According to Yellen, China imports are destroying nascent businesses in the US

As US Treasury Secretary Janet Yellen concluded four days of meetings to encourage Beijing to rein in surplus industrial capacity, she issued a warning to China on Monday: Washington would not tolerate new sectors being destroyed by Chinese imports.

At a press conference, Yellen declared that US President Joe Biden would not let a recurrence of the early 2000s “China shock,” in which an influx of Chinese goods resulted in the loss of around 2 million manufacturing jobs in the United States.

However, should Beijing maintain its substantial state backing for EVs, batteries, solar panels, and other green energy commodities, she did not threaten further tariffs or other trade steps.

Yellen utilized her second visit to China in nine months to voice concerns about Beijing’s excessive spending, which has increased manufacturing capacity well beyond domestic demand, endangering US and foreign enterprises.

She stated that finding answers to the excess capacity problem will take time in a recently established exchange forum.

Yellen compared it to the suffering endured by the US steel industry in the past.

“This is not a new story,” she informed the reporters. “Over a decade ago, massive PRC (People’s Republic of China) 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 went on to say: “I’ve made it clear that President Biden and I will not accept that reality again.”

According to her, “the viability of American and other foreign firms is put into question” when the world market is overrun with artificially inexpensive Chinese items.

Yellen said that US worries over surplus industrial capacity were shared by Washington’s European allies, Japan, Mexico, the Philippines, and other developing economies, and that her meetings with Chinese officials had furthered US objectives.

Liao Min, China’s vice minister of finance, told Chinese media that Beijing “has fully responded” to US inquiries on overcapacity and expressed “grave concern” over trade and investment restrictions imposed by Washington.

Liao stated that China’s “current competitive advantages are rooted in China’s large-scale market, complete industrial system and abundant human resources,” criticizing the “escalation of green protectionist measures by some developed economies.”

Liao stated, “China will not sit idly and ignore it,” in comments that were posted on the ministry’s webpage.

The National People’s Congress, the legislature of China, said in March that the government will act to reduce industrial overcapacity.

Beijing, however, claims that the US and Europe’s current emphasis on the dangers posed by China’s surplus capacity is misplaced.

According to Chinese officials, the critique overstates the role that state backing plays in propelling the rise of Chinese firms while underplaying their creativity. According to them, trade restrictions such as tariffs would deny consumers worldwide access to green energy options that are essential for achieving global climate objectives.

WTO DEFINITIONS Trade restrictions on Chinese electric vehicles would be illegal under WTO regulations, the ministry of industry and information technology claimed in a statement that was reprinted by China Daily and CCTV, the country’s official media.

On April 7, 2024, US Treasury Secretary Janet Yellen participates in a discussion with National School of Development students at Peking University in Beijing, China. IMAGE: REUTERS

The Chinese ministry went on to say that it was dedicated to promoting EV exports and would “accelerate the overseas development” of the sector, which would involve organizing logistics and shipping as well as helping businesses innovate and adhere to international standards.

During a roundtable discussion with Chinese EV manufacturers in Paris, Chinese Commerce Minister Wang Wentao raised more direct concerns, claiming that US and European claims about China’s surplus EV capacity were unfounded.

Wang stated that during his trip to address an EU anti-subsidy probe, China EV industries rely on excellent manufacturing and supply chain infrastructure, ongoing technical innovation, and complete market competition rather than subsidies.

Yellen proposed that China change its development model away from supply-side investments and take action to help households and increase consumer demand as a potential short-term fix.

Yellen met with Finance Minister Lan Foan on Sunday and had a lengthy conversation about the matter with Premier Li Qiang. On Monday, she had a meeting with former vice premier Liu He and governor Pan Gongsheng of the People’s Bank of China (PBOC).

Following the discussions, Yellen stated that she was “not thinking so much” about trade restrictions on China and more about changes to the country’s macroeconomic climate in an interview with CNBC. She did, however, restate that tariffs would not be ruled out.