Treasury Secretary Janet Yellen Says U.S. Isn’t Seeking a “Winner Take All” Competition with China

With tensions between the U.S. and China rising — and many policymakers calling for tougher action — Yellen attempted to dial down the rhetoric.

Treasury Secretary Janet Yellen delivered a major speech on China on Thursday, calling for a more “constructive” relationship between the United States and China that offers “healthy economic engagement that benefits both countries.”

Yellen’s remarks, given at Johns Hopkins School of Advanced International Studies, struck a more conciliatory tone than has been offered recently in Washington when it comes to China. Indeed, even as Yellen delivered her speech, news broke that the Biden administration is set to unveil new China investment curbs ahead of the upcoming G7 summit — and will encourage its allies to do the same. Meanwhile, lawmakers from both parties are busy pursuing tough-on-China strategies on Capitol Hill.

For his part, China’s leader Xi Jinping has “rebuffed attempts by the Biden administration to restart high-level talks,” according to The New York Times, which also reported that “Mr. Xi’s government has intensified a campaign of ridicule and criticism of the United States and Western democracy.”

Enter Yellen, whose speech clearly aimed to lower the temperature:

“The United States will assert ourselves when our vital interests are at stake. But we do not seek to decouple our economy from China’s. A full separation of our economies would be disastrous for both countries. It would be destabilizing for the rest of the world. Rather, we know that the health of the Chinese and U.S. economies is closely linked. A growing China that plays by the rules can be beneficial for the United States.” 

Yellen did acknowledge that there are significant issues in the U.S.-China relationship, noting that “China is striking a more confrontational posture toward the United States.” And Yellen defended the Biden administration’s use of tools like export controls, entity lists, sanctions, foreign investment reviews, and outbound investment restrictions to keep “certain technologies from the PRC’s military and security apparatus.” In addition, the United States would take action to address human rights concerns like the ongoing genocide in Xinjiang, Yellen said.

“As we take these actions, let me be clear: These national security actions are not designed for us to gain a competitive economic advantage, or stifle China’s economic and technological modernization,” Yellen said. “Even though these policies may have economic impacts, they are driven by straightforward national security considerations. We will not compromise on these concerns, even when they force trade-offs with our economic interests.”

But Yellen also sought to frame them as “narrowly targeted actions,” and argued for “constructive engagement.”

“We believe that healthy economic competition with a fair set of rules can benefit both countries over time,” Yellen said. “A basic principle of economics is that sustained, repeated competition can lead to mutual improvement. Sports teams perform at a higher level when they consistently face top rivals. Firms produce better and cheaper goods when they compete for consumers. There is a world in which, as companies in the U.S. and China challenge each other, our economies can grow, standards of living can rise, and new innovations can bear fruit.”

Yellen wasn’t the only administration figure on Thursday calling for a more cooperative relationship with China. U.S. Trade Representative Katherine Tai said during a visit to Tokyo that the administration has made it “very clear that it is not the intention to decouple” and argued trade action and sanctions have been “narrowly targeted.”

Interestingly, Tai’s remarks come as additional “narrowly targeted” action may be forthcoming. Deputy U.S. Trade Representative Sarah Bianchi said in a speech last week additional tariffs could be placed on Chinese imports in response to China’s continued breaking of trade rules and agreements.

The Biden administration’s current tone toward China may strike some as a paradox. Key figures like Yellen and Tai are making a point to publicly proclaim that the two countries can have a productive economic relationship, all while action is being taken to counter China’s growing technological prowess and strengthen U.S. capabilities to compete.

That paradox reminded me of congressional testimony that Jamieson Greer, who served as chief of staff to former U.S. Trade Representative Robert Lighthizer, offered to a House Ways and Means subcommittee this week. Recalling his experience with the Trump administration’s placement of “Section 301” tariffs on Chinese products — and the subsequent “Phase 1” trade deal with China that followed — Greer argued that Chinese officials don’t actually respond to strong rhetoric. Instead, he suggested that the U.S. utilize “polite” and “respectful” communication that is followed by “real, strong action.”

“They did not think we were going to impose tariffs on them, and then we did. And then they didn’t think we were going to do it again, and then we did,” Greer recalled. “And then they came to the table.”

Look, I have no inside knowledge of the inner workings of the Biden administration, but it does strike me that Team Biden is currently going for a “speak softly, carry a big stick” strategy when it comes to China. It’s certainly a tough needle to thread, as the administration is likely aiming to address the litany of issues that exist in the U.S.-China relationship while also aiming to avoid escalating tensions that could lead to disaster.

But what absolutely cannot happen is a return to the status quo of the first two decades of China’s WTO membership, in which the U.S. pursued an free trade relationship in the hopes that it would encourage China to open its economy and become more democratic. That strategy failed — and U.S. factory workers and manufacturers paid the cost, with 3.7 million jobs lost to the China trade deficit between 2001 and 2018.

As Alliance for American President Scott Paul testified earlier this year, conflict with China isn’t inevitable, but fierce economic competition is. It may be possible for the U.S. and China to tone down the rhetoric and pursue more cooperation, but the United States needs to be realistic about what that will look like — and needs to be willing to act in our own interests.