The US Treasury Department’s Deputy Secretary responsible for international affairs, Jay Shambaugh, is set to lead a delegation to Beijing for talks with Chinese officials on Thursday and Friday, as reported by The Wall Street Journal on Tuesday, September 17th.
Shambaugh, who heads the US-China Economic Working Group, has participated in discussions with Chinese officials multiple times. With a background as a scholar in international macroeconomics, he has spent decades studying the economic relationship between the US and China. Shambaugh is hailed as one of the top US officials who best understands the current state of the Chinese economy.
This week’s meeting marks the fifth session of the economic working group, which includes several Federal Reserve officials from the US.
In a statement to The Wall Street Journal, Shambaugh emphasized the importance of maintaining a flexible channel for discussing a range of economic issues with China, not only in areas of mutual agreement but especially in areas where differences exist.
During the visit, discussions will delve further into China’s macroeconomic imbalances and industrial policies, which could potentially inflict significant harm on workers and businesses in the US and around the world, according to Shambaugh.
In a speech at the Council on Foreign Relations in July, Shambaugh specifically addressed Chinese overcapacity and its implications for the global economy. He warned that China’s current overcapacity in certain sectors poses risks similar to those seen in past cycles that led to job losses and company closures in the US.
Shambaugh highlighted that China can no longer rely on global growth as it did from 1990 to 2010.
China now accounts for 30% of global manufacturing and its trade surplus in manufacturing as a share of world GDP is substantial, growing rapidly at a 2% pace. This share exceeds the combined peak earnings of Japanese and German manufacturing sectors.
The Chinese leadership’s clear trend is to further propel manufacturing as a driver of their country’s growth, aiming to capture an increasing share of global production, which implies that other countries’ manufacturing industries would be forced to shrink to make space, Shambaugh explained.
For many developed economies, the damage from China’s current overcapacity could be particularly severe, as Chinese policies target industries such as electric vehicles and renewable energy, areas Western countries aspire to develop.
Meanwhile, the Chinese government denies overcapacity, dismissing it as an excuse concocted by Western countries led by the US to suppress China’s rise.
Shambaugh indicated that many countries, like the US, seek to address the negative spillover effects globally caused by China’s non-market behavior.
Many of China’s trading partners, from the US and Europe to even some Asian countries considered relatively friendly towards China, are raising tariffs and other trade barriers to resist cheap Chinese goods.
As domestic demand weakens, Beijing opts to boost its manufacturing capacity domestically and then export surplus products overseas. This policy reflects two main aims of the Chinese Communist Party: first, building a comprehensive industrial supply chain to reduce reliance on foreign goods and second, making other countries and regions more dependent on China’s supply chain.
Shambaugh suggested that if necessary, the US would take defensive actions, but it would be preferable for China to take action itself, acknowledging the growing concerns of its major trading partners and collaborating to address these issues.
In his statement to The Wall Street Journal, Shambaugh mentioned that the US delegation would also discuss cooperation in certain areas during the working group meeting, such as the debt and financing challenges faced by many developing countries. The “Belt and Road” initiative from Beijing has left many participating countries struggling to repay debts owed to China.