U.S. Treasury Secretary Janet Yellen issued another warning on October 17th regarding China’s investment subsidies that contribute to global overcapacity, raising concerns in the United States. Daleep Singh, the Deputy National Security Advisor for International Economic Affairs, also commented on China’s excess production of goods, which he suggested is aimed at dominating the global market. He indicated that the U.S. will respond with tariffs and other restrictive measures.
During an event in New York, when asked if recent measures taken by Beijing could support economic growth, Yellen stated, “We haven’t really seen meaningful numbers yet; I think we need to wait and see how that plays out.” She further emphasized the unusual degree of imbalance in China’s economy, noting a savings rate of 40%, while consumer spending remains significantly lower than in other countries.
Yellen pointed out that China needs to boost consumer spending instead of relying on one-time rebates. “China has chosen to target specific industries and subsidize investments to the level of global overcapacity, and that overall situation in China is what we’re truly concerned about,” she said.
She noted that various Chinese provinces are competing to expand investments in clean energy and advanced manufacturing sectors like semiconductors, resulting in extremely high levels of subsidies. “Many loss-making companies are surviving, leading to significant overcapacity that threatens our efforts to grow in these areas,” she added.
Yellen defended the Biden administration’s approach towards China, emphasizing that while national security is important, it should not impede the Chinese economy. “Trade and investment with China can provide significant benefits for American businesses and workers, and it is essential that we maintain them,” she stated, reiterating the need for a “healthy economic relationship” based on fair competition.
On the same day, Deputy National Security Advisor Singh remarked that China has amassed increasing market power that it uses as leverage in economic and geopolitical contexts. The U.S. views this as unacceptable, highlighting that “this is the crux of the issue and it isn’t abstract. You can see it in the numbers,” he stated, noting severe overcapacity in comparison to forecasts for electric vehicles, batteries, and semiconductors.
However, Singh did not elaborate on any new measures the U.S. is currently considering. He mentioned that “more and more countries,” including Brazil, India, South Africa, and the European Union, are beginning to view industrial overcapacity as a significant problem, similar to the U.S., as China maintains dominance across multiple sectors. He noted that for the past two decades, China has employed the same strategy to dominate fields such as steel, solar energy, and medical equipment, but this trend is now “expanding and intensifying.”
Previously, Washington indicated that the U.S. may need to take additional “more creative” actions beyond tariffs to protect American industries and workers from the increasing threat posed by China’s growing industrial overcapacity.
