US Treasury Secretary Janet Yellen visited China over the weekend to deliver a message that China must end subsidies in sectors like automobiles and green energy.
Just after landing, the United States announced $6.6 billion in subsidies for three TSMC chip factories in the United States, as well as $5 billion in loans. This is just a portion of the $39 billion in grants awarded under the CHIPS Act.
The Treasury Secretary also spoke to CNBC and criticized Chinese auto subsidies, while the United States continues to offer American consumers huge subsidies for electric vehicles and erects barriers to imports, including in from the EU, in measures that almost certainly do not fall under WTO rules. The Treasury also opposes the takeover of US Steel by the Japanese Nippon Steel.
I am not here to denounce hypocrisy in politics, which does not bring money into the markets.
What matters is understanding the game. What is increasingly clear (despite Yellen’s rhetoric) is that we are in a new and increasingly mercantile era. The West tried to change China, but it was China that changed the West. I suspect that this pendulum has just started to swing and that the winners will, I think, be the struggling domestic producers who can be shielded from foreign protection. The losers will be multinational exporters, especially those without technology gaps.
From a broader perspective, this will continue to inflate public deficits and invariably slow global growth.
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