China’s trade policies and overconcentrated supply chains pose a threat to the US green energy industry and job market, according to Treasury Secretary Janet Yellen. Speaking at the Economic Club of New York, Yellen highlighted the lack of transparency in China’s subsidies and industrial policies, which are believed to far exceed those of other countries. This has led to investigations by economies ranging from advanced to emerging markets. Yellen expressed concern that China’s overcapacity risks concentrating America’s supply chains too much, which could have serious economic and national security implications.
Yellen also criticized China’s unfair trade practices, such as restrictive investment policies and economic coercion, which further undermine fair competition. She emphasized that the US government must respond when foreign subsidies threaten strategic sectors like green energy. However, she clarified that this does not mean the US is participating in a decoupling campaign and that President Biden rejects the notion that decoupling would benefit the American economy.
Under the Biden administration, the US government has signed legislation investing hundreds of billions of dollars in climate-related initiatives. Yellen’s concerns about China’s green energy subsidies led to tariff hikes on $18 billion worth of Chinese imports, including electric vehicles and semiconductors. The US increased tariffs on Chinese electric vehicles from 25 percent to 100 percent, citing concerns about potential dumping of cheap, subsidized EVs in the US market. Tariffs on Chinese semiconductors were also raised from 25 percent to 50 percent by 2025, along with higher tariffs on aluminum and steel imports.
In a CNBC interview, Yellen addressed the growing national debt, which recently exceeded $34.7 trillion. She acknowledged that higher interest rates are exacerbating the debt load but stated that as long as the debt is stabilized relative to the size of the economy, it is manageable. Yellen emphasized the importance of considering the real interest cost of the debt as the true burden. The Treasury Department reported that the budget deficit climbed to $347 billion in May, bringing the fiscal year-to-date shortfall to around $1.2 trillion. Net interest costs have exceeded spending on important sectors like health care, defense, and education, and interest payments are projected to reach approximately $1.14 trillion this year.
The Congressional Budget Office has warned about the nation’s growing debt and deficits, projecting that without significant fiscal reforms, the debt could reach 166 percent of GDP over the next 30 years. However, Yellen believes that President Biden’s proposals will manage the situation. She stated that the president’s budget for the coming fiscal year includes $3 trillion of deficit reduction over the next decade, which would stabilize the debt-to-income ratio and interest burden. The White House budget predicts that the national debt will reach around $45 trillion by 2034, with cumulative deficits and interest payments totaling trillions of dollars.
Increasing financing costs are putting further strain on federal finances. The average rate on the national debt is currently at a 14-year high of 3.2 percent, with a significant portion having an average rate of over 5 percent. Over the next year, approximately $9 trillion of the national debt will mature, requiring refinancing at higher interest rates. To manage the deficit and rising interest costs, the federal government plans to borrow nearly $1 trillion in the second half of the fiscal year.
While inflation pressures have eased, the Federal Reserve has indicated that it plans to implement only one quarter-point rate cut this year, down from initially projected three cuts. Yellen did not comment on monetary policy in her interview.
In conclusion, Yellen’s remarks highlight the challenges posed by China’s trade policies and overconcentrated supply chains, as well as the growing national debt and its implications for the US economy. The Biden administration’s investments in green energy and proposed deficit reduction measures aim to address these issues. However, the impact of increasing financing costs and the need for significant fiscal reforms remain important considerations.
