Janet Yellen, the experienced U.S. treasury secretary, is popular in China. “Pragmatic and less reticent towards China than many of her peers,” the newspaper Global Times, owned by the official People’s Daily, has described her. Representatives of Xi Jinping’s government have entertained her with banquets, receptions and even a boat tour on the Pearl River, the great artery of the city of Canton. Her trip to China, just a few days after the first call in two years between the leaders of both countries, is meant to keep advancing the gradual normalization of relations between the two powers, evident in the last year. But Yellen also took advantage of her prestige to send a clear message to authorities in Beijing: the United States remains suspicious of Chinese economic practices, from its overcapacity in the clean energy sector to the rules it applies to American companies in mutual competition.

Throughout four days of visit, her second in less than a year, Yellen’s good standing in China has been evident. Chinese social media has been full of praise for her excellent use of chopsticks and her good taste when choosing typical Cantonese dishes. The 77-year-old economist is perceived as the last great representative of a school of thought in danger of extinction: that of experts who saw the growth of China and its cheap exports at the beginning of the century as a positive sign that would bring global progress.

Neither Yellen nor the United States think that way anymore. If there is something that unites Democrats and Republicans in an increasingly polarized country, it is suspicion of China. Since Biden’s arrival at the White House in 2020, the Democratic president has maintained the tariffs on Chinese products imposed by his predecessor, the Republican Donald Trump, and he has also adopted what he calls a de-risking policy: not a complete decoupling, which would be impossible, but an increase in domestic production in strategic sectors, including clean energy, among others: it also subsidizes its electric vehicles — and a diversification of logistics chains to avoid the risk of dependence on Beijing in key areas.

Added to this principle is the defense of national security, the premise that Washington uses to impose restrictions on technological exports that make China angry. It is a policy that Biden indicated in his conversation with Xi will continue. Concern about national security was the argument that the U.S. used to, in practice, expel the giant Huawei from the U.S. market in 2019 (a veto that Beijing viewed as an attempt to eliminate a rival that surpassed it in 5G technology).

National security is also the reason that the House of Representatives invokes for having approved a bill that would force TikTok’s Chinese owner, ByteDance, to sell the popular short video application, used by 170 million Americans, within a period of six months. The measure is pending a vote in the Senate, where there is still no date for it, and it is not even clear that legislators want there to be one. But Biden has declared that, if it is approved in the Upper House, he will sign it into law.

Officially, the two countries agree on the need to keep lines of communication open and preserve the largest bilateral economic relationship in the world, which last year alone exchanged $575 billion in goods and services. But, in practice, the suspicion is mutual.

A week ago, the Biden administration reinforced rules aimed at making it difficult for China to access artificial intelligence chips and the tools to manufacture cutting-edge semiconductors, citing national security. At the end of March, it imposed sanctions against alleged Chinese hackers for their participation in a cyberespionage campaign that allegedly affected millions of people. London and Washington consider these hackers to be an arm of the Chinese state security apparatus. Last week, Beijing responded to American criticism of its protection of the clean energy products sector with a complaint before the World Trade Organization, alleging that the United States’ electric vehicle subsidy policies are, in turn, discriminatory.

The mistrust was evident in each government’s account of the call between the two presidents. Xi reproached Biden that the restrictions that the United States imposes on the export of cutting-edge technologies to the Asian giant “create risks” for bilateral relations and that China “will not sit still” if these limitations continue or increase. According to the White House, the American president raised with his Chinese counterpart the issue of Beijing’s “unfair policies and non-market economic practices.”

And that is what Yellen came to convey in her interviews with Chinese authorities, including the new economic czar, Deputy Prime Minister He Lifeng. The U.S. Treasury Secretary focused especially on a recurring problem: Chinese overcapacity and its decision to resort to exports after having saturated the domestic market.

Five years ago, excess Chinese production during its great real estate boom generated protests in the United States and the European Union about the overabundance of steel and aluminum. Recently, China has chosen to prioritize the manufacturing of what it describes as “new productive forces,” with which it aspires to achieve 5% growth this year: clean energy products — electric vehicles, solar panels, lithium batteries — and semiconductors that, artificially cheap according to Washington, are now flooding markets and becoming a global problem.

Capacity utilization rates for silicon wafers have dropped from 78% in 2019 to 57% in 2022 and its production of lithium-ion batteries reached 1.9 times the volume of domestically installed batteries in 2022, according to a report from the consulting firm Rhodium Group. “But beyond these higher-profile cases, overcapacity now affects the industrial sector as a whole. In early 2023, aggregate capacity utilization dropped below 75% for the first time since the worst point of China’s last overcapacity cycle in 2016, with a slight rebound since,” the document adds.

“Overcapacity is not a new problem, but it has intensified and we see emerging risks in new sectors,” declared Yellen before representatives of the American Chamber of Commerce in Guangzhou. Yellen argued that the flood of Chinese goods hurts producers in other countries, and urged Beijing to stimulate domestic growth and abandon state subsidies to keep businesses and sectors operating that would otherwise fail. China, according to the U.S. government, accounts for one-third of global production but only one-sixth of consumption.

Excess capacity was, according to the White House, also one of the issues that Biden focused on during the conversation with Xi, in what, according to Dominic Chiu, of the consulting firm Eurasia Group, could be a foretaste of a tougher American policy even before the presidential elections in November. “U.S. sources assure that ‘there will be measures’ at a certain point,” adds the analyst.

Other experts also consider it likely that the U.S. government’s increasingly loud criticism of the Chinese export and subsidy model could anticipate a possible increase in tariffs on Chinese clean energy products to defend the domestic industry.

Throughout her trip, Yellen has avoided raising anything that could seem like a threat of new tariffs. The consequences of the trade war unleashed between the two countries in the Trump era are still fresh, which according to Ryan Haas, an expert on Chinese politics at the Brookings Institution think tank, cost more than 300,000 jobs in the United States. But Yellen did indicate that she is not ruling out more measures to protect U.S. supply chains for batteries or electric vehicles from cheap Chinese exports.

On Saturday, after four and a half hours of meetings with Chinese authorities, the secretary announced talks between the two countries on “balanced growth.” Both governments will facilitate a debate on macroeconomic imbalances, including their connection to overcapacity. “My intention is to use that opportunity to defend equal treatment for American firms and workers,” Yellen said.

It is difficult to know whether there will be progress in these contacts. Beijing views American positions with skepticism. “The accusation that China’s “overcapacity” is posing threats to other countries is untenable. Globally, high-quality industrial capacity and new-quality productive forces are not excessive, but in dire scarcity. How to ensure the world, especially developing countries, benefits from such capacity is a constant test for human conscience and ingenuity,” tweeted the Chinese ambassador to Washington, Xie Feng, during Yellen’s trip. Chinese exports, measured in dollars, grew 7% between January and February compared to the same period a year ago.

And it is conceivable that Beijing, instead of heeding American calls, will further boost its “new productive forces.” If the current polls are right and the Republican candidate, Donald Trump, wins the November elections, he has promised to raise tariffs on Chinese products to 60%.

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