Treasury Secretary Janet L. Yellen said Tuesday that the United States and Europe must work together to combat China’s excess industrial capacity, warning that a wave of cheap Chinese exports poses a serious threat to the global economy.
Yellen’s remarks, delivered during a speech in Germany, highlighted what is expected to be a central topic of discussion at the Group of 7 finance ministers meeting in Italy this week.
“China’s industrial policy may seem distant as we sit here in this room, but if we do not respond to it in a strategic and united way, the viability of businesses in both our countries and around the world could be at risk.” , said Ms. Yellen. at the Frankfurt School of Finance and Management, where she received an honorary doctorate.
China’s overproduction of green energy technologies has become a pressing transatlantic concern in recent months. Officials in President Biden’s administration are increasingly concerned that its efforts to finance domestic production of clean energy and other next-generation technologies could be undermined by China, which produces steel, electric cars and solar panels at a breakneck pace.
The Biden administration is now turning to Europe to help the developed world prevent the type of China shock of the early 2000s, which helped decimate manufacturing in exchange for cheap goods. Last week, Mr. Biden increased tariffs on some Chinese imports, including levying a 100% tax on electric vehicles. He also officially left in place taxes imposed by President Donald J. Trump on more than $300 billion in Chinese goods.
The United States hopes a united front will convince China that its major trading partners are willing to erect trade barriers that will prevent Chinese electric vehicles, batteries and panels from dominating Western markets.
Ms. Yellen stressed Tuesday that the United States was not trying to pursue an anti-China policy, but said China’s actions posed a threat to the global economy that warranted a coordinated response.
She highlighted China’s efforts to dominate clean energy technologies and other sectors, saying that ambition “could also prevent countries around the world, including emerging markets, from building the industries that could fuel their growth.” “.
The trend toward protectionist policies risks becoming another point of contention between China and the world’s most advanced economies. Liu Pengyu, a spokesperson for the Chinese embassy in Washington, last week called Biden’s decision to impose new tariffs on Chinese goods a “political maneuver.”
“We hope the United States can take a positive view of China’s development and stop using overcapacity as an excuse for trade protectionism,” Liu said.
The new U.S. tariffs could put additional pressure on Europe to erect its own trade barriers to prevent China from further redirecting its exports to that country. European officials are already considering imposing additional taxes on Chinese cars, posing a particular threat to Germany.
About 37% of all electric vehicle imports into Europe are produced in China, including Chinese brands and those made by Tesla and German automakers that have factories there. Europe is the world’s second-largest market for electric vehicles, and imports there skyrocketed last year to $11.5 billion, up from $1.6 billion in 2020.
The European Commission is investigating whether Chinese state subsidies intended to help the country’s companies make cheap cars are harming Europe’s auto industry. The sector provides almost 14 million direct and indirect jobs in Europe, and the six million cars exported last year generated a trade surplus of more than 100 billion euros.
The European investigation could result in preliminary duties on Chinese imports of electric vehicles as early as July, although the tariffs will likely 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 Chinese electric vehicles from arriving on its shores.
Europe’s investigation into Chinese subsidies and whether they justify tariffs has deepened political divisions. Some countries, such as Germany, Europe’s leading manufacturer of electric cars, have opposed an investigation. German officials are wary of imposed sanctions that could prompt Beijing to exclude German automakers such as BMW and Volkswagen.
Chancellor Olaf Scholz said in a speech in Stockholm last week: “We must not forget that European manufacturers, as well as some American manufacturers, are successful in the Chinese market and also sell many vehicles produced in Europe to China. » He added that at least half of the electric vehicles imported from China to Europe were Western brands.
Ursula von der Leyen, the president of the European Commission, has pushed to “de-risk” Europe’s relations with China. His approach is supported by French President Emmanuel Macron, who this month received his Chinese counterpart, Xi Jinping, and urged Brussels to strengthen protection against what his administration sees as unfair Chinese competition.
The Brussels investigation focused less on whether China exported large numbers of cars to Europe than on how subsidies enabled electric vehicles made by BYD, Geely and SAIC, the three largest Chinese manufacturers of electric vehicles, to offer reduced prices. The Chinese government has criticized the European Union for failing to investigate Western brands with factories in China, including Tesla, which exports more electric vehicles from China to the European Union than any other producer.
The Rhodium Group, an independent think tank that focuses on China, said that to offset Chinese state subsidies, the European Commission should impose tariffs of up to 50% on Chinese electric vehicles. But the group suggested such a move would be unlikely in Europe unless officials made a more “drastic” review of World Trade Organization rules and suggested that tariff rates of 15 to 30% would be more realistic.
At the same time, Chinese electric vehicle makers, including BYD and Great Wall Motor, are setting up factories in Hungary to build cars that would be considered European-made products, potentially raising trade issues with the United States. United.
The Biden administration is watching with equal concern Chinese automakers investing in factories in Mexico, which could potentially be used to enter the U.S. market.
The approach by the United States and Europe to work together to confront China poses a risk of retaliation, stoking trade tensions that could weigh on the global economy. Chinese officials said last week they would respond to new trade measures imposed by the United States.
In an interview with the New York Times this week, Yellen said the new US tariffs were targeted and that she did not believe China wanted to inflame tensions.
“I expect some response from China, but I hope it will be moderate and proportional,” Ms. Yellen said.