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.