My TakeYellen cannot have it both ways on Chinese green industries

When it comes to Chinese-American trade, it’s hard to know which is the pot and which the kettle. US Treasury Secretary Janet Yellen, who is currently on a high-level visit to China, has been complaining about the country’s industrial “overcapacity”. More specifically, Washington is peeved at its excess capacity in producing electric cars and solar panels. The latter has come to dominate the global market while the former is giving Elon Musk’s Tesla a run for its money, including in major markets such as the European Union.

However, her trip follows a complaint filed by China last month against the US for unfair electric vehicle subsidies at the World Trade Organization (WHO). The complaint has to do with US subsidies that Beijing says discriminate against electric car battery components made in China.

Under the Inflation Reduction Act (IRA), a signature economic policy of US President Joe Biden, American electric car buyers are not qualified for tax credits of up to US$7,500 if critical minerals or any other components are produced by companies from China, Iran, North Korea or Russia. Belatedly, Washington is now pursuing its own version of industrial policy, not only with IRA, but also with the Chips Act and the Infrastructure Investment and Jobs Act (IIJA), more commonly known as the Bipartisan Infrastructure Law.

At the drop of a hat, Washington, which for decades has been telling the world the virtues of free enterprise and “small” government, has suddenly adopted industrial policy. So, when China does it, it’s distorting the world economy but when the US does it, it’s OK.

Famous economist Paul Krugman probably spoke for many foreign critics when he blasted China’s WTO complaint. “For China, of all countries, to complain about targeted subsidies is an act of colossal chutzpah,” he wrote. Certainly, over decades, Beijing is known for providing capital, direct subsidies, low-interest loans, discounted land sales, and tax breaks to targeted industries and favoured companies.

Be that as it may, back in 2019, Beijing ended the ban on foreign companies supplying electric vehicle batteries to Chinese car manufacturers. Krugman asks what China is trying to achieve at the WTO. Perhaps the real question is, what is China trying to achieve at the WTO when Washington will just ignore any adverse ruling against it? When the WTO ruled against US tariffs on imported steel and aluminium in late 2022, the Biden administration just ignored it. Under the guise of reforms, Washington has also done its best to paralyse its appeals body; so much for its constant defence of the “rules-based international order”.