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Janet Yellen has kicked off her second visit to China as US treasury secretary to continue efforts to further stabilize ties between the world’s two largest economies.
One pressing issue that Yellen is expected to address is an oversupply of Chinese goods in key industries such as electric vehicles (EVs) and solar panels, which has quickly emerged as a major area of contention in the run-up to November’s US presidential election.
Yellen has also flagged concerns about what she called China’s shift away from a market approach toward the US and global economies by providing state subsidies to some manufacturing industries.
US officials and lawmakers have expressed concerns that China’s overinvestment and excess capacity could result in cheap products flooding global markets, affecting local industries and employment.
Asked by reporters on Wednesday whether she would consider trade barriers if China doesn’t heed warnings on overcapacity, Yellen said she “wouldn’t want to rule [it] out,” though she wasn’t planning any immediate measures.
Yellen reiterated that she would discuss how the two countries can compete on a “level playing field” without having to “decouple our economies.”
Last month, on a visit to a solar panel factory in Georgia, Yellen said China’s excess capacity was distorting global prices and production patterns and hurting American firms and workers.
The surge in China’s exports of EVs, solar, and batteries is creating a problem at a time when the United States has invested heavily in reviving its own manufacturing sector.
Yellen departed for China on Wednesday shortly after a phone call between US President Joe Biden and Chinese leader Xi Jinping — their first conversation since a historic in-person summit in California last November.
She is scheduled to spend four days in Guangzhou and Beijing and is expected to meet Chinese Premier Li Qiang, Vice Premier He Lifeng, his predecessor Liu He, People’s Bank of China Governor Pan Gongsheng and Finance Minister Lan Fo’an.
Craig Singleton, senior director of the China program at the Foundation for Defense of Democracies (FDD), a non-partisan think tank in Washington, said it’s unclear if Yellen intends to raise the overcapacity issue, including the looming threat of US tariff increases on Chinese EVs, in a “head-on” way.
“During prior meetings with her Chinese interlocutors, Yellen has largely avoided taking a strong stance on controversial issues,” he said.
Tangible outcomes from the trip may be “limited,” he added.
Yellen told reporters traveling with her to China that the meetings “should be seen as a continuation of a dialogue” between the US and China since Biden and Xi’s November 2022 meeting at the G20 in Bali.
Biden administration officials have suggested raising tariffs on Chinese imports to “level” the playing field for trade. As the US approaches the presidential race, candidates from both parties are trying to look tough on Beijing. Former President Donald Trump has threatened to slap 60% tariffs on imports from China if he is re-elected.
Trade tensions are rising as Chinese leaders increasingly utilize a strategy of boosting manufacturing for export to make up for weak demand at home amid loss of economic momentum.
Beijing has poured money into new industries such as EVs and batteries as it seeks alternative growth engines beyond the property sector, a major pillar of the Chinese economy, which has crumbled.
“China accounts for a third of global production but only a sixth of global consumption, and this reality risks breaking the global trading system,” said Rick Waters, managing director of Eurasia Group’s China practice.
“Xi’s emphasis on ‘new productive forces’ as the future driver of growth will only make matters worse in the absence of measures that boost domestic consumption.”
Xi coined the term ”new productive forces” last year, highlighting the need for a new model for economic growth based on tech innovation. The “forces” are often referred to as emerging industries such as EVs, new materials and artificial intelligence.
Conflict over trade is likely to grow further before the election, Waters said. He said the Section 301 investigation — which allows the US government to impose tariffs, fees or other restrictions to address unfair trade policies by foreign governments — and the likely realignment of Trump-era tariffs to increase barriers to EV and other imports are all on the table.
Among other topics that Yellen plans to discuss with her Chinese counterparts include bilateral cooperation on countering illicit finance and working on global issues such as climate change and financial stability, according to the Treasury Department.
But analysts don’t believe Beijing is likely to budge on its economic policies.
“Yellen’s upcoming meetings merely extend the illusion of constructive engagement between two superpowers — reinforcing, rather than resolving, China’s contentious course,” Singleton said.
He believes Beijing wants to reduce the role of US multinationals in supply chains deemed sensitive by the Chinese government, while deepening its control over China’s private sector and international companies operating in China, noting recently enacted national security legislation in Hong Kong.
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