The Next Global Economic Crisis Could Be Made in China

Carolina Moscoso

Reported by:

Cherry Meigh Timbol
News Content Editor

Published August 13, 2026

A new warning from Foreign Affairs is putting China’s economic model at the center of a potentially dangerous global financial problem: persistent industrial overcapacity that could spill far beyond China’s borders.

In a recent article, Michael B. G. Froman argues that China’s push to expand manufacturing capacity and exports could create economic pressures that increasingly affect trading partners around the world. The article, titled “The Next Global Economic Crisis Could Be Made in China: How Overcapacity Ends,” appears in the September/October 2026 issue of Foreign Affairs.

The concern is not simply that China produces too many goods. The larger issue is what happens when domestic demand cannot absorb the enormous volume of products generated by Chinese factories.

China has built enormous industrial capacity across sectors ranging from electric vehicles and batteries to solar equipment, steel, chemicals and other advanced manufactured goods. When domestic consumption falls short, producers have an incentive to look overseas for customers.

That dynamic can push Chinese companies to export products at increasingly competitive prices, placing pressure on manufacturers in other countries.

For consumers, cheaper goods may initially appear beneficial. For competing industries, however, the consequences can be much more severe.

Factories outside China may struggle to compete with heavily supported Chinese producers, potentially resulting in declining investment, business closures and job losses. Countries that depend heavily on manufacturing could face particular pressure if Chinese exports continue expanding faster than global demand.

Froman’s argument comes as China faces significant economic challenges of its own. A weaker property sector, softer domestic demand and structural problems within the Chinese economy have increased pressure on Beijing to maintain growth.

Rather than allowing factories and production capacity to shrink, Chinese policymakers have increasingly emphasized manufacturing, technological development and exports as important engines of economic activity.

That strategy can work for an individual company, but at the scale of the world’s second-largest economy, its consequences can be global.

If China continues producing more than its domestic market can consume, the resulting export surge could intensify trade tensions and encourage governments to respond with tariffs, subsidies, import restrictions and other protective measures.

That could create a dangerous cycle.
China produces more goods than its domestic market can absorb. More products move into foreign markets. Other countries respond by protecting their industries. Trade barriers increase. Global supply chains become more fragmented. Investment becomes less efficient, while tensions between major economies grow.

The danger is that what begins as an industrial overcapacity problem could eventually become a broader global economic problem.

The issue also has a geopolitical dimension.

China’s dominance in strategically important industries has already raised concerns in Washington, Brussels and other capitals about economic dependence. Electric vehicles, batteries, solar technology, critical minerals and other sectors are increasingly viewed not only through the lens of trade but also national security.

Governments therefore face a difficult choice: accept inexpensive Chinese imports, impose restrictions to protect domestic industries, or attempt to negotiate a new balance with Beijing.
None of those options is without costs.

For China, reducing excess capacity could mean slower economic growth and painful adjustments for companies and workers. For other countries, allowing Chinese exports to expand unchecked could threaten domestic manufacturing.
The result could be a growing conflict between China’s need to maintain economic growth and other nations’ desire to protect their own industrial bases.

Froman’s warning is ultimately about what happens when an economic model built around investment and manufacturing reaches a point where the world cannot absorb the output being produced.

The consequences would not necessarily resemble the sudden collapse of a traditional financial institution. Instead, the crisis could emerge gradually through falling industrial profits, mounting trade disputes, factory closures, weaker investment and increasingly aggressive government intervention.

And because China’s economy is deeply integrated into global trade, the effects could spread well beyond its borders.
The central question now is whether Beijing can rebalance its economy toward stronger domestic consumption and sustainable demand before industrial overcapacity becomes an even larger international problem.
If that adjustment fails, China’s manufacturing strength could become a source of instability rather than growth—turning an economic challenge inside China into a crisis with consequences for the entire global economy.

🧩 Bottom Line:

China’s economic strength could become a global vulnerability if Beijing continues producing far more goods than its domestic economy can absorb. The resulting flood of exports could put enormous pressure on manufacturers abroad, trigger new tariffs and trade retaliation, and deepen economic tensions between China and the West.

The bigger warning is that China’s problem may not stay China’s problem. If overcapacity continues unchecked, what begins as a domestic economic slowdown could spread through global manufacturing, trade and investment.

Bottom line: China may have built an industrial machine that is now producing more than the world can comfortably absorb—and the consequences could be felt far beyond Beijing.