Yellen’s China visit: ‘China problems’ are actually US problems

When US Secretary of the Treasury Janet Yellen visited China on 3 April, she brought along a “list of China problems”. But it is her reminder to China that attracted the most attention in the West: stop relying on exports to support a weak economy and start thinking of ways to boost domestic demand; Western countries cannot withstand the impact of cheap Chinese goods (known as “China Shock 2.0”), which certainly will not work. 

Before she left, I said on X that instead of asking China to reduce production, the US and Europe should raise tariffs to reduce imports of Chinese products to protect their own companies. This is because the former is urging someone to commit suicide while the latter is keeping yourself from committing suicide — it is obvious which is more effective. Besides, even if the US raises tariffs, if at the same time it fails to bring manufacturing back to the US, the import of cheap Chinese goods might continue. 

France’s Minister of the Economy, Finance and Industrial and Digital Sovereignty Bruno Le Maire recently declared that the era of “happy globalisation” is over and that it is giving way to the era of a globalisation of rivalries. Globalisation began after the Soviet Union collapsed, and the world underwent profound changes after more than 30 years have passed. Globalisation is “happy” only because China was once the world’s largest supplier of labour-intensive goods; the era of a globalisation of rivalries only began because China has now become a manufacturing superpower. 

“Happy globalisation” is founded on the international division of labour under the principle of comparative costs — the US provides the world with a financial system for economic services, as well as high-tech products and education; the Group of Seven leverages its industrial strength and produces technology-intensive goods; while China takes advantage of its once cheap land prices and labour costs to produce labour-intensive goods and provide the world with affordable clothing, furniture and home appliances (the “old three”).

However, just as Western countries are enjoying the abundance of cheap Chinese goods and improving their own living standards, they are also beginning to experience industrial hollowing out and structural unemployment. This is the social context in which American workers who used to be diehard Democrats voted for the Republican Party instead, and an important reason for former US President Donald Trump’s victory in 2016.

During this period, China strategically allowed foreign capital into its market in exchange for technology sharing, implemented initiatives like the Thousand Talents Plan (which involves a grey area regarding intellectual property transfer), and engaged in imitation. Combined with its foresight to assess and prepare for Western green energy policies over a decade ago, China positioned itself in the forefront of industries such as photovoltaics, lithium-ion batteries, and new energy vehicles, known as the “new three”. These gained a foothold in countries along the Belt and Road Initiative, including European markets, and could even stifle US policies supporting its domestic clean energy industry.

Affordable Chinese exports turned into mercantilist “China Shock”, triggering a political backlash in the West against globalisation.

Trump initiated a trade war with China because of the US’s huge trade deficit with China and China’s questionable acquisition of US technology under its Made in China 2025 programme. However, the proposal to bring manufacturing back to the US began during the financial crisis of 2008, a crisis which made some American elites realise that industrial hollowing out was severely hurting the US. 

Former US President Barack Obama said in his State of the Union Address on 12 February 2013 that his “first priority is making America a magnet for new jobs and manufacturing”, urging Congress to “guarantee that the next revolution in manufacturing is Made in America”. But until the end of his term, the return of US manufacturing was largely reflected in the outlook predicted by several Boston Consulting Group (BCG) studies.

BCG’s September 2023 report titled “More Than 90% of North American Companies Have Relocated Production and Sourcing Over the Past Five Years” found that between 2018 and 2022, US goods imports from China declined by 10%, but rose by 18% from Mexico, by 44% from India, and by 65% from the ten ASEAN countries.

However, the studies quoted in reports from Bloomberg and The Wall Street Journal painted another picture — not only did manufacturing not return to the US, but the aforementioned cases of “friendshoring” and “nearshore outsourcing” were just a transfer of production capacity away from China; their main components and technology still come from China.   

Why is the return of manufacturing to the US more difficult than what many companies have predicted? The Pew Research Center estimated that there is a huge shortage of skilled workers in the US, which is one of the biggest challenges to bring manufacturing back to the US, with unfilled jobs the reason that 70% of scheduled production was delayed, and why companies are delaying their reshoring plans. 

