US Treasury Secretary Janet L. Yellen warned on Tuesday that a wave of cheap exports from China poses a serious threat to the global economy, and the US and Europe are stepping up efforts to counter China’s excess industrial capacity. He said there was a need to cooperate.
Yellen’s comments, made during a speech in Germany, highlight what is expected to be a central topic of discussion at the G7 finance ministers’ meeting in Italy this week.
“China’s industrial policies may seem distant as we sit in this room, but if we do not respond in a strategic and united way, they could jeopardize the survival of businesses in both our countries and around the world,” said Yellen, who received an honorary doctorate from the Frankfurt School of Finance and Management.
China’s overproduction of green energy technology has become a pressing concern across the Atlantic in recent months. Biden administration officials say President Biden’s efforts to fund domestic manufacturing of clean energy and other next-generation technologies will be undermined by China’s rapid production of steel, electric vehicles and solar panels. There are growing concerns that this may be the case.
The Biden administration is now looking to Europe to help developed countries avoid something like the China Shock of the early 2000s, which devastated manufacturing industries in exchange for cheaper goods. Last week, Biden increased tariffs on some Chinese imports, including a 100% tax on electric vehicles. He also formally suspended taxes on $300 billion worth of Chinese goods that President Donald J. Trump had imposed.
The United States hopes the united front will convince China that its largest trading partner is prepared to erect trade barriers to prevent China’s electric vehicles, batteries and panels from dominating Western markets.
Yellen on Tuesday stressed that the United States is not pursuing an anti-China policy, but said China’s actions pose a threat to the global economy and require a coordinated response.
He noted that China seeks to dominate clean energy technology and other sectors, and that its ambitions could “prevent countries around the world, including emerging economies, from building industries that could drive growth.” There is also a gender.”
The trend toward protectionist policies is likely to become a new point of contention between China and the world’s developed countries. Last week, Liu Pengyu, a spokesperson for the Chinese embassy in Washington, denounced Biden’s decision to impose new tariffs on Chinese goods as a “political ploy.”
“We hope that the United States will take a positive view of China’s development and stop using excess production capacity as an excuse for trade protectionism,” Liu said.
New U.S. tariffs could put further pressure on Europe to erect its own trade barriers to prevent China from diverting more exports to Europe. European officials are already considering additional taxes on Chinese cars, which pose a particular threat to Germany.
About 37% of electric vehicle imports into Europe are produced in China, including Chinese brands and cars made by Tesla and German automakers. Europe is the world’s second largest EV market, and the value of imports from Europe jumped from $1.6 billion in 2020 to $11.5 billion last year.
The European Commission is investigating whether Chinese state subsidies aimed at helping Chinese companies make cheap cars are damaging Europe’s auto industry, a sector that provides nearly 14 million direct and indirect jobs to Europe and whose six million cars exported last year generated a trade surplus of more than 100 billion euros.
A European investigation could lead to preliminary tariffs on Chinese electric vehicle imports as early as July, but the tariffs are likely to be much lower than the 100% imposed by the Biden administration. But unlike Europe, which already imports cars from China, the United States has erected several barriers to prevent the influx of Chinese EVs.
European investigations into Chinese subsidies and whether they merit tariffs are exacerbating political divisions. Some countries, including Germany, Europe’s largest electric car maker, oppose the investigation. German officials are wary of imposing penalties that could incite Beijing to shut out German automakers such as BMW and Volkswagen.
“Remember, European manufacturers and even some American manufacturers have been successful in the Chinese market, and many cars produced in Europe are being sold in China,” Prime Minister Olaf Scholz said in a speech in Stockholm last week. “We’re selling it to people,” he said. He added that at least half of the electric cars imported into Europe from China are Western brands.
European Commission President Ursula von der Leyen is promoting “de-risking” relations between Europe and China. Her approach has been supported by French President Emmanuel Macron, who hosted Chinese President Xi Jinping this month and urged Brussels to strengthen protections against what his administration sees as unfair competition from China. .
The Brussels investigation is less concerned with whether China is dumping large numbers of cars into Europe and more concerned with how subsidies offer lower prices for EVs made by China’s three largest EV makers, BYD, Geely and SAIC. The focus is on what has become possible. The Chinese government has criticized the European Union for not investigating Western brands with factories in China, including Tesla, which exports more EVs from China to the EU than any other manufacturer.
Rhodium Group, an independent think tank focused on China, said the European Commission would have to impose tariffs of up to 50% on Chinese EVs to compensate for China’s state subsidies, but the same The group suggested that such measures were unlikely to be taken in China. Europe will not do so unless European authorities undertake a more “fundamental” review of World Trade Organization rules and suggest that tariffs of 15 to 30 percent are more realistic.
Meanwhile, Chinese electric car makers such as BYD and Great Wall Motors are setting up factories in Hungary to make cars that are considered European, which could ultimately lead to trade issues with the United States. be.
The Biden administration is watching with similar concern that Chinese auto companies are investing in factories in Mexico that could be used to gain access to the U.S. market.
An approach in which the United States and Europe work together to confront China risks retaliation, intensifies trade tensions, and could weigh on the global economy. Chinese officials said last week that they would comply with new trade measures imposed by the United States.
In an interview with The New York Times this week, Yellen insisted that the new U.S. tariffs are targeted and that she does not believe China wants to escalate tensions.
“I expect some reaction from the Chinese side, but I hope it will be moderate and proportionate,” Yellen said.
