(April 15): Treasury Secretary Janet Yellen said the US wouldn’t take “anything off the table” in response to China’s manufacturing capacity, including the possibility of additional tariffs to stem what she has described as a flood of cheap goods into the US market.

“We’re concerned about the possibility of surges in Chinese exports to our markets in areas where they have a great deal of overcapacity,” Yellen said on CNN’s Fareed Zakaria GPS. “I’ve been very clear in my discussions with them that this is a concern not only to us, but also to other countries, to Europe, to Japan, and even to emerging markets. India, Mexico, Brazil,” she said.

Yellen visited China last week, where she rebuked the country for “unfair economic practices,” including alleged mistreatment of US and other foreign companies operating in China and distortion of global markets by subsidising overproduction in certain sectors.

Asked if additional US tariffs could be in the cards, Yellen told CNN, “I wouldn’t take anything off the table as a potential response. But we really want to responsibly manage this relationship.”

Chinese leaders have been pouring money into manufacturing, focusing on new industries such as electric vehicles, batteries and renewable energy as China looks for new sources of growth for its slowing economy.

President Joe Biden’s administration has tightened US measures to deny China advanced technology and has signalled it’s exploring tariff increase on Chinese EVs. The EU has launched a probe into subsidies for electric vehicles manufactured in China.

Inflation influence

Yellen defended the administration’s efforts to boost domestic manufacturing to steer away from a reliance on cheap Chinese goods, saying the effort will have only “a very modest influence on inflation.”

She said surging Chinese imports since China joined the World Trade Organization were to blame in part for industry that’s “hollowed out” in parts of the US. “We want to engage in trade that’s mutually beneficial,” Yellen said in the interview broadcast Sunday.

Yellen warned China during her trip against supporting Russia in its war on Ukraine. She said companies that provide material support for Russia’s war, including banks which facilitate transactions that channel military goods to Moscow, will be at risk for US sanctions.

Bloomberg reported that US officials have warned China is providing Russia with substantial quantities of parts to build drones and missiles to bolster its resources in the conflict. The US has also been cautioning allies that China has provided geospatial intelligence to boost the Kremlin’s efforts, according to people familiar with the matter.

Treasury’s sanctions office is investigating some companies, both US and foreign, for selling chips that have eventually ended up in Russia. China denies seeking to benefit from Russia’s war in Ukraine.

“I was clear at the highest levels in my meetings that the United States will not tolerate violations of our sanctions by Chinese banks or firms that are aiding Russia in its war against Ukraine,” Yellen said. “And that if that’s done, that there will be consequences.”