The US Treasury secretary, Janet Yellen, issued a warning to China yesterday (8 April) that the White House will not accept a flooding of the US market with Chinese products.
The remarks were made at a press conference in China, where Yellen has emphasised that the US is seeking to avoid a second ‘China shock’.
The first, shortly after the turn of the millennium, saw a large-scale move of manufacturing away from the US and towards China, with a cut of around 2 million US manufacturing jobs.
EVs and batteries
Yellen argued that Chinese large-scale exports in green technology sectors – including in solar panels, electric vehicles (EVs) and batteries – threaten to undercut domestic US manufacturing, as China’s vast government spending in the sectors far outstrips the country’s domestic demand.
The two countries have developed a new exchange forum to discuss the dispute, with Yellen making the case for pushback on China’s subsidy programme by arguing that “the viability of American and other foreign firms is put into question”.
"We've seen this story before. Over a decade ago, massive People's Republic of China government support led to below-cost Chinese steel that flooded the global market and decimated industries across the world and in the US. I've made it clear that president Biden and I will not accept that reality again."
Ahead of the 2024 US presidential election, analysts expect Biden to continue to pursue his ‘de-risking’ approach towards China, while co-operating on certain strategic issues, if the former Delaware senator wins re-election.
China’s response
Chinese vice finance minister Liao Min responded that Beijing “will not sit idly and ignore” what it suggested was US protectionism.
China’s advantages in green manufacturing “are rooted in China's large-scale market, complete industrial system and abundant human resources”, he contended.
The Chinese trade ministry also reaffirmed its commitment to helping to “accelerate the overseas development” of the country’s EV businesses by supporting logistics and shipping.
This follows recent suggestions from China’s National People’s Congress that industrial overproduction could be reined in.
South Korea’s move
The finance minister of South Korea, Choi Sang-mok, voiced his perspective on his own country’s trading relationship with China in an interview on Monday (7 April) with the FT.
Remarking that South Korea’s “economic relationship with China has changed”, Sang-mok said that “a rivalry has emerged over the last 10 years” as a result of Beijing’s booming exports.
He added that his country’s approach would have to change as a result:
“We need stronger competitiveness to better compete with China. The Korean economy will face big challenges if we stick to the past growth model.”
Sang-mok, who also serves as South Korean deputy prime minister, said that there was a need for renewed focus on research and development in South Korean business to compete with China.
It echoes the thoughts of Park Chong-hoon of Standard Chartered’s Seoul office, who told the FT that “China’s rise is likely to erode Korea’s economic growth and competitiveness in the medium to long term”.
Cottoning on
Europe is facing its own questions on Chinese imports in light of the war in Ukraine, as defence firms have warned that “guncotton” used in the production of shells and other explosive devices is imported too heavily from China.
China exports almost half of the world’s cotton used in defence production. Rheinmetall CEO, Armin Papperger, notes that European production uses even more – over 70% of producers on the continent import their cotton from the Asian nation.
Another industry executive told the FT that there is now a “huge undersupply” of the cotton, called nitrocellulose, “which is causing difficulties elsewhere within the industry”.
Swedish manufacturer Saab have warned that worsening relations with China could mean scaling up production of military hardware in the sector becomes particularly difficult in the future.