Beijing argues that exports and low capacity utilisation do not prove overproduction, while Washington increasingly treats persistent manufacturing surpluses as grounds for trade intervention.
China has formally rejected claims that its manufacturing model generates structural excess capacity, challenging a policy argument increasingly used by the United States and other economies to justify trade-defence measures. A Ministry of Commerce position paper released on July 28, 2026 argues that capacity utilisation, trade surpluses and industrial subsidies cannot individually establish that production exceeds economically justified demand.
Although the document covers manufacturing broadly rather than textiles specifically, its conclusions have significant implications for China’s textile, apparel, fibre and machinery industries.
Beijing challenges the measurement
China argues that utilisation rates naturally differ between countries, sectors and economic cycles. Its paper notes that even US industries including textiles and leather operate below 70% capacity utilisation, despite overall US manufacturing utilisation being around 75.7%. Beijing therefore rejects a single utilisation threshold as proof of structural overcapacity.
It also disputes the argument that weak Chinese domestic demand forces manufacturers to export excess production, saying domestic demand contributed an average 93% of China’s economic growth between 2013 and 2024.
Washington takes the opposite view
The US Trade Representative launched Section 301 investigations in March covering China and 15 other economies over alleged structural excess manufacturing capacity. USTR defines the problem as underused production capacity sustained by government interventions or policies that encourage companies to maintain or expand uneconomic capacity.
For China, USTR points to a record global goods trade surplus exceeding $1.2 trillion in 2025, overall industrial capacity utilisation of 74.4%, and large export surpluses in sectors including apparel, machinery, plastics and footwear.
Textile competition moves into trade policy
The disagreement matters commercially because definitions of “excess capacity” can become the basis for tariffs, anti-dumping investigations and other restrictions.
For textile exporters, the risk is therefore moving beyond conventional price competition. Governments are increasingly examining how capacity was financed, utilisation rates, export dependence and industrial subsidies when assessing market distortion.
The crucial distinction is that Washington’s Section 301 investigation represents an allegation and investigative framework, not proof that China’s textile sector as a whole has excess capacity. The next development will be whether these investigations produce additional sector-specific tariffs or trade restrictions.
