U.S. feeling impact of China COVID changes, can ‘power through it’ -Treasury’s Adeyemo says

4:34 pm Tuesday, December 20th, 2022

By Andrea Shalal and Trevor Hunnicutt

WASHINGTON (Reuters) – The U.S. economy is “already being impacted” by China’s latest COVID developments and energy shortages in Europe, Deputy Treasury Secretary Wally Adeyemo said on Tuesday, but it is in better shape than in the past to withstand such pressures.

Adeyemo, in a phone interview with Reuters, said he was feeling confident about the state of the U.S. economy after his trip to Europe last week, given continued momentum in job creation and economic growth, easing inflation and huge investments that would help reduce supply chain shortages in coming years.

A reversal in China’s zero-COVID policies has led the World Bank to cut economic growth estimates and U.S. officials to worry about supply chain and other economic repercussions. Meanwhile, a sharp slowdown is forecast in Europe because of energy shortages linked to Russia’s invasion of Ukraine.

“We’re already being impacted by those headwinds … but we’re more able to withstand that and power through it because of the policy choices we’ve made,” he said.

Adeyemo noted that U.S. consumers had less debt than during the 2008-2009 global financial crisis, and company balance sheets were healthier, in part due to subsidies from early in the pandemic.

President Joe Biden enters the new year atop a mixed-picture economy that investors and CEOs warn could wither under global pressure and domestic price spikes, while facing a slim Republican majority in the U.S. House of Representatives likely to block major economic proposals.

Adeyemo said Treasury would focus heavily in 2023 on implementing $270 billion in tax credits provided under the Inflation Reduction Act to combat climate change, as well as parts of the bipartisan infrastructure law written to mitigate supply crunches.

A key part of that drive would be ensuring that the Internal Revenue Service was modernized to be able to manage the tax credits and collect the revenues owed.

Treasury also planned to work with private companies and cities to use funds from existing legislation to expand worker training, he said, given the ongoing hiring crunch.

Adeyemo said he told allies in Europe and South Korea that the tax credits contained in the IRA were intended to help the United States catch up to them in combating climate change, and Washington wanted to work with its allies to build a clean energy supply.

European companies are concerned the IRA excludes their products. Adeyemo said he had no update on plans to modify the law to address those concerns.

Adeyemo also said he had not seen any formal Russian reaction to the $60 per barrel price cap imposed on Russian seaborne crude oil on Dec. 5, but said it had already begun to curtail revenues in November before it took effect.

Russia made less money in November than in October, “while the amount of oil they’re producing remained nearly the same,” he said. He expects countries to negotiate even lower prices going forward. The United States would continue to use sanctions and export controls to ‘get in the way’ of Russia’s supply chain and ability to build weapons, Adeyemo added.

He said he “definitely” hoped to join Vice President Kamala Harris on a visit to Africa next year, but gave no details. U.S. Treasury Secretary Janet Yellen is due to travel to Senegal, South Africa and Zambia in January.

(Reporting by Andrea Shalal and Trevor Hunnicutt; Editing by Heather Timmons and Andrea Ricci)