What happened?
On 04 April, US Treasury Secretary Janet Yellen visited Guangzhou for a six-day trip to China. Her second visit to China within nine months came as she aimed to address the ongoing trade disputes between the two sides and stabilize the relations. Later, she visited Beijing and flew back to the US on 09 April, making little progress on the vast disagreements between the two sides. Her visit to China is part of the Biden administration’s efforts to address the industrial overcapacity issue threatening the United States and other trade issues that had hindered the progress of the US-China economic relationship.

Background to Yellen’s China trip
Treasury Secretary Yellen conducted her four-day trip to China on 09 July due to increased bilateral trade tensions. Her visit did not result in any major outcomes apart from conveying the US’s interests and concerns to China. She mainly conveyed the concerns that US business interests in China were threatened due to increased trade barriers. She also tried to clarify the distinction between diversification and decoupling with her counterparts. She stated that the US aimed to diversify the supply chains to avoid disruption and not seek economic isolation. She further mentioned the importance of climate financing and net zero carbon economies through greater bilateral cooperation in accordance with the Paris Agreement.

Yellen on China’s industrial overcapacity problem
In her meeting with her counterparts, Secretary Yellen emphasized China’s unfair practices hurting the US businesses, which has been a result of its growing industrial capacity. She raised this issue related to the increasing exports of Chinese EVs, batteries, and solar panels to the EU and the US. She said, “China is now simply too large for the rest of the world to absorb this enormous capacity.” In the case of China, its average industrial capacity is 75 per cent, which is slightly less than the pre-covid levels. However, China’s EV sector has higher capacity utilization rates, which exceed more than 80 per cent, thereby creating pressure on foreign manufacturers. Its huge stimulus program that aided the Chinese economy during the 2008 Global Financial Crisis has led to depressed prices for 50 months.

Concerns regarding upcoming US presidential elections
With the upcoming presidential elections between the two presidential candidates, Joe Biden and Donald Trump, their distinct approaches to economic competition with China will predominantly feature in the 2024 elections. While Trump envisions a protectionist policy towards China, Biden advocates to partner with allies to compete against China. Trump’s efforts to halt the US-China trade deficit and hold China accountable for its aggressive behaviour have hugely favoured the trading communities, industrialists, and workers in the heartlands, according to a report by the National Bureau of Economic Research (NBER), thereby increasingly favouring the Republican party. This creates additional pressure on Biden to win back the support of trade interest groups who are increasingly advocating for a stronger response against the growing Chinese imports.

What does the visit mean for the US?
First, Domestic interests are the utmost priority for Washington in US-China ties, despite sounding optimistic on her visit to China while trying to break the ice, Secretary Yellen insisted that China must shift its growth model away from supply-side investments to avoid threatening the jobs and markets of other countries, especially the US. Also, China’s strong objection to Yellen’s remarks on the overcapacity issue shows that China will not agree to US demands and will push against US tariffs and export restrictions. In Beijing, Yellen said: “President Biden and I will not accept that reality again, adding that since China joined the World Trade Organization in 2001, the US had lost 2mn manufacturing jobs.” This shows that the US is not going to undermine its domestic interests without any concession from China.

Second, Stabilising ties with China, the ongoing trade disputes with China have been critical for the US to conduct dialogues and negotiations with China. Being the largest trading partner of the US, and the recent meeting of President Biden and President Xi in San Francisco, the confrontation between the two sides and the opportunities make it important for the US to continue engaging with China. The US, despite emphasizing its diversification strategy, does not want to decouple from China as many American companies and farmers rely on China for their exports. The Biden administration has not removed any of the Trump-era tariffs and is likely to continue further along with his initiatives, such as the CHIPS Act to revive American domestic industry. However, the US will continue to ensure that China does not gain any major technological advantage through its export restrictions on advanced semiconductors. Also, President Biden will ensure that China’s predatory and aggressive economic ties are countered in a way through the US cooperation with its allies such as the Indo-Pacific Economic Framework (IPEF).

References:
“US Treasury Secretary Janet Yellen’s China visit: The 3 key takeaways,” The Indian Express, 11 July 2023Ryan Hass, “How will Biden and Trump tackle trade with China?” Brookings, 04 April 2024
Hung Tran, “Breaking down Janet Yellen’s comments on Chinese overcapacity,” Atlantic Council, 09 April 2024
Claire Jones and Joe Leahy, “How Janet Yellen struggled to move the needle on US-China trade,” Financial Times, 10 April 2024
“From unfair trade to TikTok: US Treasury Secretary Yellen’s China trip,” AlJazeera, 09 April 2024)