U.S. Treasury Secretary Janet Yellen cautioned China on Monday, stating that Washington would not tolerate new industries being decimated by Chinese imports. She was concluding four days of meetings aimed at urging Beijing to address its excess industrial capacity.
Yellen told a media conference that U.S. President Joe Biden would not allow a repeat of the "China shock" of the early 2000s when a flood of Chinese imports destroyed about 2 million American manufacturing jobs.
She did not, however, threaten new tariffs or other trade actions should Beijing continue its massive state support for electric vehicles, batteries, solar panels and other green energy goods.
Yellen used her second trip to China in nine months to complain that China's overinvestment has built factory capacity far exceeding domestic demand while fast-growing exports of these products threaten firms in the U.S. and other countries.
She said a newly created exchange forum to discuss the excess capacity issue would need time to reach solutions.
Yellen drew parallels to the pain felt in the U.S. steel sector in the past.
"We've seen this story before," she told reporters. "Over a decade ago, massive PRC government support led to below-cost Chinese steel that flooded the global market and decimated industries across the world and in the U.S."
Yellen added: "I've made it clear that President Biden and I will not accept that reality again."
When the global market is flooded with artificially cheap Chinese products, she said, "the viability of American and other foreign firms is questioned."
Yellen said her exchanges with Chinese officials had advanced American interests and that allies shared U.S. concerns over excess industrial capacity in Europe, Japan, Mexico, the Philippines and other emerging markets.
She said a possible short-term solution was for China to bolster consumer demand with support for households and retirement and shift its growth model away from supply-side investments.
Yellen spoke about the issue at length with Premier Li Qiang and met Finance Minister Lan Foan on Sunday. She met People's Bank of China (PBOC) Governor Pan Gongsheng and former Vice Premier Liu He on Monday.
In a CNBC interview after the meetings, Yellen said she was "not thinking so much" about trade restrictions on China as much as shifts in its macroeconomic environment. But she reiterated she won't rule out tariffs.
Treasury officials said the U.S. and China were also deepening cooperation on financial stability issues, with two more simulations of financial shocks scheduled after a recent exercise on dealing with the failure of a large bank.
China's parliament, the National People's Congress, said in March the government would take steps to curb industrial overcapacity.
However, Beijing says the recent focus by the U.S. and Europe on the risks to other economies from China's excess capacity is misguided.
Chinese officials say the criticism understates innovation by their companies in key industries and overstates the importance of state support in driving their growth.
They also say tariffs or other trade curbs will deprive global consumers of green energy alternatives that are key to meeting international climate goals.
State news agency Xinhua quoted Li as saying the U.S. should "refrain from turning economic and trade issues into political or security issues" and view the topic of production capacity from a "market-oriented and global perspective."
Chinese Commerce Minister Wang Wentao voiced more pointed objections during a roundtable meeting with Chinese electric vehicle makers in Paris, saying U.S. and European assertions of Chinese excess EV capacity were groundless.
Rather than subsidies, China's electric vehicle companies rely on continuous technological innovation, perfect production and supply chain systems and entire market competition; Wang said on his trip to discuss a European Union anti-subsidy inquiry.
