Tuesday, May 28, 2024

U.S. is pushing China to change a policy threatening American jobs, Treasury Secretary Yellen says

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The Biden administration is pushing China to change an industrial policy that poses a threat to U.S. jobs, Treasury Secretary Janet Yellen said Monday after ending four days of talks with Chinese officials.

She also said she and Chinese officials had “difficult conversations” about national security, including American concerns that Chinese companies are supporting Russia in its war in Ukraine.

But the focus of her trip was industrial policy, and what the U.S. and Europe describe as manufacturing overcapacity in China. Wealthy nations fear a wave of low-priced Chinese exports that will overwhelm factories at home, undercutting prices from U.S. manufacturers and risking job losses.

Still, Yellen also stressed that the U.S. is seeking “a healthy economic relationship with China.”

“During conversations this week, I underscored again that the United States does not seek to decouple from China,” Yellen said at a press conference in Beijing. “Our two economies are deeply integrated, and a wholesale separation would be disastrous for both of our economies.”

But Yellen also cited the manufacturing of electric vehicles and their batteries as well as solar energy equipment — sectors that the U.S. administration is trying to promote domestically — as areas where Chinese government subsidies have driven rapid expansion of production.

Meanwhile, China last month filed a complaint with the World Trade Organization, alleging the Inflation Reduction Act, signed into law by President Joe Biden, distorts fair competition due to its electric-vehicle subsidies.

“China is now simply too large for the rest of the world to absorb this enormous capacity. Actions taken by the PRC today can shift world prices,” she said, using the acronym for China’s official name, the People’s Republic of China. “And when the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question.”

She said the U.S. would host Chinese counterparts for their fourth economic and financial working groups meetings next week “where these issues will be discussed at length.”

Xi Jinping’s goals

Last September, the U.S. and China formed working groups in an effort to ease tensions and deepen ties between the two nations. The upcoming discussions will coioncide with the IMF and World Bank Spring Meetings.

It’s unclear how China will respond to such calls. European officials have repeatedly raised the issue on visits to China with no sign of any change on the Chinese side. Moreover, one of leader Xi Jinping’s major goals is to build the nation into a major power so it doesn’t feel compelled to bend to outside pressure.

But overcapacity also affects China — price wars in the electric vehicle sector are expected to drive some makers out of business — and experts have called for better coordination of policies designed to promote new technologies. The government agreed during Yellen’s visit to start talks on what the two sides called “balanced growth.”

“We intend to underscore the need for a shift in policy by China during these talks,” Yellen said at a news conference held outdoors on a balmy spring day at the U.S. ambassador’s residence in Beijing.

Advocating for higher consumer spending in China in response to its large government subsidies to solar, EV and lithium-ion battery industries, Yellen said: “If consumer spending were higher as a share of GDP, there would be less need to have such large investment going into building supply” of green energy products.

Low-cost Chinese steel

On Saturday, the official Xinhua News Agency said that the Chinese side had “responded fully to the issue of production capacity” during Yellen’s talks with Vice Premier He Lifeng, the lead person for China-U.S. economic and trade affairs.

More than a decade ago, the Treasury secretary said, a flood of “below-cost Chinese steel … decimated industries across the world and in the United States. I’ve made clear that President Biden and I will not accept that reality again.”

On the war in Ukraine, Yellen warned that any banks that facilitate the sale of military or dual-use goods to Russia could face U.S. sanctions.

“I stressed that companies, including those in the PRC, must not provide material support for Russia’s war and that they will face significant consequences if they do,” she said.

Russian Foreign Minister Sergey Lavrov arrived in Beijing on Monday for talks on the Ukraine conflict and other issues.

Asked about Yellen’s warnings, Chinese Foreign Ministry Spokesperson Mao Ning said that the U.S. “should not smear or attack the normal state-to-state relations between China and Russia and should not harm the legitimate rights and interests of China and Chinese enterprises.”

Yellen, the former chair of the U.S. Federal Reserve, met with China’s central bank governor, Pan Gongsheng, earlier Monday.

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