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US Treasury Secretary Janet Yellen photographed before a meeting with Chinese Vice Premier He Lifeng in San Francisco on November 10, 2023
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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.
On her first full day of meetings in the southern megacity of Guangzhou, Yellen said Friday she would address the oversupply of Chinese goods in key industries, such as electric vehicles (EVs) and solar panels. The issue has quickly emerged as a major area of contention in the run-up to November’s US presidential election.
“I will stress that a healthy economic relationship can bring significant benefits for both our economies,” she said at a meeting with leaders of Guangdong province, the country’s manufacturing powerhouse.
“I’ve also emphasized that building a healthy economic relationship requires a level playing field for American workers and firms, and open and direct communication on areas where we disagree. And this includes the issue of China’s industrial overcapacity, which the United States and other countries are concerned can cause global spillovers,” she said.
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.
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. She added that China was following its old practice of flooding the global markets with cheap, state-subsidized steel and aluminum.
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 tangible outcomes from the trip may be “limited.”
“For now, China’s primary focus remains portraying itself as open for business and alleviating growing concerns about the government’s to-date meager measures to tackle the country’s looming economic downturn,” he said.
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 think 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.
This story has been updated with additional developments.
