Yellen’s speech in front of Wall Street and business executives highlighted the threat posed by Chinese “overconcentrated supply chains” to U.S. jobs and recent investments in the green energy sector. She emphasized the need for the U.S. to respond when foreign subsidies jeopardize domestic firms, particularly in strategic sectors like green energy. Concerns have been raised about China’s green energy products potentially undermining the massive climate-friendly investments made through the Democrats’ Inflation Reduction Act signed into law by President Biden in August 2022. Yellen’s remarks coincided with former President Trump presenting his case to the Business Roundtable for why the economy would benefit from his return to office.
Both Biden and Trump have advocated for tough stances on China, with recent actions including the imposition of major tariffs on Chinese electric vehicles, advanced batteries, solar cells, steel, aluminum, and medical equipment. The European Union also announced plans to increase tariffs on Chinese electric vehicles following an investigation that showed unfair subsidization of Chinese EVs harming EU competitors. Chinese firms have the capacity to meet much of the global demand for solar cells, steel, and aluminum, with officials arguing that their production keeps prices low and supports the transition to a green economy.
During her speech, Yellen highlighted various issues related to Chinese manufacturing firms, including high savings rates, restrictive investment policies, and the rapid expansion of production in sectors like electric vehicles, batteries, and solar energy equipment due to government subsidies. She rejected the idea of economic “decoupling” from China, emphasizing the importance of a level playing field for realizing the benefits of the economic relationship. Yellen’s visit to Guangzhou and Beijing earlier in the year focused on industrial policy and the issue of manufacturing overcapacity in China, a concern shared by the U.S. and Europe.
The U.S. administration’s efforts to promote domestic industries like electric vehicles and renewable energy face challenges from Chinese subsidies that drive the rapid expansion of production in these sectors. Yellen’s remarks underscored the need for fair competition and highlighted the potential benefits of the economic relationship between the U.S. and China. The debate over trade policies and subsidies extends beyond the U.S., with the European Union taking steps to address the impact of Chinese subsidization on its electric vehicle market. As tensions over trade and economic competitiveness continue to escalate, both sides are seeking to navigate a complex landscape of global supply chains and strategic industries. The Biden administration’s approach to addressing these challenges will be closely watched as it seeks to balance economic interests with concerns over unfair trade practices.
