Yellen About China

Secretary of the Treasury Janet L. Yellen joined David Axelrod on his podcast, The Axe Files.

In the course of a broad ranging conversation, Ms. Yellen spoke to the state of the U.S. economy, tariffs, and the Administration's efforts at industrial policy.

Listen to the entire episode below.

CNN: The Axe Files with David Axelrod

Ep. 596—Secretary Janet Yellen

David Axelrod: I want to ask you this because, obviously, tariffs are in the air. And, both President Trump and President Biden have utilized them. Now, including recently, President Biden targeted, you know, electric cars and some others with very large tariffs. What is the proper use of tariffs and what is the improper use of tariffs?

Secretary Janet Yellen: So in in the Biden administration. I just said, we should push back against unfair trade practices and protect industries we think are of strategic importance.

And I think clean energy, as you look to the future in what is going to be important over the coming decades, clean energy is going to be at the heart of that, along with things like semiconductors, maybe artificial intelligence, quantum computing, things like that.

And when we see either risks to national security from Chinese behavior or risks to our ability to have a presence in industries that are going to be important in the sorts of technological advancement in the future, pushing back against that in a targeted way with tariffs is appropriate.

The tariffs that were recently levied mainly in the areas of clean energy affect $18 billion of trade with China. That's a very tiny part of our trade, and I think that we are right to be concerned with Chinese industrial practices in areas that they wish to completely dominate globally.

I think what's happened in China is this is a country really like, unlike any other modern economy that I've seen. China has a savings rate that's over 40%. So consumer spending as a share of their economy is very, very low. In ours, it's two thirds of total spending in the economy.

Now, when you're a poor country in developing and you have a savings rate of 40%, boy, that's a lot of funds and resources that can go to investing in your economy.

And that was great for them. And they used it to build infrastructure. And then later on housing. And they really enjoyed very, very rapid growth that lifted millions and hundreds of millions of people out of poverty.

But now they've gotten to the point where the return on infrastructure is not very high, and they have a property crisis. And, channeling continued greater investment into property is not something that's a viable strategy.

And the Chinese economy, the Chinese strategy is essentially take all of those resources and savings that were going into infrastructure and property development and channel it into advanced industries, particularly, particularly clean energy, which they've been doing for a decade.

China's developed the capacity to essentially supply the entire global demand for solar panels for the next decade with, with room to spare.

And the subsidies to industry are massive. And, if we didn't push back and protect our domestic industry, China would have close to 100% of global capacity.

And we've seen during the pandemic and later that having supply chains that are too concentrated. Whether it's because of physical threats or because of political threats, this is something we shouldn't be willing to do. We want resilient supply chains, and there needs to be. You don't have to dominate the global industry.

David Axelrod: What about the idea of, of broad 10, 20% tariffs on China on all Chinese goods? What would the impact of that be?

Secretary Janet Yellen: Well, I believe it would just raised the cost of living. The huge range of consumer goods that we don't produce in the United States are not strategic. These are goods that really especially lowers the cost of living for lower cost, lower income families.

It would have a devastating effect, such across the board tariffs, on lower income families. And, you know, much of the trade we do with China, I think, is beneficial. And we export to China. U.S. jobs are tied to that, as well.

But there are three areas where we have concerns, where we see that trade is being distorted by massive subsidies, and that these are industries that are important. And I think we, the Biden- Harris administration, has made a conscious decision to invest in industries like clean energy, semiconductors that, you know, eventually if you outsource all production of semiconductors, you know, you no longer can be a global leader in something that's critically important.

David Axelrod: Some of your colleagues in, some of your colleagues in the community of economists would scoff at that as industrial policy.

Secretary Janet Yellen: Well, it is industrial policy, I will grant you that. But I think it's targeted. It's careful. It's looking at industries where we really have a key economic stake in, in, having a presence.

And in order to be a leader and to develop new technology, the industry has to be there and it has to be viable. And we do need to pay attention to our supply chains and to make sure that they're resilient. And in areas like clean energy, our dependance on China is simply too high.

So this is a targeted industrial policy. And I would say that, if you look at the whole set of Biden-Harris legislative initiatives, starting with the AARP, with the Inflation Reduction Act, the Infrastructure Act, Chips and Science Act, there's always some element of place-based policy. Going back to some parts of the country are thriving and other parts have been disadvantaged, don't have the capital investment opportunities that they need to thrive and to get ahead.

All of this legislation has ways to make sure that the investments are broadly distributed. And I've been traveling around the country going to places that suffer from disadvantage, have not had a lot of opportunities, that are seeing factories open up. Battery factories.