In One Sentence

• During Secretary of Treasury Janet L. Yellen’s trip to China from April 4-7, the U.S. and China agreed to establish a bilateral exchange to discuss “global balanced economic growth” and facilitate Treasury-People’s Bank of China Cooperation on anti-money laundering and financial stability.
• However, Secretary Yellen failed to convince China to cut back on the flood of exports of electric vehicles, lithium-ion batteries, and solar panels to global markets.
• In response to the Biden administration’s argument that China’s industrial overcapacity is caused by Beijing’s unfair subsidy practices, Chinese officials described it as a “manifestation of the market mechanism.”
• Before Secretary Yellen’s trip to China, U.S. President Biden and Chinese President Xi held a phone call to exchange views, including on China’s “unfair trade policies and non-market economic practices” and the United States’ “endless” sanctions and restrictive measures to “suppress China’s trade and technology development.”
• The U.S. has agreed to enter into consultation procedures with China at the World Trade Organization (WTO) over a complaint filed by the latter over the allegedly WTO non-compliant electric vehicle and renewable energy tax credits under the U.S. Inflation Reduction Act.

Mark the Essentials

• Although Secretary Yellen’s communication with Chinese officials is largely categorized by the Biden administration as cordial, commentators argued that her visit failed to convince China to adjust its policies and address U.S. concerns on topics such as overcapacity in green products manufacturing. Many argued that high-level official talks are necessary to prevent unintended risks in the bilateral relationship, but that the negotiations seem unlikely to change either U.S. economic policy on China or China’s economic and industrial practices.
• U.S. policymakers and stakeholders are meanwhile pushing the Biden administration to initiate Section 301 investigations and eventually impose tariffs on Chinese imports of electric vehicles, solar panels and other green energy products and technologies. They argue that a new U.S.-China dialogue on trade, such as during the Trump administration, might need to happen alongside more U.S. tariffs or other trade actions on China.
• Beijing recently clarified its cross-border data transfer rules and exempted certain types of data from the requirement to undertake a security assessment before transferring the said data abroad. Analysts argue that the move is part of Beijing’s efforts to ease compliance costs for foreign companies in China and incentivize foreign investment in China.

Keeping an Eye On…

• The ‘new normal’ in U.S.-China relations continues to take shape, one piece at a time. The ‘new normal’ is not a ‘new Cold War’ as some have posited—although there is a palpable Cold War-style, zero-sum equation settling into their competition to dominate the high-technology and advanced manufacturing industries of tomorrow. Nor is the ‘new normal’, on the other hand, merely a more contentious version of the mix of engagement and competition that characterized their four-decade-long post-normalization relationship. Strategic competition between the U.S. and China is for real and, if mismanaged, could easily drift into outright across-the-board rivalry and conflict—both hot and cold. That said, there is no one typology of interaction that cuts across the ‘baskets’ of U.S.-China issues; the two countries’ interactions, rather, span the range from the icy to the lukewarm. Positioned towards the latter end of this spectrum is Washington’s and Beijing’s engagement on macroeconomic and financial issues, helmed by their Economic and Financial Working Groups. Over the course of four meetings since their establishment last fall, the EWG and the FWG have touched on matters as varied as each jurisdiction’s approach to financial stability oversight, the financial stability implications from their respective insurance sector’s exposure to climate risk, supervision and regulation of cross-border supply of financial services, and aligning anti-money laundering rules on crypto assets and beneficial ownership, among others. The two countries also co-chair the G20 Sustainable Finance Working Group, which supports low-carbon development through renewable energy expansion, capacity building and adaptation financing in the developing world. Capping this ample agenda was the deepening of discussions on China’s industrial overcapacity issue within an Intensive Exchange on Balanced Growth in the Domestic and Global Economies framework during Treasury Secretary Yellen’s visit to Guangzhou and Beijing earlier this month. The framework appears modeled on the Strategic Impediments Initiative (SII) that the United States and Japan devised three-and-a-half decades earlier to deal with the structural drivers that Washington believed was behind the large trade imbalance between the two nations. These drivers concerned not border measures such as tariffs and import quotas but matters wholly in the realm of domestic policy and regulation, including Japan’s excess savings as well as the oligopolistic and interlocked nature of its corporate structures which Washington argued excluded outside parties from transactions. Substitute (Chinese) state-owned enterprises for (Japanese) oligopolistic corporate structures today, and the makings of a new SII should be readily apparent. One way or the other, this new SII framework in current or altered form is here to stay, regardless of whether the Biden administration is returned to office or not. Donald Trump’s past—and likely future—trade czar, Robert Lighthizer, was one of the architects, after all,  of the trade wars of the 1980s that had led to the establishment of the Strategic Impediments Initiative.

Expanded Reading

• China Pushes Back Against Janet Yellen’s Warnings on Overcapacity, The Wall Street Journal, April 9, 2024
• Yellen Sees ‘More Work to Do’ as China Talks End With No Breakthrough, The New York Times, April 8, 2024
• Russia, chopsticks, oversupply: Everything you want to know about Janet Yellen’s China visit, CNN, April 8, 2024
• Biden-Xi phone call sparks clash on U.S. high tech export controls, Politico, April 2, 2024
• Biden and Xi seek to manage tensions in phone call as US officials head to China, The Guardian, April 2, 2024
• Readout of President Joe Biden’s Call with President Xi Jinping of the People’s Republic of China, The White House, April 2, 2024