Treasury Secretary Janet L. Yellen said on Tuesday that the United States and Europe needed to work together to push back against China’s excess industrial capacity, warning that a wave of cheap Chinese exports represents a grave threat to the global economy.
Ms. Yellen’s remarks, delivered during a speech in Germany, highlighted what is expected to be a central topic of discussion when the Group of 7 finance ministers meet in Italy this week.
“China’s industrial policy may seem remote as we sit here in this room, but if we do not respond strategically and in a united way, the viability of businesses in both our countries and around the world could be at risk,” Ms. Yellen said at the Frankfurt School of Finance and Management, where she received an honorary doctoral degree.
China’s excessive production of green energy technology has become a pressing trans-Atlantic concern in recent months. Officials in President Biden’s administration have grown increasingly worried that his efforts to finance domestic manufacturing of clean energy and other next-generation technologies will be undercut by China, which is churning out steel, electric cars and solar panels at a rapid clip.
The Biden administration is now looking to Europe to help the developed world prevent the kind of China shock of the early 2000s, which helped decimate manufacturing in exchange for cheap goods. Last week, Mr. Biden increased tariffs on some Chinese imports, including levying a 100 percent tax on electric vehicles. He also formally left in place levies on more than $300 billion worth of Chinese goods that President Donald J. Trump had imposed.
The United States hopes that a united front will convince China that its largest trading partners are prepared to erect trade barriers that will prevent Chinese electric vehicles, batteries and panels from dominating Western markets.
Ms. Yellen emphasized on Tuesday that the United States was not trying to carry out an anti-China policy, but said China’s actions posed a threat to the global economy that warranted a coordinated response.
She pointed to China’s push to dominate clean energy technology and other sectors, saying that ambition “could also prevent countries around the world, including emerging markets, from building the industries that could power their growth.”
The trend toward protectionist policies is likely to become another point of contention between China and the world’s most advanced economies. Liu Pengyu, a spokesman for the Chinese Embassy in Washington, derided Mr. Biden’s decision to impose new tariffs on Chinese goods last week as a “political maneuver.”
“We hope the U.S. can take a positive view of China’s development and stop using overcapacity as an excuse for trade protectionism,” Mr. Liu said.
The new U.S. tariffs could put additional pressure on Europe to erect trade barriers of its own to prevent China from redirecting more of its exports there. Europe’s officials are already considering additional levies on Chinese cars, which pose a particular threat to Germany.
About 37 percent of all electric vehicle imports to Europe are produced in China, including Chinese brands and ones made by Tesla and German automakers with plants there. Europe is the world’s second-biggest E.V. market, and imports there skyrocketed last year to $11.5 billion, from $1.6 billion in 2020.
The European Commission is investigating whether Chinese state subsidies intended to help the country’s companies make cheap cars are damaging Europe’s auto industry. The sector provides nearly 14 million direct and indirect jobs in Europe, and the six million cars that it exported last year generated a trade surplus of more than 100 billion euros.
Europe’s investigation could result in preliminary duties on Chinese electric vehicle imports as soon as July, though any tariffs are likely to be far lower than the 100 percent imposed by the Biden administration. But unlike Europe, which is already importing cars from China, the United States has erected several barriers to prevent Chinese E.V.s from coming to its shores.
Europe’s investigation into China’s subsidies and whether they merit tariffs has aggravated a political divide. Some countries, such as Germany, which is Europe’s biggest maker of electric cars, have been against an investigation. German officials are wary of pressing penalties that might incite Beijing to shut out German carmakers such as BMW and Volkswagen.
Chancellor Olaf Scholz said in a speech in Stockholm last week, “We should not forget: European manufacturers, and also some American ones, are successful on the Chinese market and also sell a lot of vehicles that are produced in Europe to China.” He added that at least half of electric vehicles imported to Europe from China were Western brands.
Ursula von der Leyen, the European Commission president, has been pushing for “de-risking” Europe’s relationship with China. Her approach is backed by President Emmanuel Macron of France, who hosted his Chinese counterpart, Xi Jinping, this month and has urged Brussels to step up protection against what his administration sees as unfair Chinese competition.
The Brussels investigation has focused less on whether China is dumping large numbers of cars into Europe and more on how subsidies have allowed E.V.s made by BYD, Geely and SAIC, the three biggest Chinese E.V. makers, to offer cut-rate prices. The Chinese government has criticized the European Union for not investigating Western brands with factories in China — including Tesla, which exports more E.V.s from China to the European Union than any other producer.
The Rhodium Group, an independent think tank that focuses on China, said that to compensate for Chinese state subsidies, the European Commission would have to impose duties of up to 50 percent on Chinese E.V.s. But the group suggested that such a move would be unlikely in Europe unless officials took a more “drastic” review of World Trade Organization rules, and suggested that tariff rates of 15 to 30 percent were more realistic.
In the meantime, Chinese electric vehicle makers, including BYD and Great Wall Motor, are setting up factories in Hungary to build cars that would be viewed as European-made products, which could raise trade issues eventually with the United States.
The Biden administration is watching with similar concern as Chinese car companies invest in factories in Mexico, which could potentially be used to enter the U.S. market.
Following her speech, Ms. Yellen told reporters that the United States and countries in Europe have different concerns when it comes to commerce with China and, as a result, they could use different tools to address them. But she added that because many of the concerns about China’s heavy subsidization of exports are broadly shared, it is “more forceful to communicate to China as a group.”
The approach by the United States and Europe to work together to confront China does pose the risk of retaliation, inflaming trade tensions that could weigh on the world economy. Chinese officials said last week that they would respond to the new trade measures imposed by the United States.
In an interview with The New York Times this week, Ms. Yellen argued that the new U.S. tariffs were targeted and that she did not believe that China wanted to escalate tensions.
“I anticipate some response on China’s part, but my hope is that it’s moderate and proportional,” Ms. Yellen said.
