Janet Yellen, the US Secretary of the Treasury, wrapped up her week-long China tour with a promising accord to bolster economic discussions between Beijing and Washington. However, she clearly expressed the rising apprehensions of the Biden administration regarding the excessive production capabilities of Chinese manufacturing, notably in the burgeoning sectors of green energy technology.
These apprehensions are also echoed by the European Union, with Competition Commissioner Margarethe Vestager announcing an inquiry into Chinese exports of wind turbine technology in the same week, adding to an ongoing investigation into Beijing’s subsidy of electric vehicles.
US and EU policymakers are driven by the chilling recollection of the 2001 ‘China Shock’ subsequent to Beijing’s entry to the World Trade Organisation (WTO). The influx of inexpensive manufactured imports led to a reduced inflation rate in the West, but the collateral was the loss of hundreds of thousands of factory jobs.
The erosion of elements of the industrial foundation in the US and Europe ignited widespread disgruntlement that accelerated the political ascension of Donald Trump and other rightist populists. Yellen in conversation with her Beijing counterparts made it clear that the Biden administration would not permit a second China Shock to jeopardise US participants in future industries.
Beijing acknowledges the potential issue of industrial surplus but insists it’s temporary and can be fixed by global market dynamics, indicating that the US and EU also provide subsidies to manufacturers. However, China’s monumental backing for its “new productive forces” and the potency of its manufacturing sector provide its exporters with a competitive edge.
The world requires affordable, supreme green energy products to attain carbon goals. Price is a key determinant for motorists contemplating the switch to an EV. Chinese imports have already led to the collapse of most European solar panel manufacturers, and there are concerns in Brussels regarding a similar fate for other sectors.
Whilst Trump threatened to apply harsh tariffs on Chinese imports if he regains power, Yellen didn’t clarify the punitive measures envisaged by Biden’s administration. She instead encouraged Beijing to amplify domestic demand ensuring Chinese consumers and businesses purchase products which might otherwise become exports.
Although it’s doubtful Beijing will agree to a complete alteration of its economic and industrial strategy, its readiness to discuss economic balancing with Washington is a favorable and significant development. The US and EU must shield their industries from unregulated or inequitable competition from China, but it is crucial this is accomplished without succumbing to a trade war detrimental to everyone’s interests.