The recent China trip of U.S. Treasury Secretary Janet Yellen has been described by both sides as frank, fruitful and constructive. Yellen met with Chinese Premier Li Qiang, and had in-depth exchanges with Chinese Vice Premier He Lifeng and other senior officials in the Chinese Ministry of Finance and the People’s Bank of China.
Liao Min, the Chinese vice minister of finance, spoke of three main deliverables that emerged from the talks —dialogue and exchanges on macroeconomic trends for the balanced growth in both countries and the world; cooperation of the two countries’ central banks toward global financial stability, sustainable finance and anti-money laundering; and plans for two joint working groups to meet for the second time during the spring meeting in Washington, D.C. in April of the International Monetary Fund and World Bank.
Janet Yellen noted that her China trip had resulted in three deliverables — in-depth exchanges on balanced growth of world economy; agreement to jointly fight illegal financial activities, including money laundering; and ongoing exchanges of financial technology.
Premier Li met with Yellen in Beijing on March 31. He said that China hopes the two countries will be partners rather than adversaries, showing mutual respect, a desire for peaceful coexistence and win-win cooperation. He expressed hope that the U.S. would work with China to continue implementing the important bench marks set by their leaders and turn them into reality.
Secretary Yellen’s recent China visit should be fully endorsed as an important step in implementing the so-called San Francisco Vision, which was laid out by Chinese President Xi Jinping and U.S. President Joe Biden in November. Yellen’s trip and the deliverables arising therefrom are all constructive and moving in the right direction to stabilize and improve China-U.S. relations, the most important bilateral relationship in the world.
The overcapacity question
On bilateral issues, more differences emerged into the the spotlight, including, among other things, U.S. allegation that China’s excess capacity in electric vehicles, solar panels and lithium cells is disturbing global markets and hurting American industries. The United States charges that the Chinese government is heavily subsidizing industry and treating American businesses in China unfairly.
China, for its part, has explained itself and refuted the charges with facts. Despite all the sharp differences, the approach of putting all the differences and concerns on the table for frank exchanges and discussions, was constructive.
The sharp increase in China’s EV output and exports in recent years have undoubtedly shocked the world, and the European Union in particular. Global output of new-energy vehicles reached 14.35 million units in 2023, with China accounting for 9.49 million, 35.8 percent more than in 2022, or two-thirds of the global total. This compares with 29.5 million units in the U.S. and 1.47 million in Europe. EV exports also hit 1.2 million units, up 77.2 percent year-on-year. Chinese EVs accounted for 19.5 percent of the EU market in 2023 and could rise to 25 percent in 2024. However, it is virtually irrelevant in the U.S. market. China’s automotive exports to the U.S. is minimal. There are no solid facts showing that the U.S. automotive industry and its workers have suffered losses as a result of Chinese EV exports.
Total NEV inventory worldwide reached 26 million units in 2022. With fast NEV output increases in 2023 and the following three years, total world NEV inventory could reach 100 million units by 2026, according to a Bloomberg report. That represents only about 8 percent of total world automotive output.
As the average oil consumption per unit of auto is approximately 1.8 tons per year, 100 million NEVs could save 18 million tons of oil, an integral contribution for meeting the Paris accord goal of reducing CO2 emissions. Bloomberg has also estimated that total world NEV inventory by 2040 could hit 700 million units. In other words, the global annual NEV output needs to hit 40 million in the 2027-40 period to meet that expectation. Hence, China’s annual NEV output of 10 million is not an issue of “overcapacity”; rather, it’s a contribution to the common effort in fighting climate change.
Flood of cheap Chinese goods?
Yellen took a firm stance that she will not allow “cheap Chinese goods” to flood into American markets and hurt American workers and industries. The basic facts, however, prove the opposite. Ever since Donald Trump imposed unilateral tariffs on Chinese goods, Chinese automotive exports to the United States have come down to a minimal level, thus posing virtually no threat to the American EV market.
According to official U.S. trade data, U.S. imports of auto parts from China stood at $18.5 billion in 2023, 16 percent lower than that in 2018, and accounted for only 3.9 percent of total U.S. auto parts imports. That compares with $162.28 billion from Mexico, or one-third of total U.S. imports. Total goods imported to the U.S. from China in 2023 stood at $427.23 billion, which is, $111.29 billion or 20.7 percent lower than five years earlier in 2018 ($538.51 billion).
The current status of Chinese goods in the American market cannot be described as “flooding” but only falling. During the same time span, U.S. imports from Mexico increased by $131.93 billion. Imports from Vietnam more than doubled.
Managing growth together
Despite all the major differences, the deliverables of Yellen’s trip to China are worthwhile and constructive, which is a key part of the high-level bilateral dialogue mechanism charted by the heads of state of China and the United States. Both sides should now move on and engage in concrete fact-finding and trouble-shooting discussions, identifying specific problems. The basic scenario of EV production, trade and industrial policies should be examined on the basis of WTO rules. The concerns of each side should be carefully taken into account and addressed.
China and the U.S. could also consider a different approach on the EV issue. CATL, the Chinese lithium-ion battery giant, had entered a supply agreement with General Motors for sharing LFP batteries and had planned a major investment in the U.S. — building an LRS factory in the U.S. CATL and Ford have also been in discussion for a new battery factory in the country, with CATL authorization of LFP and Ford. Tesla built up a mega EV factory in Shanghai that has played a key role in the fast growth of the EV industry in China. The other way around also holds good prospects. The joint efforts by leading Chinese and American EV players in the U.S. market, could accelerate the EV industry in America, as well as exports to other parts of the world.
The EV scenario can also apply to other industries. As the world’s two largest economies, China and the U.S. could well move in a positive direction despite their differences — managing the differences to minimize negative impacts, while at the same time managing cooperation for growing together in whatever ways are possible, so as to maximize its positive impacts for both.
