US Treasury Secretary Yellen launches contentious meetings on Chinese excess production threat

On Friday, US Treasury Secretary Janet Yellen will begin a four-day meeting with top Chinese officials. The discussions are anticipated to centre mostly on the effects of China’s surplus manufacturing capacity and the increasingly difficult business environment for US companies.

In an effort to further US-China economic relations, Yellen will meet with Vice Premier He Lifeng and Governor Wang Weizhong of Guangdong Province. But because the topic is more challenging, these discussions are probably going to be more divisive than previous ones.

In the face of weak domestic demand, Yellen and other Biden administration officials are becoming more and more concerned about China’s excess manufacturing of solar panels, semiconductors, electric cars, and other products that are flooding international markets. She intends to make the case that this is detrimental to manufacturers abroad and is not good for China.

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According to some trade analysts, the US’s growing criticism of China’s production-focused, debt-driven, and subsidy-driven economic model is a first step towards imposing higher tariffs on Chinese electric vehicles (EVs) and clean energy products in order to defend US industry.

While Yellen has refrained from threatening to impose additional trade barriers, she did state during her visit to Guangzhou that further steps to guard against low-cost Chinese imports of EVs, batteries, solar power, and other items will not be ruled out.

The Treasury is not expecting a major shift in Chinese policy as a result of the meetings, but it was important to explain the problems that overinvestment in these sectors are causing around the world.

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Wall Street closed sharply lower Thursday as Federal Reserve officials indicated an interest rate cut may not occur so soon.

Chinese state media are pushing back on US concerns about manufacturing capacity as a “China-bashing” double standard.

“While it is just basic economics that surplus products naturally seek out markets elsewhere once domestic demand is met, and Western nations have been doing that for centuries, when it comes to China, it becomes an “overcapacity problem” threatening the world,” the China Daily, said.

Parallel meetings

Yellen’s meetings, which continue in Beijing on Saturday through Monday, come just after US Commerce Department and Chinese Commerce Ministry officials met in Washington on Thursday to discuss commercial and investment issues.

The top US official in those, talks Commerce Undersecretary Marisa Lago, also raised “strong concerns regarding growing overcapacity in a range of Chinese industrial sectors,” the department said in a statement.

Lago also reaffirmed the goal of a healthy trade and investment relationship “that benefits US workers and businesses, while underscoring that the United States will not negotiate on issues related to US national security,” Commerce said.

China Vice Minister of Commerce Wang Shouwen also expressed several concerns such as US tariffs on Chinese imports, sanctions and unfair treatment of Chinese companies, the generalization of national security and investment restrictions.

“The economic and trade relations between China and the United States should be a stabilising force,” Wang said, according to a statement from the commerce ministry on Friday.

Yellen on Friday will also meet with international business leaders in Guangzhou and participate in an American Chamber of Commerce event.