Janet Yellen, President Joe Biden’s pick to be U.S. Treasury secretary, made some blistering comments about China this week. It was straight talk the likes of which were rarely heard during her tenure as Federal Reserve chairwoman between 2014 and 2018.
Yellen called China “our most strategic competitor’ and that the U.S. would work with its allies on a coordinated response.
“We need to take on China’s abusive, unfair, and illegal practices,” Yellen went on to say.
“China is undercutting American companies by dumping products, erecting trade barriers, and giving illegal subsidies to corporations,” Yellen said.
“It has been stealing intellectual property and engaging in practices that give it an unfair technological advantage including forced technology transfers. And these practices, including China’s low labor and environmental standards, are practices that we are prepared to use the full array of tools to address,” Yellen said.
Later, she said that China was guilty of “horrendous human rights abuses” in the Xinjiang province, home to the Uighur ethnic minority.
What does this mean for the Biden administration’s policy toward China after former President Trump started a trade war with the world’s second largest economy in 2018 by imposing tariffs on imports ?
Conventional wisdom had been that the Biden administration would change and reset the Trump-era China policy.
But that no longer appears to be the case.
“Far from being forced into competition with China, the Biden team appears to be more than willing to continue the fight,” said researchers at Beacon Policy Advisors, in note to clients.
In the short run, China policy will remain on the back burner, said Derek Scissors, a resident scholar at the American Enterprise Institute.
Until next fall, the Biden White House will be laser focused on getting its top domestic economic priorities through Congress, he said.
“The Biden administration doesn’t want early trouble with China on any issue because it would distract from their domestic agenda. They are wary of any major changes that would push China to the front page right now,” Scissors said, in an interview.
For now, given that being tough on China is popular with Republicans and Democrats alike, the Biden’s team message will be “we’re going to be tough on China, but it’s not a priority,” he added.
Carl Weinberg, chief economist at High Frequency Economics, said U.S. and China relations are at their lowest point since President Richard Nixon and Henry Kissinger restored bilateral relations in the 1970s.
It is not a second Cold War, as the two countries are intertwined economically, said Ian Bremmer, president of the Eurasia Group.
But a profound shift is underway.
While America and its allies facilitated the initial economic growth of China that focused on low-wage and very productive workers, the U.S. government is not supportive of China’s plans for the next phase of its growth that focus on data and technology dominance, Bremmer said.
While most of these issues will be the purview of the National Security Council and the State Department, Yellen may soon have to grapple with the issue of China’s manipulation of its exchange rate, said Dan Rosen, a senior associate at the Center for Strategic and International Studies.
The Chinese yuan started to strengthen last summer as the Chinese economy recovered from the coronavirus pandemic. One dollar now fetches 6.4819 yuan, its strongest since June 2018.
Rosen thinks this strength won’t last.
“There is nowhere for it to go but down,” Rosen said.
“Over the course of 2021, the question will be how much does the renminbi subside against the dollar and what are the consequences of that going to be,” Rosen said, during a CSIS roundtable discussion on Thursday.
“I think we’re going to see them intervene to put some bands around [the yuan] to keep the training wheels on this economy,” Rosen added.
Scissors of AEI said China’s intervention will be to keep the yuan from strengthening much further and then controlling a slow depreciation as the U.S. economy recovers.
Given the overall strategic nature of competition with China, Claire Reade, a lawyer and China expert at Arnold & Porter, told the CSIS roundtable that she saw signs that the State Department “may play a more active role” in U.S. -China relations.
While it makes sense that Yellen would focus more on domestic issues, Scissors said it was too early to tell whether Treasury would take a back seat to other agencies.
In their note, Beacon said the Biden administration will refine some Trump actions and will almost certainly have a less volatile relationship with China.
“It will be important to not mistake that stability for any lowering of tension in the relationship,” the firm said.