US Will Not Accept Another ‘China Shock:’ Yellen Says

U.S. Treasury Secretary Janet Yellen attends a news conference at the U.S. ambassador's residence in Beijing on April 8, 2024. Pedro Pardo/AFP via Getty Images

China commonly floods global markets with cheap products, and the United States will not allow this to threaten U.S. jobs, Treasury Secretary Janet Yellen said on April 8 as she concluded a return visit to China.

After Bejing’s acceptance into the World Trade Organization, massive quantities of low-priced products exported from China killed about 2 million jobs in the United States and led to the hollowing out of industrial production in many parts of the country, Ms. Yellen told reporters in Beijing, calling it the “first China shock.”

“I simply would say, [the situation] would not be acceptable to the United States,” she said.

On her second trip to China as treasury secretary, Ms. Yellen repeatedly expressed Washington’s concerns about Beijing’s burgeoning production in green-energy sectors, including electric vehicles, their batteries, and solar panels, as household consumption remains weak in the country.

She criticized China for flooding the global market with cheap products, as Beijing shifted its policy focus by investing in manufacturing factors to boost the country’s stagnant economy. The message recurred through the four days of talks with senior Chinese officials, including Premier Li Qiang and Vice Premier He Lifeng, who oversees China’s economic and financial systems.

Following the April 8 meeting with the Bank of China Governor Pan Gongsheng, Ms. Yellen raised the issue again.

“I am particularly worried about how China’s enduring macroeconomic imbalances—namely, its weak household consumption and business overinvestment, aggravated by large-scale government support in specific industrial sectors—will lead to significant risk to workers and businesses in the United States and the rest of the world,” she told reporters at the U.S. ambassador’s residence in Beijing.

“China is now simply too large for the rest of the world to absorb this enormous capacity. And when the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question.”

The treasury secretary acknowledged that addressing the issue takes time. “Our concerns will not be resolved in a week or a month,” she said.

However, Ms. Yellen stressed that the new initiative offers a structure for Washington to raise concerns about “China’s imbalances and overcapacity.” The Treasury Department will launch new initiatives with China’s Ministry of Finance to hold more economic dialogues.

“We intend to underscore the need for a shift in policy by China during these talks,” she said.

There are signs that Beijing is reluctant to change its economic strategy.

On April 7, Mr. Li told Ms. Yellen not to “politicize” economic and trade issues, and urged Washington to view its industrial capacity matters “objectively,” according to a summary of the meeting published by Beijing’s foreign ministry.

China’s commerce minister, Wang Wentao, also pushed back at such criticism at a roundtable meeting in Paris, calling Washington’s and Brussels’s concerns about its overcapacity “groundless.”

U.S. Treasury Secretary Janet Yellen (C) walks with U.S. Ambassador to China Nicholas Burns (2nd L) for a meeting with Chinese Premier Li Qiang in Beijing on April 7, 2024. Tatan Syuflana/AFP via Getty Images

China’s overcapacity, driven by years of massive state subsidies, has emerged as a new source of contention with its trade partners, especially the European Union and the United States.

Analysts have suggested that it’s time to increase tariffs and put pressure on the Chinese regime, given that the country now relies on exports to drive growth as the real estate sector, once a pillar of its economy, declines.

At the news conferences, Ms. Yellen declined to specify what measures the Biden administration would take if Beijing didn’t respond to its concerns.

But she emphasized that the Biden administration would push Beijing to change its course.

Over a decade ago, China’s massive state subsidies “led to below-cost Chinese steel that flooded the global market and decimated industries across the world and in the United States,” she said.

“I’ve made clear that President Biden and I will not accept that reality again.”