During her recent four-day visit to China, U.S. Treasury Secretary Janet Yellen highlighted concerns about Chinese exports’ impact on American industries, drawing from the lessons of the early 2000s when the U.S. experienced significant job losses due to the influx of Chinese imports.
This phenomenon, known as the “China shock,” led to the loss of approximately 2 million manufacturing jobs in America, a situation President Joe Biden is keen to avoid repeating.
Yellen, on her second trip to China within nine months, did not propose new tariffs or trade actions against China’s substantial state backing of sectors like electric vehicles (EVs), batteries, and solar panels.
Instead, she criticized China’s overinvestment in these industries, which has led to a surplus in factory capacity and a threat to U.S. and global companies due to the increased exports.
To address the issue of excess industrial capacity, Yellen mentioned the establishment of a new exchange forum aimed at finding solutions over time.
She recalled the past challenges faced by the U.S. steel sector, attributing them to below-cost Chinese steel that overwhelmed the global market due to significant government support from the People’s Republic of China (PRC).
Yellen emphasized the shared concerns of the U.S. and its allies, including European nations, Japan, Mexico, and the Philippines, regarding China’s industrial overcapacity.
In response, China’s Vice Finance Minister Liao Min stated that China had addressed U.S. concerns and warned against the escalation of green protectionist measures by developed economies.
Beijing asserts that its competitive advantages stem from its large market, comprehensive industrial system, and human resources, rather than state subsidies.
Chinese officials argue that criticisms of their industrial policy underestimate local innovation and overemphasize state support’s role.
They caution that trade restrictions could hinder global access to green energy solutions, which are vital for achieving climate goals.
Chinese authorities maintain that any trade curbs on Chinese EVs would violate World Trade Organization rules and emphasize their commitment to supporting EV exports.
They attribute the success of China’s EV sector to technological innovation and market competition rather than government subsidies.
Yellen suggested that China could stimulate domestic consumer demand as a short-term solution, shifting its economic growth model from supply-side investments.
Her meetings with Chinese leaders, including Premier Li Qiang and Finance Minister Lan Foan, focused on advancing American interests and exploring macroeconomic adjustments rather than trade restrictions. Nonetheless, Yellen did not dismiss the possibility of future tariffs.