 "Janet Yellen, US Treasury Secretary")
By Eric Martin
US Treasury Secretary Janet Yellen warned China’s leaders that the nation’s manufacturing power is a threat to global economic stability. Next week Washington has a chance to rally more countries to its cause.
Fresh off her return from Beijing, Yellen pivots to the spring meetings of the International Monetary Fund and the World Bank, when Washington hosts finance ministers and central bankers from around the world. That includes economic chiefs from the Group of Seven rich nations and the Group of 20, which includes big economies from the Global South.
With its dominant voice in all of those forums, the US is expected to try to align other countries across Europe, Asia and Latin America to voice concerns over China’s output and exports.
“The fact that Yellen has signaled this is an issue that the US is watching tells the Chinese there’s going to be something coming down the line” such as trade restrictions, said Inu Manak, a fellow for trade policy at the Council on Foreign Relations. “I would be surprised if this wasn’t brought up again next week.”
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A US official, who asked not to be identified discussing internal deliberations, said the issue of overcapacity is a concern for many of China’s major trading partners and the department expects the issue to be discussed next week.
China’s support for its domestic industries has drawn complaints from competitors since it joined the World Trade Organization two decades ago. They argue that direct and indirect government support has kept costs down and exports cheap.
But a confluence of factors has raised the stakes for Washington and its partners — including China’s dominant position in electric vehicles and batteries alongside President Joe Biden’s election-year push to bolster EV manufacturing.
The IMF forecasts China’s economy will grow by 4.1 per cent next year — barely half the average of the decade before the Covid-19 pandemic — as it sags under the weight of an ailing property sector, deflationary pressure and dented consumer confidence. With such meager domestic demand drivers, the US is concerned Beijing will flood US and European markets with electric vehicles, as it undercut solar panel and steel industries earlier.
“Government support is currently leading to production capacity that significantly exceeds China’s domestic demand, as well as what the global market can bear,” Yellen said at an event hosted by the American Chamber of Commerce in China on April 5. “This can undercut the business of American firms and workers, as well as of firms around the world, including in India and Mexico.”
G-7 allies including Canada, France and Germany have also expressed concern over Chinese exports. Brazil President Luiz Inacio Lula da Silva has voiced his worries and recently launched a series of probes into alleged dumping of industrial goods such as steel.
IMF chief Kristalina Georgieva said Thursday that she’s been engaging with Chinese authorities about the path of nation’s economy, including encouraging domestic demand. She said it’s “critical” for industries facing overcapacity to “shift more of the economy towards services so this doesn’t persist as a problem.”
The US has signaled it’s exploring tariffs on Chinese EVs, and last month the European Commission moved toward imposing additional tariffs on the vehicles.
Biden has political reasons at home to be tough on China. Donald Trump, who’s leading polls in several key states ahead of the November presidential election, wants to slap a 60 per cent tariff on all Chinese imports.
“Even if it isn’t on the formal agenda, overcapacity will be discussed throughout the meetings” in Washington next week, said Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center. “The US hopes to show that this is not just a US concern — it’s a European concern, a Japanese concern, a Brazilian concern.”
