U.S. Deputy Treasury Secretary Wally Adeyemo said on Friday that China faces a number of economic challenges, including the property sector and an aging population, but he does not see major spillovers to the U.S. economy outside of China's excess manufacturing capacity.
"I am not concerned about the headwinds from China having a large impact on the US economy," Adeyemo told a Council on Foreign Relations event in New York. "The thing that I am fundamentally concerned about from China is excess capacity coming from China and hitting the global economy."
Adeyemo said that China's heavily subsidized manufacturing capacity for electric vehicles, solar panels and other goods has followed industries such as steel and aluminum in production that exceeds domestic demand.
"Fundamentally that overcapacity is going to go somewhere," he said, adding that U.S. tariffs and tax credits for EVs and their batteries will help keep Chinese EVs out of the U.S. market and allow American firms to compete more fairly.
"This is going to be a challenge for the global economy and it's something we are talking directly with the Chinese about," Adeyemo said. "They need to compete on a level playing field, not just with the United States, but with countries around the world."
Adeyemo said the U.S. is also seeking to work with allies to try to curb China's excess capacity. The European Union has launched a subsidy investigation that could lead to punitive tariffs on Chinese EVs.
Adeyemo, who presented a new round of U.S. sanctions on over 500 Russian-linked targets a day before the second anniversary of Russia's invasion of Ukraine, downplayed the potential for damage to the dollar's status as the world's reserve currency from such measures. He said it was important that sanctions be multilateral and targeted to maximize their effectiveness.
"Fundamentally, my view about this question of whether the use of sanctions is going to lead to some challenges to the dollar, is that the thing that's going to matter to the dollar's role in the global economy isn't the strength of our economy."
He said Biden administration policies, including investments in infrastructure, semiconductors and clean energy technologies, have made the U.S. a more attractive investment destination.
"As long as we are able to continue to do that, I feel good about the fact that the dollar, America's financial system, is going to remain dominant in the world," Adeyemo said.
