Janet Yellen’s China speech has been a long time in coming. It has been almost a year since Antony Blinken, the US secretary of state, said the country was “the most serious long-term threat” to world order. Yellen’s phrasing was more emollient. The US Treasury secretary spelt out that the administration of Joe Biden had no intention of decoupling from China, which would be “disastrous for both economies”. Though she emphasised that wherever US national security collided with economics, the former would always take priority, her address ought to be interpreted as an olive branch to Beijing. Whether China will see it that way — having rebuffed Washington’s overtures since the US shot down an apparently rogue Chinese spy balloon in February — is another question. Yellen cannot be accused of not trying.
In an interview before her speech, Yellen made it clear she wanted to visit China as soon as Xi Jinping had appointed her counterparts to their jobs. If Yellen’s trip goes ahead, she would be the most senior US official to visit China since Biden took office. Blinken cancelled his planned trip earlier this year after the Chinese balloon furore. Yellen’s goal would be to revive dialogue at least on economic matters. During the original US-USSR Cold War, periods of detente were bolstered by commercial interaction. “I see myself as carrying on the agenda that Biden and Xi established at the G20 meeting in Bali [last November],” Yellen said. “I was at that meeting. They were both very clear with one another 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 step up our interaction.”
In October, the US announced a ban on high-end semiconductor trade with China, which is being seen in Beijing as an act of economic aggression to curb the country’s development. Yellen was at pains to rebut China’s interpretation. Restrictions would be confined to trade that helped its military modernisation, she said. This included a new set of controls on outbound US investment to China that will be announced soon. “We’ve tried to provide guidelines so far for the export controls that we’ve put in place,” Yellen said. “Exactly what constitutes a national security concern is something that evolves over time. What’s important here is that we want the Chinese to understand that when we take these actions we do have a national security focus and that we are not trying to harm Chinese economic competitiveness. If the Chinese perceive these actions we have taken as harming their national competitiveness that’s a reason for us to step up 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 engagement on trade and investment, even if Biden has ruled out rejoining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the renamed TPP, which China has applied to join). Other than the recently-launched Indo-Pacific Economic Framework, which critics have dismissed as a talking shop, and the equally young US-EU trade and technology council, nothing else is in the pipeline, according to Yellen. “Big trade deals are not being actively planned,” she said. Instead the US would push its “friends” to join Yellen’s so-called friend-shoring initiative. These include Indonesia, India and Vietnam. She said she is considering a trip to Vietnam. “We need to diversify our supply chains to avoid extreme dependence on countries who could use those against us, like Russia has with energy.” She added: “We do not mean a narrow set of developed countries.”
Whether Yellen’s efforts to revive the economic side of US-China dialogue bear fruit is open to doubt. Xi has been meeting leaders from all over the world yet has resisted scheduling a call with Biden. Yellen is the most senior serving official who was part of the US-China Strategic and Economic Dialogue — an annual talking shop — that was set up 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, was in frequent co-ordination with his Chinese counterparts. Such co-operation is hard to imagine today.
As a significant holder of US public debt, China has a material interest in the outcome to the looming battle between the White House and the Republican-controlled House of Representatives over lifting the debt ceiling. An American default could badly undermine the dollar’s reserve currency position. “I don’t see any immediate threat to the dollar’s status,” said Yellen. If anything could topple the US dollar, it would be the self-inflicted wound of a US sovereign default. Growing rivalry from the Chinese remninbi would be the least of Washington’s worries.