On April 8, US Treasury Secretary Janet Yellen warned China that rising investment in new business will” considerable risk to workers and companies in the United States and the rest of the world,” adding that China “is then simply too large for the rest of the world to capture this overcapacity.” Secretary Yellen said:
I also expressed my concern to older Chinese officials about the growing adverse effects of the Chinese economy on the US and the world. I’m mainly concerned about how China’s persistent economic imbalances, exacerbated by large-scale government assistance in particular business sectors, will put a considerable strain on workers and businesses in the United States and the rest of the world.
Although China has long had surplus savings, much of it was absorbed by investments in the real estate market and government-funded facilities. We are currently seeing an increase in business expense in a number of “new” companies that the PRC’s industrial policy targets. That includes electronic vehicles, potassium- ion batteries, and renewable.
China is currently simply too large for the rest of the world to take advantage of this huge capability. The PRC’s steps today you change global rates. Additionally, American and other foreign companies ‘ validity is questioned when the global market is flooded with artificially cheap Chinese goods.
This sweeping speech raises three issues:
- Is the issue one of overinvestment in China or disinvestment in the United States and other European nations?
- What impact does a larger capacity in China have on commercial product demand, specifically, is it possible that a rise in supply can lead to a rise in demand?
- Who is buying more Taiwanese items? Are Americans dumping private industry for Chinese goods, or are Chinese products exported to nations with competing industries?
Secretary Yellen’s research is oversimplified at best and distorted at worst despite not having enough information to provide comprehensive answers to these questions.
US manufacturing employment is virtually unchanged from May 2019 ( 12.96 million in March 2024 versus 12.8 million in May 2019 ). The Fed’s commercial production indicator is constant.
Industrial funding has been subdued, aside from funded investments in semiconductor manufacturing facilities. Purchases for nondefense investment products, excluding aircraft, from American manufacturers decreased by about 10 % to$ 37.8 billion in January 2019. Investment in manufacturing structures in 2017 dollars in the fourth quarter of 2023 was$ 140 billion, compared with$ 185 billion in the first quarter of 2019.  ,
In addition, the US trade deficit for items increased to$ 92 billion intermittently adjusted for the month of January 2024, up from$ 72 billion in January 2019. Americans, for some reason, decided to buy more products from other countries and spend less on domestic production.
America imposed a 25 % tariff on more than$ 200 billion of Chinese imports during this time. Between January 2019 and January 2024, import prices ( before tariffs ) for Chinese goods slightly increased. In addition, China’s goods, as reported by the US analytical companies, decreased from$ 41 billion in January 2019 to$ 36 billion in January 2024.  ,
It is difficult to attribute the drop in US manufacturing investment and increased dependence on foreign items to the elevated exports of Chinese goods over the past five years.
Chinese goods in the past undoubtedly contributed to a decline in US manufacturing work. But, as noted, National imports from China fell during the past five decades. These are long-term styles that were present prior to the emergence of China’s Vehicle market.
To be sure, Foreign investment in third countries contributed to those nations ‘ increased imports, many of which were purchased by the United States, but that is a different story. There are many reasons why US manufacturing achievement is sluggish, including a tax code that favors capital-intensive companies, excessive regulation, and carelessness to education of skilled workers.
If China’s imports to the US declined, where are China’s export going? China’s exports to established businesses ( the US, Europe, Japan and Australia ) have scarcely risen during the past few years, while export to the Global South ( including Russia, the Persian Gulf States, Central Asia, South Korea and Taiwan ) have roughly doubled. That is the most significant financial celebration of the past ten years, and it represents an unparalleled shift in global trade patterns.
A large proportion of China’s imports to the Global South consists of digital and physical facilities. China dominates the buildout of bandwidth in Southeast Asia, Central Asia, Africa and Latin America, as well as the delivery of actual system. By increasing the productivity of developing nations, China’s export provide the basis for its growth in the future.
Moreover, affordable EVs encourage development by promoting freedom. At least some of China’s import growth contributes to self-sustaining growth.
Provide creates its own need. As I recently demonstrated in a new study for the blog American Affairs, there is strong statistical data that investment in wifi in the Global South aids in business formation and promotes higher economic growth.
There are also instances where imports of Chinese products could undermine regional industries. In the Global South, one can also find instances of increased intake of Chinese consumer goods, or fruitless infrastructure projects.  ,
Instead of broad generalizations, these problems deserve careful research and careful attention to the data.
According to the information available, China’s exports are largely oriented toward nations that do not compete with it in new industries, nations that frequently profit from Chinese imports that aid in societal development.
Information is insufficient, and it is possible to identify problems as well as successes. However, Secretary Yellen should consider whether expanding new business ‘ power is a zero-sum game or a positive-sum game. She paid no attention to the beneficial- total effect of new industries, and that is a terrible absence.  ,
Lastly, Secretary Yellen’s guidance to China fails to account for basic trends. It is to stimulate consumption and lessen investment.
China’s incredible progress since the Deng Xiaoping measures of 1979 depended on industrialization. Farmers moved to the places and worked in industries. China may increase commercial productivity, just as South Korea did following the Asian financial crisis of 1997, because the rate of urbanization will decline significantly in the future. With an aging and apparently declining people, rising industrial output is valuable, and that requires a high level of expense.
Secretary Yellen’s concerns should not be dismissed. She is correct to believe that the new industries in China may hurt the US economy. As an American consumer, I would like to buy an EV for less than US$ 10, 000, but as an economist I agree with Donald Trump’s warning that inexpensive Chinese EVs could cause a “bloodbath” for the American auto industry.
He proposed starting on March 18 to impose high tariffs on imported Chinese electric vehicles and to persuade Chinese automakers to set up factories in the US. That seems to be the best option at the moment.
Instead of giving general counsel to other nations, S Treasury should identify practical policy solutions.
This essay , was first published by The Observer ( guancha.cn ), a Chinese website that publishes news and commentary on China and the world. It is republished here with permission.