China dismisses US overcapacity probe as 'false proposition' and political pretext

China's foreign ministry on Thursday, dismissed Washington's newly launched trade investigation into alleged industrial overcapacity, calling the premise a "false proposition" and warning against its use as cover for political pressure.

Foreign ministry spokesperson Guo Jiakun made the remarks at a regular press briefing, responding to questions from Reuters correspondents about the investigation announced the previous day by US Trade Representative Jamieson Greer.

Guo said China "opposes using it as a pretext for political manipulation," and reiterated Beijing's longstanding position that "tariff wars and trade wars serve no one's interests."

He called on both sides to resolve disputes "through consultation on the basis of equality, mutual respect, and reciprocity," adding that China's stance on unilateral tariff measures remained "consistent and clear."

Automobile sector singled out by Washington

Guo's response also addressed Greer's specific characterisation of China's automobile sector as suffering from overcapacity, with a growing number of loss-making enterprises.

Beijing offered no concession on the framing, reiterating that the overcapacity argument does not constitute a legitimate basis for trade action. The foreign ministry made no reference to the specific trade data cited in the USTR's formal investigation docket.

What the US alleges against China

The United States Trade Representative's (USTR) formal investigation filing sets out an extensive case against China, citing figures that dwarf those of the other 15 economies under scrutiny.

China's global goods trade surplus exceeded US$1.2 trillion in 2025 — a record high — accounting for nearly 70 percent of all global goods trade surpluses. Its bilateral surplus with the United States, inclusive of goods and services, stood at US$361 billion in 2024, the largest of any US trading partner.

China's capacity utilisation rate fell to 74.4 percent in 2025, down from 75 percent the previous year, below the approximately 80 percent threshold the USTR considers healthy for most manufacturing sectors.

The Global Forum on Steel Excess Capacity (GFSEC) found that China's share of global steel excess capacity rose to 54 percent in the third quarter of 2025, up from 47 percent in the same period in 2024.

In the battery sector, production of lithium-ion cells in China reached 1.9 times the volume of domestically installed batteries as far back as 2022, a figure cited as evidence of structural overproduction.

Background: The investigation and its legal basis

Greer formally announced the investigations on 11 March 2026 under Section 301 of the Trade Act of 1974, which authorises the Trade Representative to self-initiate inquiries into foreign practices that burden or restrict US commerce and, where findings are affirmative, to impose tariff or non-tariff measures.

Greer said the administration hoped to conclude the investigations before temporary 10 percent tariffs, imposed in late February 2026, expire in July 2026.

The 16 economies subject to investigation are China, the European Union (EU), Singapore, Switzerland, Norway, Indonesia, Malaysia, Cambodia, Thailand, South Korea, Vietnam, Taiwan, Bangladesh, Mexico, Japan, and India.

The investigations follow the US Supreme Court's invalidation of Trump's earlier emergency tariff programme, which had imposed levies on a broad range of countries under the International Emergency Economic Powers Act (IEEPA) in April 2025. The new Section 301 proceedings are widely understood as an attempt to reconstruct the administration's tariff strategy on firmer legal ground.

The probe was announced ahead of planned senior US-China talks in Paris, which are expected to lay groundwork for a meeting between Trump and Chinese President Xi Jinping in Beijing at the end of March 2026.

What happens next

Under Section 303 of the Trade Act, the USTR is required to seek formal consultations with all 16 investigated economies. A public comment docket opens on 17 March 2026.

Written submissions and hearing requests must be filed by 11:59 p.m. Eastern Standard Time on 15 April 2026 via the USTR's online portal at comments.ustr.gov.

Public hearings will be convened by the Section 301 Committee from 5 to 8 May 2026 at the US International Trade Commission in Washington, DC. Post-hearing rebuttal comments may be submitted within seven calendar days of the final hearing.

Under Section 304, the Trade Representative must determine whether the practices under investigation are actionable and, if so, what measures — including tariffs — are appropriate.

Greer noted that US manufacturing value added accounted for just 10.5 percent of national GDP in 2023, compared with 22.7 percent in Germany, 28.1 percent in China, and a global average of 17.2 percent, framing the investigations as central to the administration's broader reindustrialisation agenda.