism, which is detrimental to global trade and division of labor, ultimately harming the well-being of all humanity.
Fundamentally, the United States is protecting its excess low-end capacity.
From a global perspective, free and open international trade and investment can boost competitiveness of industries across the world. Since the Industrial Revolution, the emergence of any new product or the rise of any new industry has followed this pattern. History has repeatedly proven that protectionist “greenhouses” cannot cultivate truly competitive industries and companies.
As Bloomberg recently argued, despite implementing steel protectionist measures over the past decade, Washington has failed to prevent the decline in employment within the U.S. metal manufacturing industry.
The implementation of protectionist policies by the U.S. in industries such as new energy would not just undermine its capabilities to tackle climate change but also severely hinder the growth of industries like automotive and energy.
Protectionism exacerbates global overcapacity and incurs substantial cost losses.
With the end of the Cold War, economic globalization has fully developed, marked by significant reductions in tariffs and non-tariff barriers and notable decline of protectionism.
It has promoted division of labor and cooperation among countries, enabling the free flow of production factors, smooth trade integration, and orderly transfer of capacity, and fostering complete and efficient global industrial and supply chains, which has significantly propelled global economic growth.
However, under the influence of rising geopolitical competition, protectionism has resurfaced in recent years, causing a surge in anti-globalization measures.
For one, measures such as tariffs, trade controls, and technological blockades imposed by the U.S. have caused intensified fragmentation of the global market and economy.
For another, the U.S. has pushed for the restructuring of industrial and supply chains under pretext of national security, leading to redundancy of production capacities within certain sectors in some countries and even the whole world, incurring significant financial losses in their economic and social development.
The WTO has previously estimated a full decoupling of the world into geopolitical blocks could reduce global GDP by 5%.
As the world is undergoing the critical transition from old to new growth drivers, adopting protectionist measures in emerging sectors such as new energy will cause even greater damage.
Protectionist policies of the U.S. have harmed the well-being of both Americans and people worldwide.
Based on the specialized division of labor, free trade allows countries to fully leverage their comparative advantages and maximize the benefits of all trading partners. In contrast, protectionism often leads to high inflation, increased production and living costs, and losses in production efficiency and consumer welfare. It is often domestic consumers that suffer the most.
The Federal Reserve Bank of New York estimated in 2019 that the U.S. tariffs on Chinese imports cost the average American household $831 annually.
For instance, the three major tech-intensive green products of China, or the “new three” — new energy vehicles (NEVs), lithium-ion batteries, and photovoltaic products are highly sought after in the global market. Rising protectionism will hinder the public’s access to these affordable Chinese new energy products.
Protectionism leads to a lose-lose scenario.
Free and open international trade and investment can improve resource allocation globally and enhance global productivity through efficient industrial and supply chains, thereby promoting shared development of all countries involved.
In contrast, protectionism goes against this trend and results in unintended consequences. Politicizing and overstretching the concept of national security on capacity and other economic and trade issues violate economic principles and the general trend of development, inevitably leading to negative outcomes in the medium to long term.
A severe fragmentation of the global economy after decades of increasing economic integration could reduce global economic output by up to 7%, but the losses could reach 8% to 12% in some countries, if technology is also decoupled, the International Monetary Fund (IMF) said in a report last year.
Adopting anti-globalization measures such as decoupling, friendshoring or nearshoring in emerging sectors like new energy and digital economy will ultimately lead to inefficient use of global resources and decreased efficiency, hinder the sustainable growth of the global economy, and narrow or even stifle the room for economic growth.
Countries should join hands to oppose protectionism. In an increasingly interdependent and integrated world, countries form a community of shared interests. The world will never return to isolation, and no one can sever the ties between countries.
It is crucial for countries to firmly stand on the right side of history by championing the overall trend of economic globalization, take a clear-cut stand on free trade and real multilateralism, and oppose unilateralism and protectionism.
Countries should firmly oppose politicizing trade issues, using trade issues as a weapon for ulterior motives, and the abuse of the concept of national security. They should handle differences in accordance with market economy principles and WTO rules, build an open world economy, and work together to make the pie bigger for mutual benefit and win-win results.
Upholding common interests of humanity calls for joint efforts to oppose protectionism
