At her confirmation hearing in early 2021, Treasury Secretary Janet L. Yellen struck a tough stance on China, calling the country America’s key strategic competitor and pledging to fight its “abusive, unfair and illegal practices” that she says harm businesses and workers harmed in the United States.
Since then, Ms. Yellen has established herself as the voice of moderation in the Biden administration and wears the mantle of economic pragmatism as the global economy struggles with inflation and sluggish growth. The Treasury Secretary has objected to China’s human rights record, called for diversification of America’s supply chains and acknowledged that protecting national security is paramount.
But she was also the government’s most prominent advocate for maintaining economic ties with China. She argued against tariffs, warned of caution with new restrictions on investments in China and recently warned that a decoupling of the two economies would be “catastrophic”.
Ms. Yellen will manage these conflicting interests in real time during a four-day visit to China. The trip, her first trip to the country as Treasury Secretary, represents Ms. Yellen’s most difficult test of economic diplomacy yet as she seeks to quell years of simmering distrust between the United States and China.
The finance minister arrived Thursday afternoon and was greeted on the tarmac at Beijing airport by Yang Yingming, director-general of China’s finance ministry, and R. Nicholas Burns, the US ambassador to China.
During her first full day of meetings on Friday, Ms Yellen will meet Liu He, former Vice Premier of China, and Zhou Xiaochuan, former Governor of the People’s Bank of China. Later Friday, Ms. Yellen will meet with Premier Li Qiang at the Great Hall of the People. The Treasury Secretary will also participate in a roundtable discussion with representatives from the American Chamber of Commerce in China to learn more about the challenges facing US companies in China.
For Ms. Yellen, the challenge is to convince her Chinese counterparts that the numerous US measures blocking access to sensitive technologies such as semiconductors in the name of national security are not designed to harm the Chinese economy. This will not be easy as both countries continue to erect new trade and investment barriers.
The Biden administration is preparing several new restrictions on US technology trade with China, including potential restrictions on advanced chips and US investments in the country. People familiar with the matter say future rules are also likely to limit Chinese companies’ access to US cloud computing services, filling a loophole in previous restrictions on China’s access to advanced artificial intelligence chips.
This week Beijing retaliated against the Biden administration’s restrictions on semiconductors, announcing it would restrict exports of certain critical minerals used in the manufacture of some chips. A senior Treasury official said on Thursday, on condition of anonymity, that the restrictions would likely be discussed at Ms Yellen’s meetings this week. The official added that the move is an example of why it is important to have diversified supply chains.
On Monday, ahead of her trip to Washington, Ms Yellen met with Xie Feng, China’s ambassador to the United States, and raised “concerns of concern” in what the Treasury Department called a frank discussion, according to a summary released by the Chinese embassy During the call, Mr. Xie detailed China’s objections to US trade practices and urged the United States to take steps to resolve them.
At her meetings in Beijing, Ms Yellen is expected to argue that the Biden administration’s moves to make the US economy less dependent on China and to boost US production of critical materials are narrow measures not intended to be a trigger a major economic war. China still holds nearly $1 trillion in US debt and is America’s third-largest trading partner, making a sudden severing of ties potentially catastrophic for both countries and the global economy.
“I think she’s going to be the sober voice of reason and say this isn’t about containment,” said Tim Adams, president of the Institute of International Finance and former undersecretary for international affairs at the Treasury Department. “It’s really about setting the tone of the cooperation and showing that the US remains interested in working with China on trade and investment.”
Over the past few decades, the Treasury Department has been the American government agency most concerned with maintaining friendly relations with China. Wall Street firms, a key interest group for the ministry, attempted to gain access to the Chinese market through China’s negotiations to join the World Trade Organization in the 1990s. After China joined the WTO in 2002, Wall Street firms and the Treasury Department pushed for China to actually open its markets faster.
Finally, in November 2017, Beijing agreed to allow foreign investors to hold much larger stakes in insurance, banking and securities businesses. This was part of a series of concessions made in an unsuccessful attempt to avoid a trade war with the Trump administration.
Although it is her first trip to Beijing as finance minister, Ms. Yellen is no stranger to China. She has had regular contact with Chinese officials in her role as President of the Federal Reserve Bank of San Francisco, and as Chair of the Federal Reserve from 2014 to 2018, she has met with central bank officials at international meetings.
Ms. Yellen’s credentials as an academic economist have made her a welcome emissary in Beijing.
“They like her very much because she looks at the world from an economic point of view, and they are extremely comfortable with it,” said Craig Allen, president of the US-China Business Council.
Michael Pillsbury, senior fellow on China strategy at the Heritage Foundation, said Chinese officials viewed Ms Yellen as a voice of reason and that they hoped she would be able to represent what to others in the Biden administration the United States should move away from new investment restrictions and scale back tariffs.
“They want Janet to help,” said Mr. Pillsbury, who was a top adviser on China in the Trump administration. “They see her as a friend of China.”
Ms Yellen does not lead trade policy but has criticized the tariffs President Donald J. Trump has imposed on over $300 billion worth of Chinese imports.
“Tariffs are taxes for consumers,” Ms. Yellen told the New York Times in 2021. “In some cases, it seems to me that what we’ve done has hurt American consumers and that the kind of deal that negotiated by the previous government really hasn’t been taken into account.” In many ways, the fundamental issues we have with China.”
These tariffs continue to be reviewed by the United States Trade Representative’s Office and Ms Yellen has acknowledged that they are unlikely to be withdrawn any time soon.
Ms Yellen’s ability to develop closer ties with Beijing could be hampered by the current political situation.
Concerns about China have increased after a spy balloon transited the United States before being shot down over the Atlantic. Anti-China rhetoric is also likely to increase in the upcoming presidential election as candidates attempt to portray themselves as hard on China, which is often a winning campaign message. And Republicans have criticized greater US involvement with China.
Ms. Yellen’s visit follows a trip by Secretary of State Antony J. Blinken last month. John F. Kerry, the special envoy for climate, is expected to make a trip to Beijing soon.
Rep. Mike Gallagher, a Wisconsin Republican who heads the House Select Committee on the Chinese Communist Party, accused the Biden administration of being slow to move forward with export restrictions on Huawei, the Chinese telecom giant, and imposing sanctions on Chinese officials responsible for Xinjiang are responsible for human rights violations against Uyghurs. He argued that China’s behavior had worsened while the Biden administration pursued a “zombie engagement” with the Chinese Communist Party.
“With Secretary Blinken leaving Beijing with little to show for his trip, doubling down by sending additional Cabinet-level officials like Secretary Yellen would only perpetuate this vicious cycle,” Gallagher said.
With Republican presidential candidates like Nikki Haley warning that China is “preparing for war with the United States,” Ms. Yellen’s finding ways to keep lines of communication open with her Chinese counterparts, even if her trip doesn’t coincide with the event, is all the more urgent Success leads to any major breakthroughs.
“The Chinese are very aware of the election cycle in the US, and I think that’s partly why they were willing to be a little more open,” said Eswar Prasad, former head of the International Monetary Fund’s China Department. “Both Secretary of State Yellen and the Chinese would like to return to a point where they view at least parts of the economic relationship as a positive-sum game and not a zero-sum game.”
Keith Bradsher contributed coverage.
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