Misguided attack endangers world economy

In a world where economic principles should guide policy and promote progress, the recent appalling stance taken by US Treasury Secretary Janet Yellen during her China visit is a stark departure from logic, reason and objective economic realities. Yellen’s criticism of China’s purported “industrial overcapacity” in the realm of green energy technology not only defies established macroeconomic principles but also threatens world trade and endangers global efforts toward a sustainable future.

At the heart of Yellen’s argument lies a fundamental misunderstanding of comparative advantage, a cornerstone of economic theory for over two centuries, which I learned from my former Ateneo de Manila University economics professor who later became outstanding Philippine President Dr Gloria Macapagal Arroyo and the classic economics textbook authored by Dr Paul Samuelson. Arroyo had clearly explained that the concept dictates that nations should specialize in producing goods and services in which they have a relative efficiency advantage, thus maximizing overall productivity and welfare. By disregarding this principle in favor of protectionism, former economics professor Yellen risks disrupting the delicate balance of global trade and stifling innovation.

Yellen’s fallacious assertions paint an inaccurate and very unfair picture of Chinese authorities in clean technology as a threat to global economic stability.

However, a closer examination reveals a different narrative — one where amazing innovation and dynamic competition actually drive progress, not protectionist barriers.

Critics point to China’s aggressive investments in clean technology as evidence of alleged industrial overcapacity and mercantilism. However, economic data, realities and trends show that the main reasons behind these aggressive investments are global competitiveness, entrepreneurial courage, massive economies of scale in production and in domestic market size, and the nonstop technological research and development innovations of the Chinese enterprises.

Moreover, the notion that China’s clean technology exports pose a significant threat to the global economy is unfounded. Clean technology comprises a relatively small share of China’s overall exports, and the bilateral trade deficit between the US and China has been shrinking in recent years.

Bloomberg columnist David Fickling in a column on April 9 titled: “Yellen junks 200 years of economics to block China clean tech”, noted: “Clean technology such as solar panels, EVs and lithium-ion batteries still comprises a rather small share of China’s exports, roughly 5.7 percent last year … The bilateral trade deficit in 2023 came to $279 billion, the lowest since 2010.”

Fickling rightly pointed out: “The treasury secretary’s plan is a protectionist disaster that will impede the path to net zero.”

Fickling further warned Western critics of China’s clean energy sector: “In attacking its clean-technology exports, however, the world is cracking down on one part of the economy where the private sector is dominant, and where the prospects of reducing global emissions are good.”

Underscoring the gravity of this colossal mistake, Fickling wrote: “In acting as the standard-bearer for this policy (of protectionism and unfairly attacking China), Yellen is rejecting fundamental principles of economics to justify a policy of restricting public access to affordable and clean technology. It’s a protectionist disaster in the making — for both the US, and the planet.”

Furthermore, Yellen’s stance contradicts the urgent need for climate action. Just months ago, China and the US pledged to triple renewable energy capacity by 2030 — a commendable goal that relies on the very investments Yellen seeks to curb. By hindering China’s clean technology sector, Yellen risks undermining international efforts to combat the catastrophic danger of climate change and risks derailing global efforts to achieve a net-zero economy.

It’s essential to recognize that China’s investments in clean technology are driven by market demand and competitive advantage, not state intervention. While concerns about subsidies and market distortions are valid, unilateral tariffs and protectionist policies advocated by some Western politicians only serve to escalate tensions and hinder progress.

In attacking China’s clean technology exports, Yellen overlooks the critical role of the private sector and the potential for reducing global emissions. Rather than embracing innovation and competition, her approach threatens to isolate the US from the global economy and impede the transition to a sustainable future.

In conclusion, Yellen’s unfortunate misguided attack on China’s clean tech industry represents a dangerous departure from economic reality and defies logic. By rejecting fundamental principles of economics in favor of reactionary protectionism, she risks not only undermining global trade and economic recovery but also jeopardizing efforts to address the pressing challenge of climate change.

It’s time for the whole world, especially Western leaders, to embrace win-win cooperation and technological innovation rather than succumb to misguided fear, disruptive protectionism and defeatist isolationism. The author is moderator of the Pandesal Forum, multi-award winning writer, columnist of “Philippine Star” and “Abante” newspapers, economics and politics analyst, poet, college teacher and real estate entrepreneur. The views do not necessarily reflect those of China Daily.