Deloitte and The Manufacturing Institute’s fourth skills gap study (2018), conducted with an interest in reevaluating their prior projections, found that the skills gap may leave an estimated 2.4 million positions unfilled between 2018 and 2028, risking US$2.5 trillion in economic output over the next decade and a manufacturing value of US$454 billion.

Furthermore, these studies do not even take into account DEI (diversity, equity, and inclusion) quotas. DEI requires businesses to hire employees not based on their professional merits but based on their identity (race, gender and so on), which severely impedes business efficiency. 

Given the high frequency of aviation accidents in recent years, the Americans finally realised that be it door plug manufacturer Spirit AeroSystems; aerospace manufacturer Boeing; or operator Alaska Airlines, they are all vanguards of the far-left wokeist DEI policy. The manufacture, installation and inspection personnel hired by these enterprises were not selected based on their professional merits, nor did they undergo rigorous professional and technical training; they were only hired based on whether their identity fulfilled the politically correct standards of the DEI initiative.

The US’s shortage of qualified skilled workers is not something that can be solved in the short term, and for a pretty ludicrous reason at that. Although skilled workers need mathematics education, to accommodate the African Americans and Hispanic and Latino Americans who dislike maths, some in the US have for many years cast the maths as a tool of racial discrimination. Some high schools even deviate from the traditional math course requirements. Several educational elites complained that maths is a “harbour for whiteness” and that “mathematics is itself dominated by whiteness and racism”.  

Unfortunately, today’s manufacturing sector cannot do without quality skilled workers. Taking computer numerical control (CNC) machine tools alone as an example, a skilled worker is required to have knowledge of linear algebra, geometry, function and so on. So if indeed certain African Americans and Hispanic and Latino Americans (including the millions of illegal immigrants who entered the US under the Joe Biden administration) are not interested in high school mathematics yet hope that they could become skilled workers in the US’s manufacturing sector, this is as illusory as hoping that the worker-peasant-soldier students of China’s Cultural Revolution could become scientific and technical personnel.

Before her recent visit to China, Yellen previously spoke of her two visits to China in 1998 and 2023. Her perceptions reflect the challenges facing the US and Europe due to dramatic changes in globalisation: the economies of China, the US (and Europe) used to complement one another, with China producing labour-intensive goods — mainly the “old three” — and providing Western countries with an abundance of affordable products, significantly raising the living standards of the West. Thus, China was naturally welcomed. 

But since China made its foray into the high-tech sector a decade ago, and gained an absolute advantage in the “new three” that Yellen took aim at, China and the West are now competitors. China’s advantages lie in its industrial chain, labour resources, and lithium supply, which the West cannot stomach.

Leftist British economist Michael Roberts shrewdly pointed out in an article titled “China’s Unfair ‘Overcapacity’” published on 10 April: “China is the only country in the world that produces all categories of goods classified by the World Customs Organization (WCO). This gives it a key advantage when it comes to end prices: when you want to build something in China you can literally find the entire supply chain for it at home…” Quoting Arnaud Bertrand, he said, “The competitiveness of Chinese companies is overwhelming… Yellen and Western leaders are afraid that if things keep going, China will simply eat everyone’s lunch.”

Quoting Bertrand, he added that “’the threat of China’s industrial overcapacity’ is a buzzword that actually means China is simply too competitive, and by asking it to address this, what Yellen is truly asking of China is akin to a fellow sprinter asking Usain Bolt to run a [sic] less fast because he can’t keep up”.

Thus, the “list of China problems” that Yellen brought along on her visit to China is actually the US’s own problems, covering the education and manufacturing systems. The secret to winning the manufacturing competition is speed and efficiency. The DEI initiative takes into account “employment preference” and welfare benefits of the privileged in new identity politics, yet fails to consider the need for qualified skilled workers and engineers in the manufacturing sector. 

It is important to realise that shouting DEI slogans alone does not allow employees without relevant mathematical knowledge to operate machinery proficiently. 

This article was first published in Lianhe Zaobao as “耶伦提及的“中国问题”其实是美国问题”.

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