Wrapping up a four-day visit to China watched closely by the US electronics trade, US Treasury Secretary Janet Yellen defended last year’s US sanctions on advanced chips and chipmaking equipment sold to China while expressing concerns over China’s plan to limit exports of gallium and germanium beginning Aug. 1 and “a recent uptick in coercive actions against American firms”—notably Micron.
Some of Yellen’s comments were also meant to assure the world that the US and China are at least communicating at the highest levels, even as most analysts view trade tensions between the countries their worst in recent years.
“We want a dynamic and healthy global economy that is open, free and fair—not one that is fragmented or forces countries to take sides,” Yellen said in prepared comments at a concluding press conference. “I communicated that President Biden and I seek a future of healthy economic competition between our countries.”
Many US companies—chip and component makers especially-- depend heavily on selling goods to Chinese companies and its enormous consumer economy, and hope to continue doing so even as they prod the Biden Administration for help protect their intellectual property from companies and government entities in China. The two countries together comprise 40% of the global GDP, Yellen noted repeatedly. Meanwhile, the US government is concerned about risks to national security if China develops advanced chip technology that can be used in weapons used by US adversaries.
Decoupling concerns
Some US executives have openly worried about the US broadly decoupling from China as it builds up a more stable base of US chip manufacturing and bolsters a domestic supply chain of raw materials, including minerals and metals, needed to make electronics.
Yellen pointedly addressed decoupling concerns: “[T]he United States is not seeking to decouple from China. There is an important distinction between decoupling, on the one hand, and on the other hand, diversifying critical supply chains or taking targeted national security actions. We know that a decoupling of the world’s two largest economies would be disastrous for both countries and destabilizing for the world. And it would be virtually impossible to undertake. “
During 10 hours of meetings with several top Chinese officials, Yellen trod the line between defending US interests and supporting China’s desire to thrive economically. Yellen also made a plug for the Biden administration’s desire to improve global debt restructuring: “We believe that China, as the world’s largest bilateral creditor, can gain from the greater certainty provided by those improvements.”
Export controls
Earlier in her visit, Yellen met with US businesses operating in China and expressed her “concern about new export controls recently announced by China” on gallium and germanium minerals used in semiconductors. The specifics of the export controls, to take effect Aug. 1, are not complete.
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Meeting Premier Li Qiang on Friday, she said: “We seek healthy economic competition that is not winner-take-all, but that, with a fair set of rules, can benefit both countries over time. The United States will, in certain circumstances, need to pursue targeted actions to protect its national security, and we may disagree [with China] in these instances.”
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Ultimately, Yellen was realistic about negotiations with China on trade and other matters. “No one visit will solve our challenges overnight. But I expect that this trip will help build a resilient and productive channel of communication,” Yellen told a news conference in Beijing.
“Broadly speaking, I believe that my bilateral meetings — which totaled about 10 hours over two days — served as a step forward in our effort to put the US-China relationship on surer footing.”
China's reaction
China’s official news agency, Xinhua, posted short comments about the Yellen visit with Chinese Vice Premier He Lifeng on Saturday, calling them “candid and practical exchanges on the economic and financial situation of the two countries and the whole world.” The agency called the talks “constructive” yet added: “ Noting that the overstretching of national security does no good to the normal economic and trade exchanges, the Chinese side expressed concerns over the sanctions and restrictions imposed by the United States on China.”
Yellen told reporters that no final decision has been made to limit outbound investments by US companies in China. “I was able to explain to my Chinese counterparts that if we do implement such restrictions, that we will do so in a transparent way,” she said, according to CNN.
Any new curbs or sanctions would “be highly targeted and clearly directed narrowly at a few sectors where we have specific national security concerns.”
“I want to allay their fears that we would do something that would have broad-based impacts on the Chinese economy. That’s not the case. That’s not the intention,” she said.
Lingering 'poisonous' areas of contention
The biggest stumbling block to future US-China trade relations could well be the October action by the Biden administration to limit sales of advanced chips and chipmaking gear to Chinese companies.
“US and Chinese leaders alike consider these technologies foundational to the future of growth. Chinese leaders see the restrictions as an attempt to permanently subordinate China to US power and to coercively exclude Chinese business from the most important industries of the future,” said Jake Werner, East Asia research fellow at the The Quincy Institute in Washington, according to CNN.
“This issue will continue to be one of the most poisonous areas of contention within the relationship.”