Most economists assumed that this shock was a one-off episode: the world would rebalance as China progressed from export-led growth to a consumption economy in time-honoured fashion. It has not happened.

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Professor Michael Pettis of Beijing University says investment has spiked back up to 42 to 44 per cent of GDP, far surpassing any level ever seen in any major country since the industrial revolution. Other Asian tigers peaked in the low-30s before dropping back as they became richer.

Xi Jinping has reverted to the worst pathologies of the old model, partly as a quick fix to counter the property crash and secular debt-deflation, and partly because the Communist Party needs its instruments of political control.

What makes it intolerable this time is Xi’s bare-knuckled push for cleantech hegemony and his open attempt to overthrow the universalist liberal order – a broader grouping than the West, since it includes Japan, Korea, and Taiwan.

Washington is not going to tolerate this second and even larger China Shock. “They’re driving manufacturing companies out of business in Europe. We won’t let that happen here in America,” said Joe Biden.

“We’re not going to let China flood our market. The future of EVs will be made in America by union workers. Period,” he said.

The tariffs announced last week are breathtaking: 100 per cent on EVs; 50 per cent on solar panels, semiconductors, and syringes; 25 per cent on steel, aluminium, lithium batteries, magnets, and so forth. There is much election theatre in this blitz, but it is not protectionist as such.

Adam Smith recognised the limits of free trade. He supported the Navigation Acts in order to sustain a dual-purpose shipping fleet, deeming “absolute prohibitions” to be necessary when national security was at stake. Clearly you cannot conduct trade on normal terms with a hostile power infused with Leninist zero sum ideology and in league with Putin.

The Biden tariffs cover 4 per cent of America’s total imports from China. They are nothing like Trump’s plan for tariffs on everything and against everybody. Nor are they a Smoot-Hawley free-for-all. They are surgical.

‘There is no such thing as ‘China’s overcapacity problem’.’

Chinese President Xi Jinping

Xi says “there is no such thing as ‘China’s overcapacity problem’“. Really?

China’s output of solar cells was 310 gigawatts (GW) in 2022, 567 GW in 2023, and heading for 1,000 GW next year – five times the total installed capacity in the US to date.

Battery output capacity was 550 gigawatt hours (GWh) in 2022; 800 GWh in 2023, and will be 3,000 GWh in 2025, four times the current world market. China already has enough EV plants to meet global demand three times over. This surplus capacity has been promoted by state planners, and it is coming Europe’s way.

The EV wave has barely begun. Capital Economics says three quarters of the 4.8 million cars exported by China last year – up from one million in 2021 – were petrol and diesel models. Old internal combustion engine (ICE) cars are becoming unsellable in China where the car market is shrinking and where over half of all car purchases in early April were EVs and hybrids. They are being diverted into the global market instead.

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China has already wiped out the EU’s solar industry, first by copying the technology and then flooding the market. It is following the same script with wind turbines. Electrolysers are next. It will happen with EVs soon because Chinese carmakers can make a much fatter profit per car overseas.

Europe’s political economy is in no fit condition to weather this shock. Economic growth has been negligible for 15 years in the big mature economies. The post-COVID recovery is anaemic. Public debt ratios are badly stretched, and fiscal austerity is back. The political centre is crumbling almost everywhere.

Xi slapped Europe in the face earlier this month, visiting his groupies in Hungary and Serbia, with a brief stop in Paris. He needs to move with care. The further he goes in helping Putin to crush Ukraine, the harder it will be for Europe’s globalist camp to hold the line on free trade.

The Commission’s probe of Chinese EVs will conclude in early July. It does not take a crystal ball to see that a giant tariff wall is coming, and that it will spread to every area targeted in Xi’s bid for cleantech hegemony.

The Europeans may wish to carve out a third way between the US in China. Reality will not let them.

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