May 06, 2024

U.S. and Europe chafe over “overcapacity” — but is it real?

By: Geoffrey Gertz

Overcapacity is kind of a fuzzy word, and that’s saying a lot for an economic term.

“At a basic level, overcapacity is too much production and too little demand,” said Geoffrey Gertz, a senior fellow at the Center for a New American Security.

It’s the idea that a country has subsidized or propped up its industries so much that it’s drowning in products.

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Gertz at CNAS said it’s not just about electric cars. China does pump up its manufacturers with cheap credit and tax benefits, and he said that’s messing with international markets.

“Chinese companies may be operating at a loss for a very long time, but are not necessarily incentivized to exit the market as would otherwise happen,” he said. “You have a continual excess reserve of production, and you’re incentivized to continue producing, even if the market is telling you there’s no need for it.

Listen to the full segment from Marketplace.

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