Yellen says US economy strong, all options open on China’s overcapacity

Yellen told Reuters no option was “off the table” for dealing with one threat to the U.S. economy – overproduction in China, which was hurting manufacturers in numerous countries.

She said that while Chinese policymakers have acknowledged they have a problem with excess industrial capacity for electric vehicles, solar panels and other clean energy goods, they need to address it. The issue was “discussed intensively” last week at a U.S.-China meeting on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington, she said.

Asked about potential for new tariffs or other actions to protect U.S. producers from an expected flood of Chinese exports, Yellen said she would not eliminate any options as a possible response.

She said Chinese overproduction threatens the viability of manufacturers in the U.S., Europe, Japan, Mexico and India but the problem won’t be resolved “in a day or a week.”

“So it’s important that China recognize the concern and begin to act to address it,” Yellen said. “But we don’t want our industry wiped out in the meantime, so I wouldn’t want to take anything off the table.”

The Biden administration is completing a review of the “Section 301” unfair trade tariffs on Chinese imports imposed by former President Donald Trump in 2018, which U.S. officials have said could lead to higher tariffs on some products. Biden last week called for the review to triple the Section 301 duties on Chinese steel to 25%.

U.S. Trade Representative Katherine Tai also told senators that the U.S. needed to take “early action, decisive action” to protect the fledgling American EV sector from Chinese imports. U.S. tariffs on Chinese vehicle imports are now about 27.5%, and few Chinese EVs are sold in the U.S. at the moment.

Yellen said that a proposal under discussion by finance ministers from the Group of Seven (G7) industrial democracies to harness earnings from frozen Russian central bank assets to aid Ukraine can be achieved without an outright confiscation of those assets, allaying the concerns of some countries.

Yellen welcomed what she called a “very constructive step” taken by the European Union to segregate the proceeds from assets held by Brussels-based Euroclear and transfer them to Ukraine, noting future interest could also be pulled forward to back loans to Ukraine.

“This is an approach that could be broadly supported by countries that are concerned about the seizure of assets, and some of the interest could be brought forward through, for example, a loan,” Yellen said.

Yellen said the approach was among several options being discussed by G7 countries ahead of a leaders summit in June, adding, “it certainly belongs on the list.”

The U.S. approach, led by deputy national security adviser Daleep Singh, is gaining momentum among the G7 nations, two officials from the group told Reuters earlier on Thursday.

Most of the Russian assets held by Euroclear have now been converted to cash, Yellen told Reuters. G7 officials say the assets could generate around $5 billion a year in interest.