David Lowder
(Reuters) – U.S. Deputy Treasury Secretary Wally Adeyemo said on Friday China faces a number of economic challenges, including the real estate sector and an aging population, but he does not see major spillover effects on the U.S. economy beyond China’s overcapacity.
“I’m not concerned that headwinds from China will have a big impact on the U.S. economy,” Adeyemo said at a Council on Foreign Relations event in New York. “What worries me fundamentally from China is the excess capacity coming out of China and hurting the global economy.”
Adeyemo said China’s heavily subsidized manufacturing capacity for electric vehicles, solar panels and other goods follows industries such as steel and aluminum in production that exceeds domestic demand.
“Essentially, the excess capacity will go somewhere,” he said, adding that U.S. tariffs and tax breaks on electric vehicles and their batteries will help keep Chinese electric vehicles in the U.S. market and allow U.S. firms to compete more fairly.
“This is going to be a problem for the global economy and we are talking directly to the Chinese about it,” Adeyemo said. “They need to compete on a level playing field not only with the United States, but with countries around the world.”
Adeyemo said the US is also seeking to work with allies to try to limit China’s excess capacity. The European Union has launched a subsidy investigation that could lead to punitive tariffs on Chinese electric vehicles.
Adeyemo, who unveiled a new round of U.S. sanctions on more than 500 Russia-linked targets a day before the second anniversary of Russia’s invasion of Ukraine, downplayed the potential damage to the dollar’s status as the world’s reserve currency from such measures. He said it was important that sanctions were multifaceted and targeted to maximize their effectiveness.
“Essentially, my view on the question of whether the application of sanctions will lead to some challenges for the dollar is that it will not be the strength of our economy that will matter for the role of the dollar in the global economy. “
He said the Biden administration’s policies, including investments in infrastructure, semiconductors and clean energy technologies, have made the U.S. a more attractive destination for investment.
“As long as we can continue to do that, I welcome the fact that the dollar, America’s financial system, will remain dominant in the world,” Adeyemo said.