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Washington will not allow a glut of Chinese production to wipe out American manufacturers of green technology, US Treasury secretary Janet Yellen has warned ahead of a trip to China.
Yellen is visiting Guangzhou and Beijing and is expected to place accusations that China is flooding global markets with cheap green tech at the core of talks with officials including the finance minister, vice-premier and central bank governor.
She said on the way to the meetings that she would “not rule out” raising trade barriers to protect manufacturers of green tech, including batteries and solar panels, from Chinese competition.
Her trip follows a flurry of high-level contacts between the two sides in recent weeks as they seek to stabilise relations. These include a phone call between US President Joe Biden and his counterpart Xi Jinping this week, and a trip by American chief executives to Beijing to meet China’s leader last week.
Beijing is expected to tell Yellen that the US is using oversupply as an excuse for protectionist policies aimed at decoupling the world’s two largest economies. China also accuses the US of attempting to contain its development using export controls on high-tech products such as semiconductors.
“This new variant of ‘China threat’ theory is just a pretext for certain western countries to poison the environment for China’s domestic development and international co-operation and take more protectionist measures for their own industries,” said Chinese state news agency Xinhua.
Economists and foreign governments say China’s policy of picking green tech winners — coupled with weak consumer spending, high investment and the more recent economic downturn — is leading to a growing export glut and driving prices down to levels that stop foreign counterparts from competing.
“The scale of subsidies just dwarfs what we see in OECD economies,” a Treasury official said during the trip, noting that the excess capacity was having “global spillovers”.
Some Chinese officials have also recognised that there is too much productive capacity, leaving factories dormant.
“There is a wide recognition in China that there’s an imbalance between production, where Chinese companies have continued to produce, but domestic demand has not kept up,” said Scott Kennedy, of the CSIS think-tank.
“However, the counterargument for [Chinese officials] is that global demand is also low. They will say the big problem is not that they’ve produced too much — it’s that the world is buying too little.”
Kennedy added that officials could argue the glut was helpful in addressing the global surge in inflation.
Beijing is expected to challenge US policies over national security, with officials likely to raise issues such as Congress’s attempts to force the sale of social media platform TikTok by its Chinese owner, ByteDance.
China says that its exports are benefiting the developing world and the west feels threatened by its efforts to move into higher-end manufacturing.
“While it is just basic economics that surplus products naturally seek out markets elsewhere once domestic demand is met, and western nations have been doing that for centuries, when it comes to China, it becomes an ‘overcapacity problem’ threatening the world,” the Xinhua piece said.
Like the US, the EU is increasingly concerned by China’s growing dominance of green tech. On Wednesday, the European Commission said it had launched an in-depth investigation into two of China’s solar panel manufacturers.
The US is unlikely to resort to tariffs or formal investigations at this stage, with a senior Treasury official noting that there was “no rapid solution to this issue”.
However, Yellen said during a stopover in Alaska that the products flooding on to the global market were all in areas “where we think that massive investment in China is creating some overcapacity”.
Referring to US companies, she said: “We’re providing tax subsidies to some of these sectors and I would not want to rule out other possible ways in which we will protect them.”
The US is offering subsidies primarily through the $369bn Inflation Reduction Act, Biden’s flagship programme to make the US economy greener.
Mexico, Europe and Japan were also “feeling the pressure” from significant levels of Chinese investment in green tech, Yellen said.
Source: Economy - ft.com
