Michael S. Darby and David Loader
NEW YORK/WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said on Thursday that U.S. public investment to attract private capital is important to promote long-term sustainable and inclusive growth, but warned that China’s model of huge state industrial subsidies is not acceptable to the world.
In prepared remarks to the Economic Club of New York, Yellen said the traditional Republican “supply-side economics” model relies too heavily on tax cuts to spur investment and does not benefit workers enough.
Yellen’s address to top business executives and Wall Street leaders was a rebuttal of sorts to a presentation that Republican presidential nominee Donald Trump was expected to make to U.S. chief executives in Washington about his economic vision for a second term in the White House.
The business roundtable in Washington was also due to feature a presentation by White House chief of staff Jeff Zients on behalf of President Joe Biden, who is attending the G7 summit in Italy.
The Trump campaign has offered few details about his economic plan but has pledged to continue and possibly add to tax cuts passed by Republicans in 2017. Trump has said he wants to cut taxes for the middle class, ease regulations, expand fossil fuel energy production and roll back Biden’s clean energy policies. Nevada on Sunday announced a plan to end taxation of service workers’ tip income.
“Experience has taught us that heavy-handed central planning by government dictates is not a sustainable economic strategy,” Yellen said in prepared remarks. “But neither is traditional supply-side economics, which ignores the importance of public infrastructure, education, workforce training and government-supported basic research.”
She added that cutting taxes and deregulation for the wealthy has not promoted “growth and prosperity across the country.”
Yellen highlighted key Biden administration legislative initiatives to invest in the U.S. economy, including the 2021 infrastructure bill and the semiconductor investment and clean energy tax credits that will be passed in 2022.
These include provisions to train workers and have led to $850 billion worth of new private manufacturing investment in the U.S. since Biden took office in 2021, she said.
“President Biden and I are clear that our economic strategy cannot be driven solely by either the public or private sector,” she said. A theory she calls “modern supply-side economics” requires public intervention to “create a supportive environment for business and encourage private sector investment.”
Chinese Subsidies
Yellen also sought to contrast Biden’s approach with China’s, saying excessive government subsidies for strategic industries have fostered excess manufacturing capacity that far outstrips weak domestic demand. The resulting export flood of this overinvestment is now threatening jobs around the world and creating new trade barriers in the U.S. and elsewhere.
“China cannot assume that the rest of the world will quickly absorb large amounts of excess production to the detriment of their domestic industries,” Yellen said.
“I am concerned that if China continues down this path, its policies may significantly interfere with our efforts to build a healthy economic relationship,” Yellen said, but reiterated her view that a decoupling of the world’s two largest economies is harmful to U.S. interests.
(Reporting by Michael Darby in New York and David Lauder in Washington; Writing by David Lauder; Editing by Andrea Ricci)
