China’s deflationary slide worsens as companies spiral into price wars

The European Union and the United States have become increasingly concerned about China’s persistent overcapacity issues, particularly in the electric car industry. In response, both entities have raised tariffs on Chinese electric cars to protect their domestic automakers. The U.S. took further action in April by imposing higher duties on a wide range of Chinese products.

As a result of these tariffs, Chinese manufacturers are now looking to expand their operations overseas. This move could potentially lead to an increase in redundant supply in the coming years, according to a report from Goldman Sachs. The analysts at Goldman estimated that there could be a 0.5% to 14% increase in capacity by the end of 2028, compared to the 0.4% to 10% expansion projected a year ago.

In fact, the report highlighted that out of seven sectors including air conditioners, solar modules, lithium batteries, electric vehicles, power semiconductors, steel, and construction machinery, five have more capacity than the global demand. Only air conditioners and electric vehicles, by a narrow margin, have some potential in the market.

The escalation of tariffs and the resulting shift in manufacturing strategies have raised concerns about the oversupply in various industries. It remains to be seen how these developments will impact the global economy and trade dynamics in the years to come.

— CNBC’s Victoria Yeo contributed to this report.

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