During her visit to China, US Treasury Secretary Janet Yellen sounded the alarm over Beijing's massive subsidies to its industry. This aid could destabilize the world economy by leading to production overcapacity.
American concerns about Chinese subsidies
Janet Yellen, who has been in China for four days, expressed concerns about the impact of large Chinese subsidies on the global economy.
“ Direct and indirect government assistance leads to production capacity far exceeding domestic demand and what the global market can support” , has she declared.
This situation risks leading to a glut of goods and flooding international markets, threatening the viability of U.S. and foreign businesses. “ Overcapacity can lead to large export volumes at low prices and excessive concentration of supply chains, jeopardizing the resilience of the global economy“, underlined Ms. Yellen.
Janet Yellen's fears echo the Biden administration's concerns about Chinese ambitions in key sectors like electric vehicles and green energy. The American president wants to stimulate national production in these areas, making it a campaign argument for his re-election in November.
According to Paul Triolo, China specialist at Albright Stonebridge Group, the Biden administration could take preemptive measures to avoid future problems related to Chinese overcapacity. However, such an initiative would risk provoking a negative reaction from Beijing.
Towards a resumption of Sino-American dialogue?
Despite recent tensions between the two powers, China and the United States seem to want to renew dialogue. Janet Yellen's visit to China, her second in less than a year, testifies to this desire.
The Treasury Secretary is expected to meet several senior Chinese officials, including Vice Premier He Lifeng and central bank governor Pan Gongsheng. These exchanges will thus make it possible to address sensitive issues such as American restrictions against China and Beijing's economic support for Moscow.
In short, Chinese subsidies to industry constitute a major challenge for the global economy. To preserve the competitiveness of its businesses and the stability of international markets, the United States will need to find a balance between firmness and constructive dialogue with Beijing. However, as long as China continues its massive subsidy practices, the specter of economic warfare will loom over Sino-US relations.
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