BEIJING — U.S. Treasury Secretary Janet Yellen has issued a strong warning to China, stating that the United States will not tolerate new industries being decimated by Chinese imports. This comes as Yellen wrapped up four days of meetings in Beijing, where she pressed her case for China to address its excess industrial capacity.
During a media conference, Yellen stated that President Joe Biden is determined to prevent a repeat of the “China shock” that occurred in the early 2000s. At that time, a surge of Chinese imports led to the destruction of approximately 2 million American manufacturing jobs.
However, Yellen did not threaten new tariffs or other trade actions if China continues its massive state support for industries such as electric vehicles, batteries, solar panels, and other green energy goods.
Yellen used her second trip to China in nine months to express her concerns about China’s overinvestment, which has resulted in factory capacity far exceeding domestic demand. This has led to a rapid increase in exports of these products, posing a threat to firms in the U.S. and other countries.
She emphasized that the newly created exchange forum to discuss the excess capacity issue will need time to reach solutions. Yellen also drew parallels to the pain felt in the U.S. steel sector in the past, stating, “We’ve seen this story before. Over a decade ago, massive PRC government support led to below-cost Chinese steel that flooded the global market and decimated industries across the world and in the United States.”
Yellen made it clear that President Biden and she will not accept a similar situation again. When the global market is flooded with artificially cheap Chinese products, she explained, “the viability of American and other foreign firms is put into question.”
The U.S. Treasury Secretary also highlighted that her exchanges with Chinese officials have advanced American interests. She added that U.S. concerns over excess industrial capacity are shared by allies in Europe, Japan, Mexico, the Philippines, and other emerging markets.
In response to the U.S. pressure, China’s parliament, the National People’s Congress, announced in March that the government would take steps to curb industrial overcapacity. However, Beijing believes that the recent focus by the United States and Europe on the risks to other economies from China’s excess capacity is misguided.
Chinese officials argue that the criticism understates the innovation by their companies in key industries and overstates the importance of state support in driving their growth. They also believe that tariffs or other trade restrictions will deprive global consumers of green energy alternatives, which are crucial for meeting global climate goals.
The Chinese Ministry of Industry and Information Technology released a statement carried by state media CCTV and China Daily, stating that trade curbs on Chinese electric vehicles would be disruptive to a growing industry and would violate World Trade Organization rules. The ministry also reaffirmed its commitment to support EV exports and stated that it would help “accelerate the overseas development” of the industry, including planning for shipping and logistics and supporting firms to innovate and meet global standards.
Chinese state news agency Xinhua quoted Premier Li Keqiang as saying that the U.S. should “refrain from turning economic and trade issues into political or security issues” and view the topic of production capacity from a “market-oriented and global perspective.”
Meanwhile, Chinese Commerce Minister Wang Wentao expressed more pointed objections during a roundtable meeting with Chinese EV makers in Paris. He stated that U.S. and European claims of Chinese excess EV capacity were baseless. Wang, who was on a trip to discuss an European Union anti-subsidy inquiry, emphasized that China’s electric vehicle companies rely on continuous technological innovation, perfect production and supply chain systems, and full market competition.
Yellen suggested that a possible short-term solution could be for China to take steps to bolster consumer demand by supporting households and retirement and shifting its growth model away from supply-side investments. During her visit, Yellen had extensive discussions on this issue with Premier Li Qiang and also met with Finance Minister Lan Foan on Sunday. She also met with People’s Bank of China (PBOC) governor Pan Gongsheng and former vice premier Liu He on Monday.
In a CNBC interview after the meetings, Yellen stated that she was “not thinking so much” about trade restrictions on China, but rather about shifts in its macroeconomic environment. However, she reiterated that she would not rule out tariffs.
In conclusion, Yellen’s visit to China has highlighted the ongoing tensions between
