US economic approach to China must be ‘serious, clear-eyed’, Treasury Secretary Janet Yellen says

While reiterating Washington seeks not to decouple from Beijing, treasury secretary outlines strategy to expand trade in the Indo-Pacific
Ensuring national security and advancing human rights form pillar of US economic strategy on China, Yellen adds

US-China relations

Bochen Hanin Washington

Published: 5:45am, 3 Nov 2023

Why you can trust SCMP

Washington needs a “serious, clear-eyed” economic approach to China as it seeks to expand trade and diversify supply chains across allies and partners, US Treasury Secretary Janet Yellen said on Thursday.

Speaking at the Asia Society in Washington in a speech reviewing the White House’s economic strategy for the Indo-Pacific, Yellen reiterated that the US did not seek to decouple from China.

“We have no interest in such a divided world and its disastrous effects,” she said.

But Yellen stressed there would be no compromising America’s goals of ensuring national security and advancing human rights.

Yellen with Chinese Vice-Premier He Lifeng on July 8, 2023, in Beijing. Photo: AFP/Getty Images/TNS

That formed one of three pillars of the American economic strategy on China. The other two goals, she said, were seeking a healthy, mutually beneficial relationship, including by tackling unfair trade practices, and collaborating on global challenges like climate change and debt distress in low-income countries.

Yellen’s speech came just days ahead of the Asia-Pacific Economic Cooperation leaders’ summit slated for November 11 to 17 in San Francisco, where a meeting between US President Joe Biden and Chinese President Xi Jinping is expected to take place.

The treasury secretary last visited China in July, paving the path for the creation of a bilateral exchange mechanism on export controls and a senior-level financial working group involving representatives from the government and private sector.

But Yellen also made clear that an Indo-Pacific economic strategy required much more than a China strategy.

China and US set for first nuclear non-proliferation talks in years

She made a case for expanding trade and investment in the Indo-Pacific, saying US trade with the region had steadily increased in the past decade.

In addition to vastly expanding the consumer base for American firms, trade with the Indo-Pacific was crucial to bolstering US supply chain security, she said.

Yellen spoke of plans to deepen ties with India and Vietnam, highlighting the latter’s role in the global semiconductor supply chain. The US was incentivising American companies to invest in Vietnam and working with its government and private sector to support workforce development there, she said.

She also spoke about America’s plans to intensify multilateral engagement, like through the Indo-Pacific Economic Framework. Launched by the Biden administration last year, the framework seeks to establish rules covering areas from clean energy to supply-chain resilience.

The group, which currently has 14 members that account for about 40 per cent of the world’s GDP, is also aimed at reducing its members’ economic reliance on China, though without market access provisions.

Yellen on Thursday noted the Biden administration’s efforts at “friendshoring” – diversifying American supply chains across allies and partners – and pointed to some early successes.

“Across sectors from auto parts to electronics, the US is importing more from key partners like India and Vietnam, as well as from Mexico, and is less dependent on one single country, in this case, China,” she said.

But analysts say that diversifying away from China will be no easy feat.

As of 2021, China was the top source of manufactured goods for all IPEF countries except Brunei and the top export destination for manufactured goods for half of IPEF member countries, according to a research note last week by the Peterson Institute for International Economics.

Expanding trade is also a divisive subject domestically. The US has yet to join the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which rose from the ashes of the Trans-Pacific Partnership, an alliance Donald Trump withdrew the US from on his first full day as president in 2017.

Don’t expect any breakthroughs when Xi and Biden meet, analysts say

While Biden has expressed little interest in joining the CPTPP, China has applied to join.

Yet the US has made inroads in expanding relations in the region over the past year, such as newly established summits with Pacific island nations and the Association of Southeast Asian Nations.

Beyond her trip to China this year, Yellen has visited several other countries in the Indo-Pacific during the Biden administration, including four trips to India, two trips each to Japan and Indonesia and visits to Vietnam and South Korea.

“Claims that America is turning away from the Indo-Pacific are wholly unfounded,” she said on Thursday, emphasising also the important role economic engagement with the region plays in solving global challenges like climate change.

Meanwhile, the White House has made concerted efforts to soften its tone towards China this year, while taking what it calls a “small yard, high fence” strategy towards Beijing.

China-US ties must return to ‘healthy, stable’ state soon: Foreign Minister Wang Yi

In August, Biden signed an executive order prohibiting some new US investment in key Chinese tech industries including semiconductors and microelectronics, quantum information technologies and certain artificial intelligence systems.

And in October, the administration released new measures to close loopholes in last year’s landmark export controls on high-end chips.

Responding to Yellen’s speech, Wendy Cutler of the Asia Society Policy Institute said she “couldn’t help but applaud the emphasis [Yellen] put on bolstering trade and investment in the region”.

“You don’t hear that a lot in Washington these days, and I thought she was pretty forthcoming.”

Cutler said it was “refreshing” to hear emphasis on an economic strategy focused on the broader region.

“While a number of cabinet officials have discussed extensively US-China relations, today’s speech refreshingly and crucially broadened the focus to the entire Indo-Pacific region.”