Treasury Secretary Janet Yellen is headed to a China determined to avoid open conflict with the United States, yet the world's two largest economies still appear to be hashing out the rules on how to compete against each other.
There are tensions over Chinese government support for the manufacturing of electric vehicles and solar panels, just as the US government ramps up its own aid for those tech sectors. There are differences in trade, ownership of TikTok, access to computer chips and national security — all of them a risk to what has become a carefully managed relationship.
The 77-year-old Yellen, a renowned economist and former Federal Reserve chair, laid out to reporters the issues that she intends to raise with her Chinese counterparts during her five-day visit. Yellen is headed to Guangzhou and Beijing for meetings with finance leaders and state officials. Her engagements will include Vice Premier He Lifeng, Chinese Central Bank Governor Pan Gongsheng, former Vice Premier Liu He, leaders of American businesses operating in China, university students and local leaders.
Yellen, speaking to reporters Wednesday during a refueling stop in Alaska en route to Asia, said her visit would be a “continuation of the dialogue that we have been engaged and deepening” ever since US President Joe Biden and Chinese President Xi Jinping met in 2022 in Indonesia. She noted that it would be her third meeting with China's vice premier.
Yellen recently accused China of flooding global markets with heavily subsidized green energy products, possibly undercutting the subsidies the US has provided to its own renewable energy and EV sector with funds provided by the Democrats’ Inflation Reduction Act. She said she intends to repeat her concerns to Chinese officials that they're flooding the global market with cheap solar panels and EVs that thwart the ability of other countries to develop those sectors.
“We need to have a level playing field,” Yellen told reporters. “We're concerned about a massive investment in China in a set of industries that's resulting in overcapacity.”
Yellen didn’t rule out taking additional steps to counter Chinese subsidies in the green energy sectors, adding: “It’s not just the United States but quite a few countries, including Mexico, Europe, Japan, that are feeling the pressure from massive investment, in these industries in China.”
The Treasury secretary’s travels come after Biden and Xi held their first call in five months on Tuesday, meant to demonstrate a return to regular leader-to-leader dialogue between the two powers. The leaders discussed Taiwan, artificial intelligence and security issues.
The call, described by the White House as “candid and constructive,” was the leaders’ first conversation since their November summit in California, which renewed ties between the two nations’ militaries and enhanced cooperation on stemming the flow of deadly fentanyl and its precursors from China.
Still, it appears to be difficult for the two countries to strike a balance between competition and antagonism.
For instance, Xi last week hosted American CEOs in Beijing to court them on investing in China. Meanwhile, Biden last August issued an executive order that instructed an inter-agency committee, chaired by Yellen, to closely monitor US investment in China related to high-tech manufacturing.
Jude Blanchette, a China expert at the Center for Strategic & International Studies, said: “The Biden administration’s efforts over the last year to stabilize the relationship are clearly working, but the main friction points all remain unresolved and will likely challenge the relationship for the foreseeable future.”
“For the time being, a ‘managed rivalry’ might be the best we can hope for, given the potentially catastrophic consequences of the relationship really going off the rails,” he said.
Yellen last week said China is flooding the market with green energy that “distorts global prices,” and plans to tell her counterparts that Beijing’s increased production of solar energy, electric vehicles and lithium-ion batteries poses risks to productivity and growth to the global economy.
China began to broaden its presence in the global economy more than two decades ago, exporting cheap goods that appealed to US consumers at the expense of factory jobs in many of those consumers' hometowns. Research by the economists David Autor, David Dorn and Gordon Hanson into what's known as the “China Shock” led to the steady demise of many factory towns, and in some cases led to greater political discontent.
Still, some experts see a benefit in an economic showdown to produce green products.
Shang-Jin Wei, a professor of Chinese business at Columbia University, says that a subsidy war could ultimately help consumers in both countries buy more climate-friendly products, which is an aim of the Biden administration.
“In contrast, a US tariff on EV imports could raise the price of EVs in the US and is therefore counterproductive for the purpose of inducing a green transition.”
Yellen's trip will run from April 4 to 9. It's intended as a follow-up to Yellen’s travel to China last July, which resulted in the launch of a pair of economic working groups between the two nations' finance departments to ease tensions and deepen ties.
But this visit falls in an election year, where tough talk on China has increased by Democrats and Republicans — who criticize Chinese ownership of popular social media app TikTok, the nation’s censorship and hold a deep mistrust over recent acts of espionage such as hacking and the use of a spy balloon.
Scheherazade S. Rehman, a professor of International Business and Finance and International Affairs at George Washington University, said while “it’s an election year, so all the rhetoric is going to be sharper, the USand China are in a symbiotic trading relationship and ultimately need each other.”
China is one of the United States’ biggest trading partners, and economic competition between the two nations has increased in recent years. Yellen stressed Wednesday that the United States has no interest in decoupling from China.
China’s support of Russia as it continues its invasion of neighboring Ukraine is another issue that will come up during the meetings. As the US and its allies sanction Russian officials and entire sectors of the Russian economy, like banking, oil production and manufacturing, trade between China and Russia has increased.
