U.S. Treasury Secretary Janet Yellen has recently repeatedly pointed the finger at China's clean energy industry and put pressure on China with so-called "overcapacity". In response to her complaints, Bloomberg's climate and energy columnist David Fickling published an article on April 9 accusing Yellen of discarding China's clean technology by packaging anti-climate protectionism as a green industrial policy and even discarding more than 200 years of economic principles.
Ficklin's analysis pointed out that Chinese companies are focusing on clean technology only because of strong market demand for it, not "unfair state support". Ignoring the rationale of "comparative advantage," Yellen blamed China's "overcapacity" as contradicting Washington's strong promotion of clean technology, which accounts for a tiny share of China's exports and the U.S. trade deficit with China, which is at its lowest level in a generation.
Ficklin warned that Yellen's choice to reject the fundamentals of economics in order to rationalize the restriction of public access to cheap clean technology is a "protectionist catastrophe in the making."
On April 8, U.S. Treasury Secretary Janet Yellen held a press conference at the residence of the U.S. ambassador to China
"Yellen Turns Economic Fundamentals Against Comparative Advantage"
At the beginning of the article, Ficklin asks people to imagine a scenario in which a "Chinese company" announces plans to build the world's largest ever electric vehicle battery factory.
The plant, which will cost up to $5 billion every 12 months, will be able to produce more batteries than the world combined last year.
The sprawling facility will cover an area of 1.5 square miles (4 square kilometers) and even employ an army of 6,500 people.
They were able to cut costs by 30% and destroy any competitors who failed to keep up.
The "Chinese company" that built the plant has lost more than $1 billion in the past seven years and is expected to continue to lose $5 billion in the next seven years.
After describing the above scenario, Ficklin mentioned that does this sound very much in line with the definition of "predatory overcapacity", and does it fit the description that "China's mercantilism will lead to the hollowing out of the world's manufacturing industry"?
But in reality, this has nothing to do with Chinese companies, but Musk first announced plans to build a gigafactory in Nevada a decade ago.
Tesla's Gigafactory built in Nevada, USA
During her visit, Yellen tried to convince the Chinese government and companies that "their investment in clean technology is excessive and disruptive," Ficklin noted. For example, in a speech at the American Chamber of Commerce in Guangzhou, she said that "government support is leading to production capacity far exceeding China's domestic demand, and indeed the global market's capacity." She also said at a solar farm in the United States last month that the surplus was accumulating in "solar, electric vehicles and lithium-ion batteries."
Yellen's policy proposals are undoubtedly remarkable, and that "one of the most prominent economists of our time" is rejecting one of the most fundamental tenets of economics for more than 200 years: comparative advantage, Ficklin quipped. That is, if a country can manufacture goods at a lower cost than you, you should not raise tariff barriers;
Yellen herself seems to be aware of this disconnect. Ficklin noted that last week, Yellen said in an interview with the Wall Street Journal: "People like me have had the idea from a young age that if someone gives you a bargain, you should send a thank you note, which is the basic idea of standard economics." Yellen, however, claimed: "[But now] I will never say 'send a thank you note' again." ”
"The paradox is that the U.S. promotes clean technology while saying China has overcapacity"
Despite Yellen's argument about "overcapacity," Ficklin argues in her article that clean technology is not China's most important export.
First, clean technologies such as solar panels, electric vehicles and lithium-ion batteries still account for a small share of China's exports, at about 5.7 percent last year. In 2023, China's export earnings from electric vehicles were lower than suitcases and backpacks, furniture (excluding chairs), wheeled toys and scooters, and table lamps and lamps. No cleantech product can match the largest export category (mobile phones and computers).
Blue solar photovoltaic panels cover the hillside in Yuncheng, Shanxi Province, January 22, 2024/IC Photo
Another factor worth noting is that the "imbalance" in the economic relationship between China and the United States is the smallest in a generation. The trade deficit between China and the United States was $279 billion last year, the lowest since 2010. Relative to the size of the U.S. economy, this figure is the lowest since China joined the WTO in 2002.
