Treasury Secretary Yellen’s Trip to Beijing Indicates Potential Progress-But Skepticism Remains

US Treasury Secretary Janet Yellen just concluded her highly anticipated four-day trip to China, where she met with top policymakers to discuss the future of the China-US economic relationship. While the trip indicates potential progress, it’s still too early to make any conclusions without skepticism.

Yellen aimed to directly communicate the United States’ view of the Chinese-US economic future to top Chinese officials. Recently, the Biden administration placed intense restrictions on private companies looking to invest in or engage with Chinese companies. In the coming weeks, the administration is gearing up to pass an additional law restricting investment in semiconductors, AI, and quantum computing. In response, private companies have looked to alternative markets, with India leading the way. A frustrated China responded by curtailing exports of computer chip technology to US companies and instituting a domestic counter-espionage law, which broadens the definition of spying and can penalize American and foreign companies operating in China for regular business activities. These recent legislative actions have increased the prospect of “decoupling,” severely increasing tensions between the two economic powerhouses. 

Yellen aimed to set the record straight. Instead of using the word “decoupling,” she presented the administration’s decisions as an attempt to “diversify” the US’ economic relationships and global supply chains: it’s not an attack on the Chinese economy. Instead, it’s an attempt to protect American national security interests. The central thesis of Yellen’s trip was that the China-US economic relationship is not a form of great power competition. Instead, she asserted that the world is big enough for both the US and China to thrive economically. With the two countries contributing to 40% of the global economy, Yellen called the China-US economic relationship the most “consequential of our time.”  

After 10 hours of meeting time, Yellen stated that she feels she is leaving having made “successful progress” in laying the foundation for a stabilized China-US relationship. She has revealed that talks involved discussing each side’s domestic economies, national security interests, and possible areas for cooperation, with efforts to curb climate change being a significant opportunity to do just that. Yellen’s trip came right after Secretary of State Anthony Blinkon’s, who focused on establishing direct communications channels and areas of common ground. 

But that’s precisely what this trip is—a foundation. At the end of the day, it’s way too early to make an informed judgment as to the effectiveness of the trip. Sending state representatives to “repair ties” is a popular political ploy used by almost every nation-state in the world. The US has done it on countless occasions: In 2015, Secretary of State John Kerry was sent to Cuba to re-establish relations. In 2013, he was sent to Iran. In 2018, Mike Pompeo visited North Korea multiple times to discuss denuclearization. Numerous attempts were made to negotiate with Russia. The same goes for China: In 2016, following the deployment of the U.S. THAAD missile defense system in South Korea, China imposed unofficial economic sanctions and restrictions on South Korean businesses and tourism. In 2017, both countries made efforts to mend relations. Also in 2017, Xi Jinping and Indian Prime Minister Narendra Modi held an informal summit to improve ties and address areas of disagreement. In 2018, Premier Li Keqiang visited Japan to increase bilateral relations. Each one of these attempts by the US and China both faced immense challenges, and relations never really improved that much.

This does not mean that US-China relations do not have the potential to improve. Instead, it’s a reminder that international politics is a sneaky and highly volatile game, and skepticism is part of the process. 

It’s essential to look out for how this “improved communication” manifests: Decreased trade restrictions? Increased trade relations? Cooperation on global efforts, like climate change? Improved economies on both sides? From an investment perspective, it’s unlikely that the US will allow for levels to reach what they once were. They probably won’t refrain from imposing restrictions on their private companies because, while they do want to repair economic relations with China, diversification seems to have become a core part of the US plan. 

Nevertheless, Communication is the first step to progress. That’s always remained true. And these trips are an important first step. At the end of the day, Yellen is right: the China-US relationship is the most consequential of our modern era. The two countries have become so interdependent over the years that any disruptions in supply chains can have dramatic effects. We’ve seen that happen just now: as soon as US private corporations’ ability to trade with China was restricted, there’s been an immense struggle to find alternative sources for raw materials and technologies. These disruptions don’t just affect the US and China; they affect almost every country in the world. The US and China are two of the world’s largest exporters of goods. They also pave the way for technological development. The stability of their markets is vital to stabilizing the value of their currencies, which are used for trade and investments globally. Economic relations between the US and China also shape the global economy because the two countries have the most say in multilateral organizations like the World Trade Organization. Hence, any issues reverberate to consumers everywhere, and any disputes hinder the ability to address global economic challenges like climate change, sustainable development, and financial stability. 

US-China communication is undeniably important, and communication is the first step. Though we acknowledge the challenges of improving international relations, especially between countries with drastically different geopolitical motives, we hope to remain enthusiastic. But it’s challenging, if not impossible, to separate economic interests from national security interests. 

We can only hope that these initial meetings translate into material results.