U.S. Treasury Secretary Janet Yellen concluded a four-day visit to China with a warning directed at Beijing, emphasizing that the United States will not tolerate the decimation of new industries by Chinese imports. Yellen’s visit aimed to press her case for China to rein in its excess industrial capacity, particularly in sectors such as electric vehicles (EVs), batteries, and solar panels, where Beijing’s massive state support has raised concerns among U.S. policymakers.
Speaking at a press conference, Yellen reiterated President Joe Biden’s stance, stating that the U.S. administration will not allow a repeat of the “China shock” experienced in the early 2000s when a surge in Chinese imports led to the loss of about 2 million American manufacturing jobs. While Yellen did not threaten new tariffs or trade actions, she highlighted the need for Beijing to address overinvestment and excess capacity that threaten industries not only in the U.S. but also in other countries.
Yellen’s concerns centered on Beijing’s overinvestment, which has led to factory capacity surpassing domestic demand and resulted in a flood of exports, particularly in green energy goods. She stressed that the viability of American and foreign firms is at risk when the global market is flooded with artificially cheap Chinese products. Yellen drew parallels to past challenges faced by the U.S. steel sector due to below-cost Chinese steel flooding global markets.
The Treasury Secretary’s visit underscored broader international concerns over China’s excess industrial capacity, with Washington’s European allies, Japan, Mexico, the Philippines, and other emerging markets sharing similar apprehensions. Despite Yellen’s warnings, China pushed back, with Vice Finance Minister Liao Min expressing “grave concern” over trade restrictions imposed by Washington and defending China’s competitive advantages rooted in its market size, industrial system, and human resources.
While China has pledged to take steps to curb industrial overcapacity, it maintains that recent criticisms from the U.S. and Europe are misguided, arguing that innovation by Chinese companies and market competition drive growth rather than excessive state support. Moreover, Chinese officials warn that trade curbs on Chinese EVs would violate World Trade Organization rules and impede global efforts to address climate change.
Yellen suggested that China bolster consumer demand and shift its growth model away from supply-side investments as a potential short-term solution. During her visit, Yellen engaged in discussions with top Chinese officials, including Premier Li Qiang, Finance Minister Lan Foan, and People’s Bank of China Governor Pan Gongsheng, underscoring the importance of addressing industrial overcapacity for the stability of global markets.
While Yellen refrained from explicitly mentioning trade curbs, her focus on China’s macroeconomic environment and the need for structural reforms signals ongoing U.S. scrutiny of Beijing’s industrial policies. As tensions persist between the world’s two largest economies, the outcome of Yellen’s visit will likely influence future trade relations and efforts to address global economic challenges.
