By David Lawder
BEIJING (Reuters) -U.S. Treasury Secretary Janet Yellen hammered home a stern warning to China’s economic leaders that their overinvestment in factory capacity for clean energy goods is unacceptable throughout her four-day visit to Guangzhou and Beijing.
She did it while appearing to charm her Chinese hosts this past week, but now comes the hard part: deciding whether to advise U.S. President Joe Biden to move toward raising U.S. tariffs on Chinese electric vehicles, solar panels and other clean energy goods to protect U.S. producers and workers.
Her other option is to press for time to allow a new U.S.-China dialogue on the issue to generate other solutions.
Yellen and her main counterpart, vice premier He Lifeng, launched the talks on “balanced growth,” including industrial capacity and weak Chinese and global demand, on Saturday in the southern factory hub of Guangzhou.
Previous U.S.-China dialogues, including one launched in 2006 by former Treasury secretary Hank Paulson and a successor forum during Barack Obama’s administration, largely failed to persuade China to shift away from its state-driven, investment-led economic model to a more market-driven path despite years of regular meetings.
On what may be her last trip to China as Treasury chief, Yellen saw pushback on her core complaint that a massive export wave of cheap EVs and solar panels, fuelled by state-supported production capacity that far exceeds domestic demand, was threatening competitors all over the world.
China trade experts say that the new dialogue may need to take place alongside a new Biden administration trade action, such as a new “Section 301” tariff investigation or World Trade Organization complaint.
Former president Donald Trump used Section 301 of the Trade Act of 1974, which covers unfair trade practices, to impose tariffs on hundreds of billions of dollars worth of Chinese imports in 2018. The Biden administration is now nearing completion of a lengthy review of whether to renew those duties.
“This dialogue isn’t meant to be a negotiation, so I don’t expect the U.S. to sit on its hands,” said Scott Kennedy, a China economics expert at the Center for Strategic and International Studies in Washington. “Washington will continue to amass evidence to be prepared to take action.”
SOCIAL MEDIA STAR
While in China, Yellen won plaudits from Chinese officials, academics and social media users. She publicly savoured Chinese cuisine and culture, sipping a beer made with American hops at a Beijing microbrewery and showing off her chopstick skills at a Cantonese restaurant in Guangzhou, the southern export hub.
Chinese Premier Li Qiang took note of the social media attention, telling Yellen: “The Chinese ‘netizens’ have been following your trip since the moment you landed in Guangzhou, and that shows the high expectations they have for the outcome of your visit.”
They spoke for nearly three times the 30 minutes scheduled for their bilateral meeting on Sunday.
Unlike her first trip to China in July 2023, Yellen took time out to socialize with her hosts and visit cultural sites, including Beijing’s Forbidden City on a private, after-hours tour.
Yellen and He exchanged gifts on a Pearl River boat cruise, in the southern export hub of Guangzhou. She received a ceramic platter with an image of her official photo, and presented him with a signed painting print of cherry blossoms at Washington’s Tidal Basin, an attendee said.
“She has a particularly high level of credibility within the Chinese government,” American Chamber of Commerce in China Chair Sean Stein said of Yellen. “She maintains a focus on economics and talks about things in a dispassionate way.”
WHAT PROBLEM?
While the goodwill opened doors, pushback from state media and Chinese officials show disagreement with Yellen’s core assertion that China’s green energy manufacturing capacity far outstrips local demand and is flooding global markets with cheap exports from money-losing firms.
Chinese Commerce Minister Wang Wentao on Monday called such claims baseless and said Chinese EV makers’ success is due to innovation, not subsidies.
A Chinese government adviser told Reuters that industrial overcapacity is a topic for discussion with U.S. officials, “but not something that can be resolved.”
“There will be no global trade if there is no overcapacity” and assertions of excess output in new energy sectors are “outrageous,” the adviser said on condition of anonymity.
Still, Yellen’s trip and the growing relationship with Chinese officials give her an “elevated voice” in the Biden tariff debate, said Wendy Cutler, a former U.S. trade negotiator who heads the Asia Society Policy Institute.
But Cutler said it would be hard for Yellen to argue in favour of more time for dialogue during a hotly contested U.S. presidential election year amid rising anti-China sentiment in the United States.
(Reporting by David Lawder in Beijing; additional reporting by Kevin Yao and Joe Cash in Beijing and Marius Zaharia in Hong Kong; editing by Shri Navaratnam, William Maclean)
