Rhei

It always astonishes me how there is virtually ZERO public debate - or even public awareness - in Europe about the decisions that will most shape ordinary people's lives. These days, the EU is drafting a new anti-China legal framework where - quite literally - the more affordable and competitive Chinese products are, the more illegal they'd become. You'd think EU citizens would want to be informed about such things - as it couldn't be more consequential for their prosperity. Yet I bet virtually no EU citizen is even aware of it, beyond a vague sense that there is some sort of trade dispute going on. So what's going on exactly? It all centers around a new legal instrument the EU is drafting called the "overcapacity instrument" (euobserver.com/218003/china-…). First of all, the very notion of "overcapacity" is pretty ridiculous to begin with, especially the way it's being defined by the EU, as it basically means being competitive enough to export. By this definition of "overcapacity," pretty much every European industry that's ever run a trade surplus - German cars, French wine, Italian fashion - has been guilty of "overcapacity." I'm not even exaggerating: if you read this study by the EU Parliament on "Industrial overcapacities, with a focus on China" (europarl.europa.eu/RegData/e…), they define "overcapacity" as building more capacity than your domestic market can absorb. So the moment you build capacity to export abroad, you're in "overcapacity." Utterly ridiculous. And what this "overcapacity instrument" is about is creating a permanent legal mechanism for the EU to block Chinese competition across whole sectors of the economy, if they happen to be in "overcapacity." In effect, this means that if China is competitive globally in a given sector in such a way that it exports a lot, that's proof of overcapacity, and legally it'd mean that the entire sector can be restricted from the EU market. Which means it really, factually, is a legal framework where the more affordable and competitive your products are, the more illegal they become. Which is a CRAZY economic concept! 🤦‍♂️ Please note that it's different from the anti-subsidy legal instrument, which the EU has already put in place in 2023 (the "Foreign Subsidies Regulation": competition-policy.ec.europa…). This "overcapacity instrument" would be above and beyond this: it wouldn't even matter if a particular sector was subsidized by the Chinese government or not, the mere fact of its competitiveness in exports would be grounds for restrictions in the EU. It doesn't take a genius to understand how badly this could impact everyday people: this is European consumers being forced to pay more for worse products by law, so that uncompetitive European firms don't have to improve. Politicians frame it as avoiding a "China shock 2.0" but really this is choosing an even steeper self-inflicted decline than is already the case, where EU citizens would subsidize mediocre EU companies that would have even less pressure to catch up. It's a hidden tax: subsidies for uncompetitive firms paid by consumers instead of governments, which in turn makes them less incentivized to become competitive. The first "China shock" did de-industrialize Europe somewhat, but at least it made things cheaper for European consumers. If this becomes Europe's response to a second "China shock" not only it'd make everything more expensive but it'd do nothing for EU industry: you don't become competitive by banning the competition... Look at China itself: the way it industrialized was NOT by banning Western firms but on the contrary by welcoming them strategically and learning from them. You learn to compete by... competing, duh! What I find most shocking in all of this isn't even the policy itself - you can make arguments for and against protectionism, and reasonable people can disagree. What's shocking is that virtually no European media outlet is explaining any of this to the public. This is unarguably one of the single most consequential economic decisions the EU will make this decade, affecting the price of everything, and it's being drafted in near-total silence. No newspaper is running the headline "EU plans to make Chinese goods illegal if they're too affordable" - even though that's essentially what's happening. But that's what you call a "democracy" with "freedom of expression" these days apparently...