US Treasury Chief Warns of Chinese Subsidies' Global Economic Threat

US Treasury Secretary Janet Yellen expressed concerns during her China visit over Beijing's substantial industry subsidies, highlighting their potential to destabilize the global economy by fostering production overcapacity. She emphasized that overcapacities could lead to low-priced exports and supply chain concentration, threatening the resilience of global markets.

US Treasury Secretary Raises Alarm Over Chinese Industrial Subsidies: Threat to Global Economy

Beijing, China - United States Treasury Secretary Janet Yellen has issued a stern warning during her visit to China, expressing deep concerns about the extensive government subsidies provided by Beijing to its domestic industries. Yellen emphasized that these subsidies pose a significant destabilizing force for the world economy, potentially leading to overcapacity in production and distorting global markets.

Concerns over Production Overcapacity and Market Disruption

Addressing Chinese officials, Yellen highlighted the substantial financial support provided by the Chinese government to its industries, both directly and indirectly. She stated that this assistance has resulted in production capacity far exceeding domestic demand and outstripping what the global market can reasonably absorb.

"Such overcapacity can lead to significant volumes of exports at artificially low prices, flooding international markets and jeopardizing the viability of companies both in the United States and globally," Yellen warned. "The excessive concentration of supply chains also undermines the resilience of the global economy, making it vulnerable to disruptions and imbalances."

Biden Administration's Strategic Concerns

Yellen's concerns mirror those expressed by the Biden administration, which has been closely monitoring China's ambitions in key sectors such as electric vehicles and green energies. The administration is eager to stimulate domestic production in these areas, particularly in the run-up to the upcoming presidential election.

"The Chinese subsidies represent a major challenge to the competitiveness of American companies in emerging industries," commented Paul Triolo, an expert on China at Albright Stonebridge Group. "The Biden administration may consider taking preemptive measures to prevent future issues related to Chinese overcapacity, but such initiatives could provoke a negative reaction from Beijing."

Dialogue Amidst Tensions

Despite the ongoing tensions between the United States and China, Yellen's visit signals a willingness to resume dialogue between the two powers. This is her second trip to China in less than a year, underscoring the importance attached by both sides to maintaining open channels of communication.

During her visit, Yellen is scheduled to meet with senior Chinese officials, including Vice Premier He Lifeng and People's Bank of China Governor Pan Gongsheng. The talks are expected to cover sensitive economic issues, including American restrictions on Chinese technology companies and Beijing's economic support for Russia.

Balancing Firmness and Dialogue

While the United States remains committed to addressing the perceived threat posed by Chinese subsidies, Yellen has emphasized the need for a balanced approach. She has stated that constructive dialogue and cooperation are essential for safeguarding the global economic order.

"The United States must find a way to preserve the competitiveness of its companies and the stability of international markets," Yellen said. "However, we must also recognize the importance of maintaining a cooperative relationship with China and working together to address common challenges."

Economic Fallout and Future Relations

Failure to address the issue of Chinese subsidies could have far-reaching implications for the global economy. Overcapacity and market distortions can lead to job losses, business closures, and reduced economic growth worldwide. Additionally, it could exacerbate tensions between the United States and China, potentially escalating to an economic war that would harm both sides.

The resolution of this issue requires a concerted effort from both countries. While China must address the concerns raised by the United States, the Biden administration must also pursue constructive dialogue and avoid actions that could further escalate tensions. The future of the global economy and Sino-American relations hangs in the balance.