Janet Yellen’s China speech has been a long time coming. It’s been almost a year since Antony Blinken, the US Secretary of State, called the country “the most serious long-term threat” to the world order. Yellen’s sentence was more emollient. The US Treasury Secretary clarified that the Joe Biden administration had no intention of disengaging from China, which would be “disastrous for both economies”. Although he stressed that wherever US national security collides with the economy, the former will always take precedence, her speech should be read as an olive branch for Beijing. Whether China will see it that way, having rejected Washington’s overtures since the US shot down an apparently rogue Chinese spy balloon in February, is another question. Yellen can’t be accused of not trying.
In an interview before his speech, Yellen he made it clear that he wanted to visit China as soon as Xi Jinping had appointed his counterparts to their jobs. If Yellen’s trip goes ahead, she would be the highest-ranking US official to visit China since Biden took office. to blink canceled your planned trip earlier this year after the Chinese balloon rage. Yellen’s objective would be to reactivate the dialogue, at least in economic matters. During the original Cold War between the US and the USSR, periods of détente were reinforced by trade interaction. “I see myself carrying the agenda that Biden and Xi set at the G20 meeting in Bali. [last November]Yellen said. “I was at that meeting. Both were very clear with each other that they wanted to have a productive economic relationship. There was a clear understanding that economic relations are not a zero-sum game and that we need to intensify our interaction.”
In October, the United States announced a prohibition on the high-end semiconductor trade with China, which is seen in Beijing as an act of economic aggression to curb the country’s development. Yellen took pains to refute China’s interpretation. The restrictions would be limited to trade that helped their military modernization, he said. This included a new set of controls on outbound US investment to China to be announced soon. “We have tried to provide guidance so far for the export controls that we have put in place,” Yellen said. “Exactly what constitutes a national security concern is something that evolves over time. The important thing here is that we want the Chinese to understand that when we take these measures we have a national security focus and that we are not trying to harm Chinese economic competitiveness. If the Chinese perceive that these actions we have taken harm their national competitiveness, that is a reason for us to intensify our interaction and explain what our motivation is.”
Most of America’s trading partners in the Indo-Pacific, such as Singapore and Australia, want to see more US involvement in trade and investment, even if Biden has ruled out rejoining the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (the renamed TPP, which China has requested to join). Aside from the recently released Indo-Pacific Economic Framework, which critics have dismissed as a talking point, and the equally young US-EU trade and technology council, nothing else is on the way, according to Yellen. “Big trade deals are not being actively planned,” she said. Instead, the US would pressure its “friends” to join the so-called initiative to support Yellen’s friends. These include Indonesia, India, and Vietnam. She said that she is considering a trip to Vietnam. “We need to diversify our supply chains to avoid extreme reliance on countries that could use them against us, like Russia has done with energy.” She added: “We are not referring to a reduced set of developed countries.”
It is open to question whether Yellen’s efforts to revive the economic aspect of the US-China dialogue bear fruit. Xi has met with leaders from around the world but has resisted scheduling a call with Biden. Yellen is the highest-ranking serving official to have served on the US-China Strategic and Economic Dialogue, an annual conversational workshop, which was established by George W. Bush and continued under Barack Obama. Donald Trump shut it down. During the 2008 financial crisis, Hank Paulson, Yellen’s predecessor as Treasury secretary, liaised frequently with her Chinese counterparts. Such cooperation is hard to imagine today.
As a major holder of US government debt, China has a material interest in the outcome of the impending battle between the White House and the Republican-controlled House of Representatives over lifting the debt ceiling. A US default could severely undermine the dollar’s reserve currency position. “I don’t see any immediate threat to the state of the dollar,” Yellen said. If anything could topple the US dollar, it would be the self-inflicted wound of a US sovereign default. The growing rivalry of the Chinese remninbi would be the least of Washington’s worries.