US economist says concept of excess capacity 'potentially harmful'

WASHINGTON - Nicholas Lardy, a senior fellow at Washington DC-based think tank the Peterson Institute for International Economics (PIIE), told Xinhua Thursday that the concept of excess capacity is "potentially harmful."

Lardy made the comments when asked how he viewed US Treasury Secretary Janet Yellen's recent remarks on China's "overcapacity."

"First, we don't know how to measure (overcapacity)," said Lardy.

"Second, least as discussed by US officials, the idea seems to imply that no country should produce more of a product than could be sold domestically," said the US economist.

"So Boeing should cut its production? US soybean farmers should limit their production to what can be sold within the United States? The US appears to have a comparative advantage in these products so why shouldn't Boeing and US farmers produce more than can be absorbed domestically, with the 'excess' being exported?" he said.

"Similarly, for China. BYD appears to have a comparative advantage in the production of EVs (Electric Vehicles). Shouldn't we expect BYD to produce not only for the domestic market but also for export?" he continued.

"Taken to an extreme this idea would lead to a world with no trade between countries, which would be economically catastrophic," he said.