Quiver Quantitative - U.S. Treasury Secretary Janet Yellen issued a firm warning to China during her recent visit, asserting that the U.S. will not stand by as new industries are potentially devastated by Chinese imports. In a decisive stance echoing President Joe Biden's commitment, Yellen recalled the detrimental "China shock" of the early 2000s, which resulted in the loss of around 2 million American manufacturing jobs due to a surge in Chinese imports. Notably, Yellen refrained from threatening new tariffs or trade actions against China’s support for electric vehicles (EVs), batteries, solar panels, and other green energy goods, signaling a nuanced approach to the complex trade relationship.
During her second trip to China in nine months, Yellen criticized Beijing's industrial overinvestment leading to excess factory capacity and a surge in exports that threatens U.S. and global companies. Drawing parallels with the past challenges faced by the U.S. steel sector, she cautioned against a repeat of situations where cheap Chinese exports undermined global industries. Yellen's discussions in China focused on addressing these issues through a newly established exchange forum, although she acknowledged that reaching solutions might take time.
Market Overview: -US-China trade tensions resurface as Yellen pressures China to curb excess industrial capacity. -Investors will be watching for signs of escalation or potential solutions.
Key Points: -Yellen Warns on Repeat of "China Shock": US Treasury Secretary Yellen expressed concerns about China's state support for industries like electric vehicles, fearing a repeat of the job losses experienced in the early 2000s. China Defends Practices: Chinese officials argue their competitive advantages stem from factors like a large market and skilled workforce. -They downplay the role of state support and criticize Western "green protectionism." -WTO Rules & US Stance: China maintains trade curbs on EVs would violate WTO rules. -Yellen did not directly threaten tariffs but emphasized the US will not tolerate unfair competition.
Looking Ahead: -The newly established US-China forum on excess capacity might offer a platform for dialogue. -The future of US-China trade relations hinges on finding solutions that address American concerns while considering China's development goals. -Continued discussions and potential policy adjustments from both sides will be crucial to avoid a trade war.
On the Chinese side, Vice Finance Minister Liao Min responded to U.S. concerns, emphasizing China's competitive strengths and expressing opposition to what he termed "green protectionist measures" by developed economies. He asserted China's resolve not to remain passive in the face of trade and investment restrictions. Furthermore, Chinese officials argued that the criticism from the U.S. and Europe regarding China's industrial capacity overlooks the innovation in Chinese companies and overemphasizes state support's role in their growth. They also warned that trade curbs could hinder the global availability of green energy solutions crucial for achieving climate goals.
Yellen, while highlighting the issue during meetings with high-level Chinese officials, including Premier Li Qiang and Finance Minister Lan Foan, suggested bolstering consumer demand in China as a short-term solution. This approach, she proposed, would shift China’s growth model from an excessive focus on supply-side investments. In a post-meeting interview, Yellen clarified that her focus was more on adjustments in China’s macroeconomic environment rather than on trade restrictions, though she did not entirely dismiss the possibility of tariffs.
This article was originally published on Quiver Quantitative