U.S. and China Continue to Talk, but Economic Divide Remains Wide

U.S. and China Continue to Talk, but Economic Divide Remains Wide

When Treasury Secretary Janet L. Yellen traveled to Beijing last summer, her mission was to re-establish a dialogue between the world’s largest economies and stabilize a relationship that appeared to have reached rock bottom.

The United States and China created formal economic working groups to keep the conversation going. Months later, Ms. Yellen met with her Chinese counterparts in San Francisco and Morocco. And the Treasury secretary’s consumption of a dish made with psychedelic “magic” mushrooms at a Yunnan-style restaurant in Beijing sparked something of a culinary craze in China, where Ms. Yellen is popular for being an acclaimed economist.

But despite those signs of progress, thorny economic issues continue to divide China and the United States. When Ms. Yellen arrives on Thursday for four days of meetings in Guangzhou and Beijing, the two sides are expected to exchange views on the state of the global economy, the Biden administration’s concerns about China’s wave of green energy technology exports and Beijing’s frustration’s about mounting barriers to Chinese investment in the United States.

“We don’t want to decouple our economies,” Ms. Yellen said on Wednesday during a stop in Alaska on her way to China. “We want to continue, and we think we both benefit from trade and investment, but it needs to be on a level playing field.”

But she suggested that the administration was prepared to take new trade actions against China to ensure the survival of the clean energy sector that the United States has been trying to grow through tax subsidies and other investments.

Here are some of the most contentious issues that have sown divisions between the United States and China.

A top priority for Ms. Yellen will be to convey the Biden administration’s deep concerns that a glut of heavily subsidized green technology exports from China is distorting global markets.

Ms. Yellen, during a visit to a solar cell plant in Georgia last week, made the case that a surge in Chinese exports of electric vehicles, batteries and solar technology was problematic at a time when the United States is spending huge sums to try to develop those industries. She maintained that China was following the same playbook it used when it flooded global markets with cheap, state-subsidized steel and aluminum, hurting American producers that were unable to compete.

On Wednesday, Ms. Yellen suggested that the United States could take action to ensure that money being spent as part of the Inflation Reduction Act is not undercut by China’s practices.

“We’re providing tax subsidies to some of these sectors, and I wouldn’t want to rule out other possible ways in which we would protect them,” she said when asked about the potential for new tariffs on Chinese imports.

China has focused on factory production to bolster its sputtering economy. Its exports, measured in dollars, rose 7 percent in January and February over last year. The surge of exports has also angered officials in the European Union, and the bloc announced last month that it was preparing to charge tariffs, which are import taxes, on all electric cars arriving from China.

China has pushed back on claims that its economy is struggling and overly reliant on exports. But it has set an ambitious economic growth target of “around 5 percent” for this year, and reaching it will depend in large part on strong demand for goods produced by Chinese factories — electric vehicles, solar panels and consumer electronics.

The Biden administration has kept tariffs on more than $300 billion of Chinese products. Those levies, first imposed by the Trump administration, remain a significant source of tension between the two countries.

Ms. Yellen came into office saying that the tariffs are taxes on consumers and argued that the Trump levies were not well designed. However, rolling back tariffs is particularly difficult in an election year, and Ms. Yellen is unlikely to be able to offer China much relief on that front.

The White House has been weighing the possibility of relaxing some of the tariffs that hit U.S. consumers and imposing new ones that would be focused on China’s green energy exports.

And another round of U.S. solar tariffs could be coming this summer when a two-year pause that President Biden issued in 2022 expires.

China has its own gripes about America’s trade policies and filed a complaint last week with the World Trade Organization contending that the Biden administration’s electric vehicle subsidy policies are discriminatory.

The United States and China both say they welcome foreign investment, but their policies remain hostile.

American companies operating in China have complained over the last year about having their offices searched and facing harassment from Chinese authorities. Ms. Yellen, who will meet with American business executives in Guangzhou, has been seeking clarity on the scope of a Chinese anti-espionage law that foreign firms believe will lead to additional government scrutiny.

China’s leaders are pushing to change the perception that the country is no longer a sound place for foreign investors to put their money. Beijing has reason to be concerned: Foreign direct investment in China fell to its lowest levels in three decades last year, and the government took a series of measures that left foreign businesses feeling that the country is an increasingly hostile place to operate. On top of that, concerns about China’s economy have left many companies less willing to tolerate the trade-offs of running a business in the country.

Last month, Premier Li Qiang, China’s second-in-command, said the government was removing restrictions on foreign investment to make the country a “favored destination” for overseas funds.

And Xi Jinping, China’s leader, met with a delegation of visiting U.S. business leaders last week and declared that China remained committed to economic reform.

However, in a sign of the mixed messages from Beijing, on the same day as Mr. Xi’s meeting, China’s state security ministry warned the public about the intelligence risk posed by foreign consultancies — the type of advisory firms relied upon by overseas firms to perform due diligence for investments.

The United States is also taking a toughened approach. During a call this week, Mr. Biden and Mr. Xi discussed the fate of TikTok, the social media platform owned by the Chinese company ByteDance. The House of Representatives passed legislation last month that would force the sale of the company because of national security concerns, and Mr. Biden has said that he supports the bill, which still must pass the Senate to become law. China is expected to block a forced sale of TikTok, and Chinese officials are expected to raise the issue with Ms. Yellen.

The Biden administration is also trying to clamp down on the flow of money to China, including banning new American investment in key technology industries that could be used to enhance Beijing’s military capabilities. It has also limited China’s ability to benefit from the Inflation Reduction Act, the U.S. climate and energy law.

As Treasury secretary, Ms. Yellen oversees The United States’ sanctions program, which in recent months has been increasingly directed at China.

In late March, the United States and Britain imposed sanctions on China’s elite hacking units, accusing Beijing’s top spy agency of a yearslong effort to place malware in America’s electrical grids, defense systems and other critical infrastructure, and of stealing the voting rolls for 40 million British citizens.

Ms. Yellen has been vocal in pressuring China not to help Russia evade U.S. sanctions. During a speech last year, she expressed dismay at China’s “no limits” partnership with Russia and called it “essential” that China not provide Russia with material support or assistance with sanctions evasion.

The Treasury Department has also been increasingly focused on firms that are based in Hong Kong that have been accused of helping Russia and Iran skirt American sanctions.

The United States has imposed extensive restrictions on the sale of advanced computing chips, chip-making equipment and related products to China, saying that Beijing has used these goods to develop advanced weapons and surveillance systems that ran counter to U.S. national security interests.

China continues to bristle at those restrictions. After the White House revised rules for exporting American artificial intelligence chips and chip-making equipment last week, China criticized the United States, saying that it was arbitrarily changing the rules and creating more obstacles to trade.

China sees the tightening controls as part of a U.S. strategy to thwart the country’s rise by limiting access to products critical to advancing A.I. and other next-generation technologies.

Daisuke Wakabayashi contributed reporting from Seoul.

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