US Treasury Secretary Janet Yellen stated that China’s trade policies could “significantly” hinder Washington’s efforts to build healthy economic relations with other countries.
Yellen made the statement at the Economic Club of New York on Thursday, 13 June.
I am particularly concerned about China’s enduring macroeconomic imbalances. China is a global outlier in terms of its very high saving rate – 45 to 50% of GDP for roughly 20 years. This is roughly twice the OECD (Organisation for Economic and Co-operation Development) average. Such high savings reflect a lack of sufficient domestic consumption demand and risk leading to an expansion in China’s external surplus.
The Secretary stated that China currently channelled a growing share of its savings into manufacturing. Meanwhile, some industries are experiencing unusually high levels of investment, resulting in overcapacity.
She noted that China accounted for 30 per cent of global industrial production and could not rapidly increase this share without causing global displacement.
China cannot assume that the rest of the world will rapidly absorb huge quantities of excess production to the detriment of domestic industries in other countries.
Yellen emphasised that China’s overcapacity posed the risk of artificially over-concentrating supply chains. They also created additional security and economic challenges for the US.
We saw in the past how overcapacity can decimate businesses here at home. We are now seeing the risks of that happening again, in key industries that matter to our long-term growth, such as electric vehicles, lithium-ion batteries, and solar, but also across a range of manufacturing industries.
The Treasury chief said the US would also continue to pursue a policy of “friendshoring,” which involved deepening ties with a wide range of trusted allies to diversify its supply chains and support long-term economic growth.
Yellen stated that the US and China represented 40 per cent of combined global manufacturing and had the two largest financial systems in the world. She noted that China constituted a huge market for US manufacturers and firms, supporting more than 700,000 US jobs.
