Will the reappearance of a vague term no one understands have the intended impact, particularly as the world is at an economic and geopolitical inflection point? 

Many Generation Xers and baby boomers have been here before. In the late 1980s, manufacturing overcapacity concerns related to Japan’s seemingly unstoppable economic prowess and relatively unfree domestic markets made the country an easy punching bag for politicians and economic pundits worldwide.

Now, as finews.asia has reported, the term is not only back, but it is trying to make its reentry onto the world stage with a splash. The only problem. Back then, it was an opaque, diffuse term that no one understood and in many ways, it still is now.

Not Palpable

Unless you are sitting on top of a bunch of dumped goods or cheap invoices, you can’t hear it, feel it, or even know it is going on. You can only blame it in hindsight after the jobs are lost and the factories closed.

Still, all that hasn’t stopped the finance ministers and central bank governors of the G-7 from putting out a statement overnight after their meeting in Stresa.

No Belt, No Road

They squarely blamed China for the manufacturing overcapacity, the location being ironic in that Italy had been the only major Western nation participating in China’s Belt and Road initiative («BBC», freely accessible) before pulling out at the end of last year. 

«While reaffirming our interest in a balanced and reciprocal collaboration, we express concerns about China’s comprehensive use of non-market policies and practices that undermines our workers, industries, and economic resilience. We will continue to monitor the potential negative impacts of overcapacity and will consider taking steps to ensure a level playing field, in line with World Trade Organization (WTO) principles,» the statement indicates.

The only problem is back in the 80s, this all just resulted in a tired litany of reporting and comments that ultimately went nowhere, with political steps that resulted in little effective action. The world over, there was a certain tedious weariness about the whole issue, and ultimately it just blew away in time when the Japanese economic bubble popped, rendering the question largely moot.

Still Tiresome

The interesting thing now is that the concept itself remains as tiresome as it was back then. Still, because we are at a global economic and geopolitical inflection point, it will be interesting to see how it all pans out in the future.

A graphic by Visual Capitalist sponsored by the Hinrich Foundation, an Asia-based philanthropic organization, shows that for the first time in 2023, the share of the renminbi (52.9 percent) overtook the dollar (42.8 percent) when it came to China’s share of cross-border payments.

Currency Politicking

That is particularly interesting in that 88.4 percent of all foreign exchange trading is still in dollars, and that its use also continues to rise (up by 1.4 percent), just at a slower pace. The renminbi’s growth, in contrast, was significantly higher, at 4.8 percent. 

At the same time, the euro’s share fell by 2.9 percent, and the yen by 6.3 percent, although the pound sterling’s rose 1.1 percent and that of other currencies was up 1.9 percent. That should also be looked at in parallel with another visualization that shows the relative importance of the world’s sixth-largest economies over the last 40 years.

Steady Downtrend

The US remains first, having a 26.3 percent share of global Gross Domestic Product (GDP), staging a strong recovery from lows of just about 20 percent in 2010, although it should also be borne in mind it had shares of well above 30 percent around the year 2000 and in the 1980s.

It gets much more interesting with the other members of the G-7. The EU’s share of global GDP has been on a relatively steady downtrend since the 1980s when it garnered almost 30 percent of the world economy – falling to just 17.3 percent now.  By contrast, Japan has dropped off a cliff, going from 17.8 percent to 3.8 percent, while India and the UK are both in much the same place. 

Falling in Line

China, however, has risen from negligible to 16.9 percent in that time, although it has started to drop more recently. In effect, it is like adding a de facto current-day eurozone economy from nowhere. 

The interesting thing about the current overcapacity question is that you are essentially making a future relative currency and economic play. If the US keeps its relative share and China’s recent drop continues, it likely doesn’t leave the mainland in that great a place. The reverse is also true for the US and the rest of the G-7 if things don't play out that way.

This Time Around

Right now, however, the whole issue seems to be about being vocal. The loudest voices criticizing the mainland seem to have come from the US, with everyone else falling in line. 

The Chinese government has also been very critical. As an example, «Xinhua» indicated (English, freely accessible) that the current overcapacity rhetoric is «fallacious, dangerous logic».

Wrong Voices

But that kind of sparring with words won’t be enough, or it will all end up in a pile of forgotten economic issues particularly after this election year in the US is over, just as it did the first time around.

For it to have any chance of sticking, particularly given the changed importance of the general economic and currency context, you would probably need Japan and the EU to voice the loudest concerns about overcapacity - not the US.