U.S. Treasury Secretary Janet Yellen wrapped up her five-day visit to China recently. The unusual arrangement showed the goodwill of the two countries as they try to stabilize bilateral relations. During her travels to Guangdong province and Beijing, Yellen met with senior officials of the Chinese government and with professors of economics at Peking University. The news that she tried some Chinese dishes drew a lot of attention from the public. Such acts have given rise to a feeling that China-U.S. engagement is staging a comeback.
Engagement has a specific definition in diplomacy. The term is usually used to refer to the honeymoon phase of China-U.S. ties since the establishment of relations in the 1970s. Back then, the two governments cooperated in an array of areas, including economics, technology and education. The two peoples, meanwhile, enhanced understanding of each other through travel, films, television and other means.
Although engagement has sparked huge interest on both sides, some American analysts think U.S. engagement with China has failed: China hasn’t changed to America’s liking. In particular it didn't become a democracy as defined by the West. China is viewed as America’s biggest rival. Washington tends to use strategic competition, economic decoupling and a technological cold war to replace genuine engagement — the very concept of which is now shunned by many Americans.
Nonetheless, Yellen’s China visit demonstrated the significance of China-U.S. engagement. During their meeting in San Francisco last November, Chinese President Xi Jinping and U.S. President Joe Biden reached three main points of consensus — strengthening communication, preventing risks of decoupling and dealing with common challenges. High-level officials from both sides have since launched more frequent and deepened dialogues in economy, finance and other areas.
During Yellen’s visit, the two sides reached further points of agreement. They launched exchanges on balanced economic growth under the framework of the Economic Working Group led by the Chinese Ministry of Finance and the U.S. Treasury Department. And they extended discussions on financial stability, sustainable finance and anti-money laundering under the framework of the Financial Working Group led by the People’s Bank of China and the U.S. Treasury.
“Balanced growth” is a key phrase the nascent new phase of China-U.S. trade relations. No matter how Washington hypes its competition with Beijing, the fundamental architecture in which the two sides have a stake in each other’s future will not likely change. In discussions about balanced growth, both sides expressed hope that their domestic economic policies will minimize negative impacts on each other.
One major concern Yellen raised on the trip was what she called Chinese “overcapacity.” The U.S. claims that China’s enormous production volume of electric vehicles, lithium-ion batteries and other products poses a challenge to the interests of American companies. In response, China underlined that this issue should be viewed from a market perspective and that market principles and laws should be upheld amid the development of economic globalization.
There is no doubt that overproduction is a situation in which market mechanisms play a role. The balance of supply and demand is relative, and imbalances can represent normalcy. Addressing these issues relies on the laws of market value, with other contributing factors being the global division of labor and the international market. The current production level of EVs and photovoltaics falls far short of meeting market demand, especially given the immense potential demand from developing countries.
The International Energy Agency estimates that EV sales will reach 45 million units by 2030, 4.5 times that of 2022. Photovoltaic capacity growth globally is expected to jump to 820 GW in 2030, around four times that of 2022.
Washington may have two reasons to hype China’s alleged overcapacity. For starters, the Biden administration is considering ramping up pressure on China in such sectors as solar panels, EVs and advanced chips, and putting in place new trade restrictions to carry out green protectionism. Another reason may be that it’s looking for an excuse to justify its so-called modern American industrial strategy. The Biden administration is trying to increase subsidies for makers of semiconductors and storage batteries to help bring related supply chains back to the U.S. and therefore enhance the competitiveness of its manufacturing industry.
However, the protectionist measures the U.S. has been implementing in its steel industry over the past decade have not only failed to prevent jobs from dwindling but have driven up costs in other areas and hence reduced the sector’s competitiveness. Many studies confirm this.
China-U.S. dialogue consists of communication but also confrontation. Both sides can understand the other’s concerns and discontent in a more timely and accurate manner. During Yellen’s trip, Beijing raised serious concerns over U.S. sanctions on Chinese companies, tariffs on Chinese exports and restrictions on investment in China. Every nation has legitimate needs to safeguard its own national security. However, the concept of national security should not be generalized to the point of disrupting normal bilateral and global trade and investment, nor undermine the stability of production and supply chains in the name of diversification.
The Biden administration has adopted new policy measures to crack down on China’s tech sector, with a lengthening list of Chinese enterprises that fall under its sanctions. In February, the U.S. Department of Commerce opened an investigation into Chinese vehicle imports and whether they pose national security risks because of the data they could collect. Last month, the department revised its rules on chip export control, putting in place more barriers for Chinese and U.S. companies who desire normal business cooperation. It also imposes a heavier burden for compliance.
Obviously, how to manage the impact of the national security factor on China-U.S. trade relations is a hard nut to crack. Yellen noted that further discussions are needed on how to define national security in the economic arena. The boundary between national security and economic issues should be clarified to beef up the confidence of corporations and provide greater stability in bilateral ties. The U.S. will continue evaluating its national security measures and was committed to “no surprises,” Yellen added.
“No surprises” is of extreme importance for bilateral ties during an American election year. With the presidential election slated for November, Biden, who is seeking re-election, needs to show his achievements to voters. As the Ukraine crisis and the Palestinian-Israeli conflict continue unabated, a stable China-U.S. relationship is crucial to his record.
In a phone call with Biden shortly before Yellen’s China trip, President Xi underscored three overarching principles in handling China-U.S. ties: valuing peace, prioritizing stability and upholding credibility. He added that both sides should work hard to turn the so-called San Francisco Vision into reality.
It is apparent that Beijing is concerned that Washington’s political infighting will negatively affect bilateral ties. Some American politicians are displaying a hawkish attitude as they talk about the "China issue” and fish for political gains.
In light of the upcoming election, the first half of this year might be a key window of opportunity for China-U.S. relations to make progress. Yellen’s visit has added further momentum for high-level engagement between the two sides. U.S. Secretary of State Antony Blinken is expected to embark on his own China trip in a few weeks, and the fourth meetings of both the Economic Working Group and Financial Working Group are scheduled to convene in mid-April in Washington. Notably, dialogues on artificial intelligence and military security are on the agenda.
All these interactions will help prepare the soil for the development of bilateral relations. Of course, Beijing and Washington should not carry out a dialogue simply for its own sake. They need to meet each other halfway and genuinely commit to bringing about practical results. Can Washington put its words into action? This will be critical to the stabilization of China-U.S. ties and their ongoing durability.