Ficklin also noted that when talking about climate change, Washington talks a lot about the level of clean technology, which contradicts Yellen's accusation that China has "overcapacity" in clean technology. Just four months ago, China and the United States agreed to triple global renewable energy capacity by 2030, a goal that later became the centerpiece of the United Nations climate agreement COP28 last December.
In Ficklin's view, in the face of global demand for clean technology transformation, the term "overcapacity" is untenable.
Because it usually takes at least three to four years for a large manufacturing plant to go from planning to full production, not to mention the fact that many factories end up failing, it is difficult to say that there is an oversupply in the world. Taking a step back, this problem is only present in the field of electric vehicles and solar panels, but rapid technological iterations could cause many production lines to shut down in the coming years. When it comes to lithium-ion batteries, we're still not there. Wind power is also woefully underwhelming, with its huge turbines making it the most difficult clean technology to export.
Data map: A wind farm in Brandenburg, Germany/Visual China
"They package anti-climate protectionism as a green industrial policy"
Ficklin said that if China's clean technology has become an "obvious problem" in the United States and Europe in the past year, then the political system of the American and European markets and the quiet neglect of the energy transition by major companies are also inextricably linked.
When investors see strong emerging demand for a commodity and think they have a competitive position in terms of production, they will do what Tesla did with Gigafactory One in Nevada: shocking the rest of the world with massive construction, believing that cheaper costs will spark more demand and allow them to capture market share.
Since the beginning of 2023, it is this motivation that has increased the market capitalization of Nvidia by almost $2 trillion.
Ficklin argues that the examples of Tesla and Nvidia show that even if Chinese companies show more "animal spirits," it is not because of unfair state support. After all, cleantech companies are no more reliant on funding than their competitors elsewhere.
Ficklin concluded by saying that the advantage of adopting tough and unilateral tariffs for the United States and the European Union is that doing so does not require compliance with strict trade regulations. In the absence of a normal WTO, portraying "anti-climate protectionism" as a "green industrial policy" is an ingenious way.
In its crackdown on China's clean technology exports, the West has also hit sectors of the economy that have good prospects for reducing emissions and are dominated by the private sector.
Yellen's choice to reject the fundamentals of economics in order to rationalize the restriction of public access to cheap clean technology as the standard-bearer of this policy is a growing protectionist catastrophe. This is true for the United States and for the planet. Ficklin said.
Smearing China's "overcapacity" is nothing but "narrow political manipulation"
In fact, it's not just Bloomberg that is questioning Yellen.
The Wall Street Journal reported on 3 April that Yellen, a senior economist in the Clinton administration in the past, had been eager to establish closer relations with China before Clinton's visit to China in 1998, and had witnessed China's booming economy after market reforms. And now as the Biden administration's Treasury secretary is visiting China, "optimism" has turned into "vigilance".
Yellen, 77, once thought that China's export surge in the early 21st century could be a "positive signal" to provide low-priced goods to global consumers, but with the hollowing out of U.S. manufacturing and the unemployment of Americans, this has been blamed as a so-called "China shock" incident and intensified the political backlash against globalization, the article analysis said.
"China is not to blame for the slow development of electric vehicles in the United States. Hong Kong's South China Morning Post published a commentary article written by Wang Xin, associate professor at Baylor University in Texas and director of the Center for Asian Studies, on April 9, in which he pointed out that the latest rhetoric of the United States and the West against China is "overcapacity" and another "smear criticism" of China's economic policy and global strategy by the United States.
The article points out that China's electric vehicles, which are now completely excluded from the U.S. market, are obviously not the root cause of the problem, and compared with China's cheap electric vehicles and industrial policies in place, the slow development of the U.S. electric vehicle market is inseparable from its own policy chaos. Yellen and other U.S. officials accuse China of not only being grossly wrong, but also not genuinely worried about the U.S. economy, but actually engaging in political manipulation in an election year.
Unlike the protectionist approach of the United States, China's industrial strategies such as electric vehicles are more inclusive, free from narrow corporate and political interests, and have a beneficial impact on the rest of the world. On the other hand, the United States, which used "overcapacity" to suppress the Japanese auto industry in the 80s of the last century, has now "repeated the old trick", once again exposing its narrow-mindedness in the face of competition from rising economies.
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