Yellen calls for united front on Chinese industrial overcapacity

Treasury Secretary Janet Yellen said it’s critical for the US and Europe to present a clear and united front against Chinese industrial overcapacity, as she warned of the global impact of Beijing’s macroeconomic imbalances. 

In remarks ahead of a meeting of Group of Seven finance ministers and central bank governors in Stresa, Italy, Yellen reiterated US concerns over China’s export-oriented industrial policy. She stressed that other advanced economies, including Germany and the European Union more broadly, have raised the same issue in recent meetings with China’s leadership. 

“This is not a bilateral issue between the US and China,” Yellen said, according to a text of her prepared remarks released by the Treasury Department. “Overcapacity threatens the viability of firms around the world, including in emerging markets.”  

Yellen’s comments come a week after the Biden administration unveiled an array of tariff hikes on semiconductors, batteries, solar cells and critical minerals from China, in addition to increases on steel, aluminum and electric vehicles. The changes are projected to affect around $18 billion in current annual imports, the administration said.

The Treasury chief has argued the levies would protect the development of sectors critical to the US economy, make their supply chains more secure and, in the long term, lead to lower prices for the products they make.

European Commission President Ursula von der Leyen has warned on numerous occasions that China’s industrial overcapacity and weak domestic economy pose a threat to the European market. German Chancellor Olaf Scholz has voiced similar concerns and called on China to ensure fair competition.  

After meeting Chinese President Xi Jinping together with French President Emmanuel Macron earlier this month in Paris, von der Leyen said the EU would closely coordinate with G-7 partners and emerging economies that are increasingly affected by China’s exports. 

The EU is in the process of concluding an anti-subsidies investigation into Chinese electric vehicles and is expected to announce the results, which entail preliminary tariffs, next month.  

China has rejected most of the criticism on overcapacity, accusing the US and its allies of trying to limit the country’s economic development. Beijing has hinted it may slap new tariffs as high as 25% on cars from the EU and vowed unspecified “resolute measures” in retaliation for the recent US actions.