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​Could China's massive overcapacity drive markets even lower?

Years before China was drawing attention its ongoing economic slowdown, U.S. tire and steel producers were screaming foul over what they alleged was the Mainland's flooding of the world with cheap goods. Now there are signs that "dumping" strategy is adding to the deflationary pressure weighing on global economic growth.

The U.S-China trade imbalance grew from $2 billion dollars in 1979 to $592 billion in 2014, highlighting the explosion in manufacturing over that period that propelled the People's Republic rise as an economic powerhouse. Yet even as American industry and unions largely won their battles to curb China's alleged dumping in obscure trade tribunals, they were less successful in the court of public opinion.

"The U.S. media does not talk about the trade deficit, but it really is a wealth transfer from the U.S. to China," Leo Gerard, president of the United Steel Workers Union, North America's largest industrial union, told CBS MoneyWatch.

China devalues its currency again

For years. Gerard and other critics of unfettered trade warned that ignoring the widening trade gap between the U.S. and China would hobble the American economy by eliminating high-paying manufacturing jobs. He is now concerned that China's overproduction of goods for export, coupled with a currency devaluation that makes Chinese-made products more affordable overseas, puts the global economy at risk.

Such concerns are not academic. According to the Economic Policy Institute, a liberal think tank, the U.S. lost 3.2 million jobs between 2001 and 2013 after China was given entry in the World Trade Organization. Three-quarters of those positions were higher paying manufacturing jobs.

China is not the only nation with an overcapacity problem when it comes to producing things like steel. An analysis done by investment UBS concludes that the world now has an annual 553 million metric tons of excess steel-production capacity. For a sense of scale that's roughly equivalent to the weight of 11,000 Montana class battleships.

"Now almost every U.S. steel company has had major layoffs," Gerard said.

China's global position became so dominant that Americans firms were afraid to have their name associated with dumping protest cases for fear of commercial reprisal, he added. "The U.S. companies would give us all the information to make our case, but they did not want their name used. What does that tell you?" asked Gerard.

Peter Kenny, chief market strategist for the Clearpool Group, explains that China's central planners are trying to reduce their reliance on exports by shifting to an economy driven by domestic consumer demand.

That shift will entail economic and social dislocations. But Kenny predicts that, as China trims its exports, there will eventually emerge a better alignment of global supply and demand. "There are prices to be paid for this kind of rotation, but the planet will be better off," he said.