US Treasury Secretary Janet Yellen is my favorite living policy economist. It’s not just her rich experience in academia and government. It is the creative and tenacious application of that experience to tackling a wide range of formidable challenges in economics, society, and foreign policy. Unlike her stint as Fed Chair, where messaging is deliberately obscure, as Treasury Secretary, Yellen makes great effort to articulate her views, no matter how tough, in plain and simple language that is unmatched in the global policy community.
She did that today. In a wide-ranging speech, Yellen provided the Biden Administration’s most expansive statement of US policy toward China. With the two superpowers on a worrisome path of conflict escalation over the past five years that has taken an ominous turn for the worse since the great balloon fiasco of early February, the Yellen speech took on added importance. As a former China watcher who has now morphed into a ”conflict watcher,” I was looking for Secretary Yellen to answer one simple question: Is the United States open to establishing a framework for re-engagement with China?
Her answer was disappointing. While she paid lip service to the need “to develop steady lines of communication … for macroeconomic and financial cooperation,” there were no concrete suggestions on how we might go about doing that. Instead, Secretary Yellen used the occasion to downplay this objective by elevating national security to America’s highest priority. Not by coincidence, this matches up with a similar emphasis on security underscored by Xi Jinping in his opening address to the 20th Party Congress last October.
Significantly, this approach turns the US-China relationship on its head. Economics—and by inference, trade—has long been viewed as the anchor of the relationship. The premise was simple: Economic engagement offered both nations the opportunity to tackle tough mutual problems from a position of economic strength, drawing on the sense of security that comes from that strength.
Yellen’s ranking of priorities leaves little doubt as to where the Biden Administration stands: National security (and by circuitous inference, human rights) now comes first, followed by the economic relationship. She gave a nod to “cooperation on the urgent global challenges of our day”—namely climate change and debt distress—but that seemed more like a throw-away line rather than a proactive agenda of engagement.
I worry that both the United States and China now have it backwards when it comes to the possibilities for conflict resolution. Trust building must come first, especially for two nations that now lack any semblance of trust between them. By ranking security ahead of trust or even economics, both the US and China are effectively putting the cart ahead of the horse.
To her credit, Janet Yellen’s April 20 speech addressed many other important aspects of the US-China relationship, from technology and competition to democratic values and alliances. But the implications for conflict jump off the page. The security focus frames any chances of re-engagement from the perspective of inviolable “red lines.” In Yellen’s almost confrontational words, “We will not compromise on these concerns, even when they force trade-offs with our economic interests.”
We know what the most prominent of those red lines are—Taiwan for China and for the United States, Chinese partnership support to Russian military efforts in Ukraine. But red lines are emblematic of a hardening of positions. They do not point to an off-ramp, a path to re-engagement and ultimately reconciliation. Yellen’s long-awaited speech only heightens my concerns over the prospects for conflict resolution.
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