Yellen in China: Failure Was the Only Option | Opinion

U.S. Treasury Secretary Janet Yellen testifies before the Senate Banking, Housing, and Urban Affairs Committee at the Dirksen Senate Office Building on February 08, 2024 in Washington, DC. Republican Senator John Kennedy complimented Yellen while grilling her on “Bidenomics.”

Treasury Secretary Janet Yellen was in Beijing this week for four days of talks over a range of topics, particularly China’s predatory trade practices. Despite persistent efforts—she visited the Chinese capital last July—Yellen does not appear to have made any progress during this round of discussions.

No surprise here: Given her approach to the People’s Republic of China, failure was the only possible option.

The U.S. and partners—especially the European Union and also Japan—are concerned about China’s manufacturing “overcapacity.” President Joe Biden, Yellen said, would not allow another “China shock.” After China’s accession to the World Trade Organization in late 2001, the country flooded the U.S. and others with goods. The “shock” then resulted in the loss of 2 million American factory jobs.

“China is now simply too large for the rest of the world to absorb this enormous capacity,” Yellen said on Monday. “Actions taken by the PRC today can shift world prices. 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 specifically referred to “massive PRC government support” for the steel industry a little more than a decade ago and declared that neither she nor Biden would “accept that reality again.”

In reality, the President and the Treasury secretary are accepting China’s predatory trade practices.

How so? They are adopting approaches to China’s regime that in fact have not worked for decades.

For decades, American leaders have been talking to Beijing, and for decades Beijing’s trade behavior has deteriorated.

Yellen has not seemed to notice. The U.S. and China formed economic and financial working groups last September. One of those groups will hold its fourth meeting this month in Washington “where these issues will be discussed at length.”

What’s there to talk about? Even before Yellen left China, Chinese officials were expressing their profound disagreement with her criticisms.

China’s overcapacity is not the product of a mistake. It is the inevitable result of the Communist Party’s economic system. There is a shortage of domestic demand due to Beijing’s policies designed to depress consumption. Therefore, the country exports its excess industrial supply. Chinese goods depress prices in foreign markets, which results in foreign businesses failing.

“China creates overcapacity because giving money to bureaucrats and state-owned companies is what the system knows how to do,” Anne Stevenson-Yang of J Capital Research USA told me this week. “Building new factories makes it look like China is growing, even when demand is falling.”

Xi Jinping is reluctant to reverse policies that depress consumption because that would offend key constituencies in the Communist Party as well as undermine the solvency of the banks, which underpin the Chinese economic system. Moreover, Xi does not want to empower consumers. Finally, he is intent on putting China on a wartime footing, which means he’s determined to build even more industrial capacity.

There is, in short, no amount of reasoning, sweet talking, or cajoling that will get China’s leader to do what the rest of the world wants.

Chinese intransigence has not deterred Ms. Yellen, however. “As the world’s two largest economies,” she said on Sunday, “we have a duty to our own countries and to the world to responsibly manage our complex relationship and to cooperate and show leadership on addressing pressing global challenges.”

Her words sound responsible, but there is no way the U.S. can manage a trade criminal.

So what should Washington do?

Stevenson-Yang, also the author of the upcoming Wild Ride: A Short History of the Opening and Closing of the Chinese Economy, suggests the Biden administration should impose additional restrictions to block exports of high-end semiconductors to China. America, she says, should also ban access to the new materials Chinese needs for its exports of high-tech products.

Recently, observers have been talking about imposing stiffer tariffs, especially on Chinese EVs.

In Beijing, Yellen said she did not want to impose tariffs but also would not rule them out. Former President Donald Trump, on the other hand, is wholeheartedly in favor of them. He told Fox News’s Maria Bartiromo in February that he will raise tariff rates on Chinese imports to more than 60 percent.

There is, at least at this moment, an apparent reluctance in the Biden administration to ruffle the Chinese leadership, with tariffs or anything else. “We have put our bilateral relationship on a more stable footing,” Yellen said while she was in Beijing.

What she was really saying is that the administration has postponed taking meaningful action against China for its obviously predatory conduct. That’s a mistake. Her job is to protect American businesses and workers from unfair foreign competition, not please China’s mercantilist leaders.

Xi Jinping has made it clear that he does not intend to change course on exports. Janet Yellen’s pleading with his subordinates, however persistently, will not work. She should know that by now.

Gordon G. Chang is the author of The Coming Collapse of China and China Is Going to War. Follow him on X, formerly Twitter, @GordonGChang.

The views expressed in this article are the writer’s own.

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