The Irish Times view on the US and China: an uneasy trade relationship

The US and the EU must protect their industry from unfair or uncontrolled competition from China but must also seek to avoid a trade war

United States treasury secretary Janet Yellen ended a week-long visit to China this week with a welcome agreement to step up the economic dialogue between Washington and Beijing. But she left her hosts in no doubt about the Biden administration’s growing concern about overcapacity in Chinese manufacturing, particularly in new industries surrounding green energy technology.

The European Union shares these concerns and Competition commissioner Margarethe Vestager this week announced an investigation into Chinese exports of wind turbine technology. The Commission is already investigating Beijing’s subsidies of electric vehicles.

Policymakers in the US and the EU are haunted by the memory of the “China shock” that followed Beijing’s accession to the World Trade Organisation (WTO) in 2001. Cheap imports of manufactured goods helped to keep inflation low in the West but at the cost of hundreds of thousands of factory jobs.

The destruction of parts of the industrial base in the US and Europe fuelled the popular discontent that helped propel the political rise of Donald Trump and other right-wing populists. As Yellen told her hosts in Beijing, the Biden administration will not allow a second China shock to threaten US players in the industries of the future.

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China recognises industrial overcapacity as a potential problem but asserts that it is transient and can be resolved by global market forces and Beijing points out that both the US and the EU also subsidise manufacturers. But the scale of China’s support for what it calls “new productive forces” and the power of its manufacturing base give its exporters a competitive advantage.

The world needs low-cost, high-quality, green energy products to meet its carbon targets and price is an important factor for drivers considering switching to an electric vehicle. But Chinese imports have already driven most European solar panel producers out of business and Brussels fears that other sectors could go the same way.

Trump has threatened to impose prohibitive tariffs on Chinese imports if he returns to the White House but Yellen did not specify what punitive actions the Biden administration is considering. Instead, she urged Beijing to boost domestic demand so that Chinese consumers and businesses will buy more of the goods that might otherwise end up as exports.

Beijing is unlikely to agree to change the entire direction of its economic and industrial policy but its willingness to engage in dialogue with Washington about economic rebalancing is a welcome and significant step. The US and the EU must protect their industry from unfair or uncontrolled competition from China but it is important that this should be achieved without descending into a trade war that would harm everyone’s interests.

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