U.S. Seeks To Mend Fences with China in Discussion on Trade, Money Laundering
The United States Secretary of the Treasury Janet Yellen visited East Asia this past week on behalf of the Biden Administration to attempt to boost diplomatic relations and potentially ease ongoing tensions between America and China. Yellen arrived for five days of meetings with Chinese officials to discuss topics such as trade, anti-money laundering, and macroeconomic imbalances that are currently favoring the Chinese, including the mass overproduction of certain products. As a precursor for her tour, Yellen and Chinese Vice Premier He Lifeng had agreed to launch exchanges on “balanced” economic growth between the two world’s top economies in terms of GDP, with federal officials representing both countries hoping to find a middle ground that could prove equally fruitful. Tensions between the U.S. and China have run higher in recent years, with their relations strained further via a series of public exchanges of statements by government representatives riddled with accusations of hostility and inequity on each other’s behalf, battles over economic sanctions and tariffs, and the over-arching topics of espionage and state-sponsored hacking exploits that have come to light in recent years.
Over the past decade alone, the U.S. government has identified a growing trend of economic espionage on behalf of China that poses a significant risk to both national security and economic stability. This is highlighted by the Republic’s lengthy history of theft of intellectual property promoted directly by their own government. The U.S. Federal Bureau of Investigation (FBI) has found China to be the world’s ‘principal infringer’ of intellectual property, with the country utilizing its regulations to put foreign companies at a disadvantage whiile promoting the interests of its own companies. All told, the Department of Justice (DOJ) estimates the annual cost to the U.S. economy of these unjust business practices – which include counterfeited goods, pirated software, and theft of trade secrets – to be between $225 billion and $600 billion.1
Arguably the most significant topic of discussion between Yellen and Chinese officials comes in regards to “overproduction” on China’s behalf. Secretary Yellen recently accused China of flooding the global markets with heavily subsidized green energy products which has undercut subsidies provided by the U.S. to its own renewable energy and EV sectors.2 Reuters writes that China has unleashed a flood of electric vehicles, batteries, solar panels, semiconductors and other manufactured goods into global markets, the result of years of massive government subsidies and weak demand at home.3 These developments have effectively caused global prices for many goods to plummet, which threatens competing producers both in the United States and abroad. The Biden Administration has leaned heavily into the “clean energy” movement, most notably via additions to the Inflation Reduction Act. The U.S. government has maintained that investment into clean energy could ultimately lower energy costs for consumers and small businesses, create a multitude of new jobs, and provide a significant boost to domestic manufacturing sectors. Just recently, the U.S. Environmental Protection Agency announced upwards of $20 billion in grants to mobilize private capital and deliver clean energy and climate solutions to communities across the U.S.

These actions that have been all-but-propagated by the Chinese government are essentially allowing home-grown firms to beat American companies to the punch and subsequently reap the benefits. To date, China has been willing to spend more than their international counterparts to fund their growing market of cheap solar panels and electric cars, thus providing a cheaper alternative to consumers. With non-Chinese firms losing money due to their inability to compete in this current climate, the fear is that these companies will be forced to sell off their production somewhere else, which would create even greater economic ramifications. According to Yellen and the growing list of U.S. lawmakers seeking to further increase tariffs on Chinese production to protect domestic interests, this is unfair.
“We need to have a level playing field,” Yellen told reporters during a break on her Chinese tour. “We’re concerned about a massive investment in China in a set of industries that’s resulting in overcapacity.” She also made clear that the United States is not the only country affected by China taking over the market. “It’s not just the United States but quite a few countries, including Mexico, Europe, Japan, that are feeling the pressure from massive investment, in these industries in China.”2
It is evident that healthy relations between these two economic juggernauts are necessary for the continued vigor of the global economy. President Biden just recently had his first talks with Chinese President Xi in nearly six months as an attempt to restore normalized leader-to-leader dialogue between the two countries. Secretary Yellen’s visit to China is meant to be a follow up to this act of diplomacy. Another major topic on the agenda for Yellen comes in regards to financial security. As part of her visit, Yellen and Lifeng also agreed to initiate a forum to cooperate on anti-money laundering efforts in their respective financial systems. Earlier this year, China had begun to work on implementing revisions to its outdated Anti-Money-Laundering (AML) Law, a move that analysts believe would help to address the growing risks associated with virtual assets and other emerging money laundering risks. This would also include increased focus on prosecuting crimes utilizing virtual currencies being used to transfer assets across international borders.

Citations

1. “Executive Summary – China: The Risk to Corporate America.” Federal Bureau of Investigation, Department of Justice, 4 Oct. 2019.
2. Hussein, Fatima. “US Treasury Secretary Is in China to Talk Trade, Anti-Money Laundering and Chinese ‘Overproduction.’” ABC News, ABC News Network, 4 Apr. 2024.
3. Ladder, David. “US, China to Hold Talks on ‘balanced Growth’ amid Overcapacity Concerns, Yellen Says | Reuters.” Reuters, 6 Apr. 2024.