China’s ‘Overconcentrated Supply Chains’ Threaten US Jobs, Green Investments: Yellen

Secretary of the Treasury Janet Yellen speaks during an Economic Club of New York event on June 13, 2024. (Michael M. Santiago/Getty Images)

China’s “overconcentrated supply chains” threaten U.S. jobs and the current administration’s enormous investments in the nation’s green energy industry, Treasury Secretary Janet Yellen says.

Speaking to the Economic Club of New York on June 13, Ms. Yellen warned that Beijing’s trade policies “may interfere significantly with our efforts to build a healthy economic relationship.”

“The scale of China’s subsidies and industrial policies is hard to quantify due to lack of transparency, but even conservative estimates suggest that they far exceed that of other countries, which is why we see economies ranging from advanced to emerging markets launch trade investigations,” she said in her prepared speech before Wall Street executives and business leaders.

Ms. Yellen contended that China’s overcapacity risks U.S. supply chains being “overly concentrated,” presenting a wide range of economic and national security concerns.

“China also pursues a variety of unfair trade practices—from restrictive investment policies to economic coercion—that further undermine fair competition,” she stated.

The U.S. government must respond when foreign subsidies pose threats to domestic companies’ strategic sectors, such as green energy, the senior administration official said. She noted that action taken by the White House to address these concerns doesn’t mean that the United States is participating in a decoupling campaign.

“President Biden and I reject the notion that ‘decoupling’ would be in any way beneficial for the American economy,” the Treasury secretary said. “At the same time, we can only realize the potential benefits of our economic relationship if there is a level playing field.”

Under President Joe Biden, the federal government has signed legislation to include the Inflation Reduction Act and the CHIPS and Science Act, which spends hundreds of billions of dollars on climate-related investments.

During her April trip to China, Ms. Yellen expressed concern over China’s green energy subsidies. These worries prompted the administration to unveil various tariff hikes on $18 billion worth of Chinese imports that will take effect starting this year.

U.S. officials raised levies on Chinese electric vehicles (EVs) from 25 percent to 100 percent. Although there are very few Chinese EVs on U.S. roads, trade leaders are concerned that Beijing will eventually dump cheap, subsidized EVs in the world’s largest economy.

Additionally, Washington slapped higher tariffs on Chinese semiconductors, increasing them to 50 percent in 2025 from 25 percent. The United States also bolstered tariffs on aluminum and steel imports from 7.5 percent to 25 percent.

‘A Reasonable Place’

Ahead of her Economic Club appearance, Ms. Yellen sat down with CNBC’s Andrew Ross Sorkin during a “Squawk Box” interview.

The interview centered on the ballooning national debt, which recently surpassed $34.7 trillion.

While higher interest rates are exacerbating the massive debt load, Ms. Yellen believes the surging national debt will be manageable if the economy keeps growing.

“If the debt is stabilized relative to the size of the economy, we’re in a reasonable place,” she told the business news network on June 13. “The way I look at it is that we should be looking at the real interest cost of the debt. That’s really what the burden is.”

The Treasury Department released the latest budget numbers and reported that the budget deficit totaled $347 billion in May, lifting the fiscal year-to-date shortfall to $1.2 trillion.

According to the Monthly Treasury Statement, fiscal year-to-date net interest costs have reached $601 billion, exceeding the federal government’s spending on health care, defense, and education. The Treasury forecasts that interest payments will total approximately $1.14 trillion this fiscal year.

The Congressional Budget Office (CBO), a nonpartisan budget watchdog, has warned about the nation’s growing debt and deficits.

Without significant fiscal reforms, the government will accrue tens of trillions of dollars in additional debt over the next 30 years, accounting for 166 percent of the gross domestic product, the CBO projected in its March Long-Term Economic and Budget Outlook.

But Ms. Yellen says the president’s proposals will manage the situation.

“In the budget the president presented for this coming fiscal year, he proposes $3 trillion of deficit reduction over the next decade,” she said. “That’s sufficient to basically keep the debt-to-income ratio stable, and this interest burden would be stabilized.”

The White House budget for fiscal year 2025 forecasts that the national debt will be roughly $45 trillion by 2034, with $16.3 trillion in cumulative deficits and more than $12.5 trillion in cumulative interest payments.

Increasing financing costs is adding more strain on federal finances.

The average rate on the national debt is at a 14-year high of 3.2 percent, and about $6 trillion of the debt possesses an average rate of more than 5 percent. Over the next 12 months, approximately $9 trillion of the national debt will mature, meaning the Treasury will refinance the debt at higher interest rates.

April Treasury estimates confirmed that the federal government plans to borrow nearly $1 trillion in the final half of the fiscal year to help manage the deficit and rising interest costs.

The Federal Reserve left its policy rate at a 23-year high of 5.25 percent to 5.5 percent at the June Federal Open Market Committee meeting on June 12.

Despite inflation pressures decelerating, the central bank has signaled that it plans to trigger just one quarter-point rate cut this year, down from three.

Ms. Yellen didn’t comment on monetary policy.