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Key takeaways:
Today, that model is colliding with a new reality. Excess capacity in sectors such as steel is now flowing into global markets at scale, intensifying trade tensions and accelerating a broader fragmentation of the trading system.
“We [in Mexico] are very threatened by China exporting its excess capacity to our domestic market,” Guajardo told Fastmarkets in an exclusive interview on Wednesday April 8.
Data from the World Steel Association (worldsteel) showed that China produced 87 million tonnes of steel in March 2026, down by 6.3% compared with March 2025. Crude steel output in the first quarter of 2026 fell by around 5% year on year, to approximately 250 million tonnes.
China produced 960.1 million tonnes of crude steel in 2025, according to official data, down by 4.4% from 1.005 billion tonnes in 2024. This was the first time since 2019, in which year output reached 996 million tonnes, that production had fallen below the 1 billion tonnes per year threshold.
For comparison, in 2025, crude steel production across Latin America totaled 55.5 million tonnes, down by 2.4% year on year, based on data from the Latin American Steel Association (Alacero).
While industrialized economies respond with tariffs, regulatory barriers and industrial policy shifts, and while developing economies struggle to balance affordability with deindustrialization risks, the global trade map is being redrawn in real time.
Against this backdrop, Guajardo, who was the longest continuously serving Mexican ambassador to China, and the first to visit all 22 of that country’s provinces, reflected on the evolution of China’s industrial strategy and what this means for the future of industrial competition.
Fastmarkets: What most surprised you about how China operates in terms of industry and trade during your time there?
Guajardo: I was there from 2007 to 2013. When I arrived, China was the fourth-largest economy [in the world] and by the time I left it had become the second-largest. That gives you a sense of the speed of their growth.
During those six years, I had the opportunity to travel to every province and meet a wide range of companies, from state-owned enterprises to private firms that would later become global market participants.
What stands out is how deliberate China was in inserting itself into global supply chains. The strategy was clear: make China independent of the world and make the world dependent on China.
A key part of that was the focus on intermediate goods. When people think about Chinese exports, they often think about consumer products, but China’s real strength lies in intermediate goods, which are essential to global manufacturing.
Fastmarkets: Looking back, was there a moment that made this strategy particularly clear to you?
Guajardo: One example that stayed with me was a meeting in Shenzhen with the owner of BYD, which at the time was not a major global participant. I was inviting them, like many other Chinese automakers, to invest in Mexico and take advantage of NAFTA [the North American Free Trade Agreement, now replaced by the US-Mexico-Canada Agreement, USMCA].
During the meeting, he asked what percentage of a car needed to be produced in Mexico to qualify. After I explained, he said it was not relevant to him, and made it clear that around half of an electric vehicle’s {EV] value comes from the battery, and that production [of batteries] would never leave China.
At the time, this did not fully resonate. But fast-forward to today and China produces around 70% of the world’s EV batteries. That interaction clearly reflected a long-term strategy focused on controlling key components of the value chain.
Data reported by Nikkei Asia indicates that Chinese EV battery manufacturers increased their global market share to more than 70% in 2025, up from less than 50% in 2021.
Fastmarkets: What feels different today compared with what you saw then?
Guajardo: Back then, China was in a phase of massive expansion. Construction was happening everywhere, across every province. It was said that the construction crane was the ‘national bird’ of China, because you would see them all over the place.
What has changed is that all that capacity was built to support a level of construction activity that has now stopped. As a result, China is left with significant excess capacity in sectors such as steel, cement, glass and petrochemicals.
Instead of shutting that capacity down, as would typically happen in a market economy, the strategy now is to export it aggressively to the rest of the world.
In March 2026, China’s government said it would use excess capacity in key commodity industries, including steel and oil refining, as part of efforts to address persistent oversupply pressures. According to the National Development and Reform Commission (NDRC), the state planner, the country will proceed with orderly capacity reductions across these sectors.
Fastmarkets: How do you see global trade fragmentation reshaping industrial competition?
Guajardo: What we are seeing is a fragmentation of the global trading system. On one hand, industrialized countries will increasingly trade among themselves and, on the other hand, non-industrialized countries will deepen trade ties with China.
Any industrialized country that wants to preserve its manufacturing base will need to put up barriers to Chinese imports. Otherwise, it risks losing its industrial capacity.
While there’s an argument that cheaper imports are beneficial, countries do not become strong by consuming – they become strong by producing.
Fastmarkets: Should China be seen as a partner, competitor or systemic challenge?
Guajardo: It depends on whether you’re an industrialized country or not. If you’re an industrialized country, China is a systemic competitor and there’s no way around it.
No country will ever be able to compete with China on price, full-stop. So if you compete purely on price, Chinese producers will always undercut you due to excess capacity, and you will ultimately end up shutting down parts of your industry.
Shutting down domestic industry not only leads to unemployment, but also creates dependencies. At that point, you become reliant on China, which also raises issues of sovereignty. No country wants to be dependent on another.
Fastmarkets: How does this dynamic play out, specifically for Mexico and other developing economies?
Guajardo: Mexico is particularly exposed. When China joined the World Trade Organization [WTO], it displaced Mexico as the main trading partner of the US. While Mexico has regained that position, the underlying competitive pressure remains.
The sectors where China has overcapacity are also key sectors for Mexico’s industrial base. This creates a direct threat from Chinese exports entering the domestic market.
More broadly, developing countries tend to be more vulnerable than developed ones. They often lack the institutional capacity to respond quickly, and their industrial structures are more concentrated in the sectors where China competes most aggressively. This makes them slower to react and more exposed to deindustrialization risks.
Fastmarkets: Why is steel particularly vulnerable in this environment?
Guajardo: Steel is especially exposed because Chinese material consistently enters global markets at lower prices. But the issue is not just price – it’s what comes with it.
When countries import Chinese steel, they are effectively importing unemployment. Lower prices may seem beneficial in the short term, but they undermine domestic production, which leads to job losses and broader economic consequences. This dynamic has been observed before and can have lasting consequences on industrial capacity.
Fastmarkets: Are tariffs such as anti-dumping measures enough to address this challenge?
Guajardo: Tariffs are necessary but not sufficient. They need to be constantly adjusted because Chinese exporters can respond through price reductions or currency movements. In that sense, tariffs behave like a recurring measure rather than a one-time solution.
This is why regulatory tools can be more effective. Measures targeting issues such as forced labor or supply-chain standards can provide a more durable framework.
At the same time, countries need to work on rebuilding or relocating parts of the supply chain that are currently concentrated in China; otherwise domestic industries will continue to face structural disadvantages.
Fastmarkets: Does China still have a role in the industrial future, particularly in the green transition?
Guajardo: China has been at the forefront of several green technologies, including solar [power], wind [power] and electric vehicles, and has made significant progress in those areas.
But this progress is not uniform across all sectors. Heavy industries such as steel remain highly polluting and largely dependent on coal. So while China plays a leading role in the green transition in some areas, that leadership does not extend across its entire industrial base.
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