Tensions are high ahead of the now truncated EU-China summit scheduled for July 24-25. The relationship is strained on multiple fronts, but tariffs on Chinese electric vehicles (EVs) remain a major sticking point.
The European Union has explicitly framed its EV tariffs as a response to China’s “state-subsidized overcapacity.” That term “overcapacity” has come to define European and American anxieties about economic competition with China.
China has overcapacity in a range of sectors, including among the new energy technologies that Beijing has placed at the forefront of its industrial policy. These are precisely the high-value, future-orientated sectors that concern policymakers in Brussels and Washington.
A Matter of Perspective
Whether overcapacity in these sectors should be viewed as a threat, however, is largely a matter of perspective. For countries beyond the developed world, the picture is more complex. And it is these countries in the so-called Global South that are now absorbing an increasing share of China’s surplus production.
Overcapacity refers not to current production, but to the gap between what a sector can produce and what it can sell profitably. In the solar industry, the mismatch is clear. Global manufacturing capacity for solar panels tripled between 2021 and 2023, driven almost entirely by Chinese expansion. In 2024, that capacity stood at two to three the times actual global installations. As a result, panel prices have plummeted, and many Chinese factories are operating at just 50 percent capacity, absorbing heavy losses.
Overcapacity in China’s EV sector is less extreme, but increasingly evident. Some automakers are using only a fraction of their capacity amid a raging price war that has prompted Chinese officials to step in. Still, major manufacturers like BYD are utilizing capacity above the 80-percent threshold that analysts consider profitable. Further upstream, battery manufacturing overcapacity is more clearcut, with capacity roughly double current demand.
Wind is a more ambiguous case. While the industry interest group WindEurope has raised concerns about Chinese “overcapacity” in turbine manufacturing, domestic manufacturing still largely matches Chinese installation volumes. Exports remain relatively small, though they are growing fast. Still, WindEurope’s core argument is not just about capacity, but about unequal playing fields: Chinese firms benefit from far greater state support, and that support is helping them undercut European rivals on price.
Overcapacity and resulting low prices pose real challenges—not just for Europe’s clean tech industries, but for struggling Chinese firms and even for Beijing itself when markets spiral out of control. But they can also be a windfall for the green transition. As political economist Justin Hauge argues, in a climate emergency, it is difficult to claim that China is “making too many cheap EVs, solar panels, and wind turbines.”
Lower Barriers
Low prices, even when unfair by market standards, also lower barriers to access—especially among developing countries. In 2024, China exported more solar panels to countries in the Global South than to the “Global North” for the first time. Shipments to the countries of the Global South rose 32 percent, while exports to countries in the developed world fell by 6 percent. The Netherlands remained the top recipient, serving as a transit hub for Europe, but Brazil, Pakistan, Saudi Arabia, and India took the next four spots.
In Pakistan, ultra-cheap Chinese panels have triggered a grassroots solar boom. Against the backdrop of an expensive and unreliable grid, rooftop installations surged to an estimated 15 gigawatt (GW) in 2023—more than half the capacity of the country’s fossil-fuel power stations. Pakistan is on track to surpass 2024 records, having already imported 10GW of Chinese solar panels in the first four months of the year and battery imports are also surging as consumers explore energy storage solutions.
Countries in the Global South are also beginning to catch up with Europe on EV imports. Chinese champion BYD, which overtook Tesla in 2024 to become the world’s largest EV maker, has aggressively expanded into markets such as Brazil and Mexico. According to Chinese auto industry platform Gasgoo, Mexico was BYD’s top export destination in the first quarter of 2025, followed by Belgium, Brazil, Turkey, Thailand, and the United Kingdom.
China is dominating emerging EV markets, which are small in absolute terms, but have massive growth potential. For example, Brazil’s plug-in EVs represented just 6.7 percent of all car sales in 2024, but that was nearly double the figure from 2023, and nine out of 10 of those vehicles were Chinese-made.
Growing Relevance
This growing relevance of emerging markets aligns with a broader shift as China pivots to the Global South. in 2023, the Global South began absorbing the majority of China’s exports and this trend is likely to accelerate amid worsening trade friction with Europe and the United States.
The reaction of policymakers in the Global South hasn’t been uniformly positive, and a number of middle-income countries, Brazil included, have implemented import tariffs, anti-dumping duties, and local content requirements on Chinese goods.
Chinese analysts have also started to voice concern. The academic Liu Hongzhong, for instance, who teaches economics at Xi’an Jiaotong University in Shaanxi, urges ”more balanced and sustainable economic and trade cooperation with countries in the Global South.”
Even in Pakistan, the government has introduced a 10 percent import tax on previously duty-free panels—not to defend domestic firms, but to protect the functioning of a grid many consumers are now opting out of.
In Brazil, the government has responded to lobbying from automakers by gradually increasing import tariffs on EVs, with rates set to reach 35 percent by July 2026. In the meantime, BYD has flooded the market with imports, including via its own car carrier ship, the BYD Shenzhen, which is the largest car carrier vessel in the world.
At the same time, BYD is also localizing production. It has begun assembling Dolphin Minis in Bahia, a move likely encouraged by both rising tariffs and the incentive structure under Brazil’s MOVER plan, which offers tax breaks for companies investing in local production, R&D, and job creation. For now, the cars are assembled from imported kits, but the government has big hopes that BYD will help reverse a concerning trend of deindustrialization in Brazil.
The Hope for Domestic Industrialization
While pushback against Chinese overcapacity is growing, the policy focus in many economies of the Global South is less about direct competition and more about domestic industrialization. These governments are not trying to shut Chinese firms out, but to reshape the terms of engagement.
Despite growing pushback in the Global South to Chinese overcapacity, policies are more about insulating core domestic industries and encouraging Chinese investment than they are the kind of direct economic competition the EU aspires to.
Brazil, for instance, has no major domestic automakers of its own. Its industrial policy is not about defending national champions, but about making sure foreign investment—whether Chinese or Western—supports reindustrialization. Neither does Brazil share the same geopolitical concerns around energy dependence on China that sometimes plague policymakers in Europe.
Whether or not the EU eventually resolves its dispute with China over EV tariffs, Brussels’ framing of Chinese overcapacity is far from universal. China is facing trade tensions with several countries in the Global South, but there are significant differences in how these governments view cheap Chinese clean tech exports compared to Europe. For countries with fewer domestic industries to protect—and pressing energy needs to address—the challenge is not to stop China, but to shape the terms of its dominance.
For the EU, this observation contains both an opening and a warning. The EU has an opportunity here to differentiate itself from China simply because developing economies should find more to gain in partnership with the world’s largest market than with the world’s largest factory. At the same time, it would be a mistake to assume these countries share Brussels’ anxieties about Chinese overcapacity. Many still hope to attract Chinese investment, and see overcapacity as a condition to manage rather than as an existential threat.
Jacob Mardell is a senior fellow and chair of Sinification, an organization that tracks and analyses Chinese elite discourse on international relations. He is also the editorial coordinator of a China-focused media project at the German NGO n-ost.
