On Thursday, May 23, US Treasury Secretary Janet Yellen stated that she hoped Western countries could build a “wall of opposition” against China’s state-driven industrial policies to protect domestic free markets. This was a key issue pushed by Yellen at the G7 finance ministers meeting earlier this week.
Yellen, at the G7 finance ministers meeting held in Italy this week, called on the US and Europe to respond to China’s excessive investments in industries such as electric vehicles, solar products, semiconductors, steel, and other key sectors in a “coordinated and strategic manner” to maintain the survival capabilities of manufacturers on both sides of the Atlantic.
In a prepared statement released by the US Treasury Department, Yellen emphasized the focus on China’s industrial overcapacity.
“The direct and indirect support of the Chinese government to the manufacturing sector is exacerbating economic imbalances in China. This has led to production levels in some industries significantly exceeding not only domestic demand in China but also the capacity of the global market to absorb. Without a new policy direction, including boosting domestic demand in China rather than just increasing supply, it may lead to a glut of export products with depressed prices,” she said.
During a press conference on Thursday, Yellen warned that market-driven economies in other countries would face a threat from the influx of cheap exports from China, jeopardizing the survival capabilities of their respective domestic manufacturers.
“This is not just a US-China issue. German Chancellor Scholz raised this issue during his visit to China in April, and President Macron and President von der Leyen emphasized the need for a balanced trade relationship with China earlier this month. The G7 collectively recognizes the need to protect our workers and businesses from unfair practices. Overcapacity threatens the survival capabilities of businesses worldwide, including those in emerging markets. I believe this poses a challenge to China’s growth as well,” she said in her speech.
Yellen noted that many advanced industrial democracies outside the G7 were also concerned about China’s excessive investments, including countries like Mexico, India, and South Africa.
At the press conference, Yellen clarified that she was not advocating for other countries to mimic US tariff measures. “But we need to stand together and send a united signal to China. It’s important for China to understand that it’s not just one country having this feeling — their strategic pursuit is encountering a wall of opposition,” Yellen said.
Last week, the US government announced high new tariffs on Chinese electric vehicles, batteries, solar panels, and other products to protect relevant domestic industries, with tariffs on electric vehicles and batteries set to take effect on August 1.
Yellen added that G7 officials would discuss their responses and concerns with Beijing. “It’s crucial that we and an increasing number of countries seeing this as a problem establish a clear unified front,” she said.
The EU’s anti-subsidy investigation into Chinese electric vehicles is set to conclude soon, with preliminary tariffs expected to be announced next month.
China has rejected criticism from other countries about its overcapacity and hinted at imposing as much as 25% in new tariffs on cars from the EU, while also threatening retaliation against recent US actions.
Yellen mentioned that if G7 finance ministers could reach a consensus on the concept of pre-emptively freezing Russian asset yields, they would finalize the details before the G7 summit of leaders to be held in mid-June.
She added that while a figure of $500 billion had been discussed, a decision had not yet been made on the potential size of loans to Ukraine.
“This is a guaranteed source of funding, and it’s important for Russia to realize that we will not let a lack of resources hinder support for Ukraine,” Yellen said.
This funding could allow Ukraine to sustain itself beyond 2025, as Ukraine currently has a $60 billion US aid package and around $50 billion in assistance from the EU.
In recent weeks, negotiators for the G7 have been discussing how to better allocate approximately $300 billion in Russian financial assets, such as major currencies and government bonds, that were frozen shortly after Russia’s invasion of Ukraine in February 2022.
Yellen also stated that in the Middle East, it was necessary to continue using economic tools to counter the Iranian regime’s support for terrorist organizations, including Hezbollah, Houthi armed groups, and proxy groups allied with Iran in Iraq and Syria.