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Yellen speaks during a meeting with Chinese Vice Premier He Lifeng (not pictured) at the Diaoyutai State Guesthouse in Beijing on July 8.
Mark Schiefelbein—Pool/Getty Images

Treasury Secretary Janet Yellen’s two-day engagement with top officials in Beijing offered a way for the U.S. and China to contain damage in their economies from the two nations’ intensifying rivalry.

While on the military side, there’s been no resumption of bilateral communication — amid risky encounters between the two sides’ air and maritime forces — Yellen’s high-profile visit suggested hope for guardrails in economic competition.

In 10 hours of meetings Friday and Saturday, Yellen said she sought to convince China’s newly installed economic team that the U.S. isn’t bent on seeking “economic advantage” against the country. Though the Biden administration has ramped up controls on key exports and is considering curbs on American companies’ outbound investments, Yellen emphasized that the measures Washington takes are “targeted” and designed only to safeguard national security.

“No one visit will solve our challenges overnight,” Yellen said Sunday in Beijing. “But I expect that this trip will help build a resilient and productive channel of communication with China’s new economic team.”

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During Yellen’s visit, the Chinese side asked the U.S. to take concrete actions to address concerns over economic sanctions and containment, according to a statement from the Ministry of Finance on Monday. The Chinese side also reiterated its concerns about issues including tariffs, export controls and a ban on products produced in Xinjiang, according to the statement.

The U.S. export-controls issue could present an early test of strength of the guardrails Yellen has sought to erect. The administration has been expected in coming weeks to unveil an executive order by President Joe Biden that will set up reviews of, and ultimately restrictions on, U.S. investments in semiconductors, artificial intelligence and quantum computing.

The export curbs have the potential to cut off certain investments in semiconductors, artificial intelligence and quantum computing in China.

“I’m sure that they will be closely monitoring our actions,” Yellen said in a press conference. “We want to open up channels so that they can express concerns about our actions. And we can explain — and possibly, in some situations, respond to — unintended consequences of our actions.”

Yellen’s remarks were the clearest statement yet that Washington would potentially take Beijing’s views or feedback into account in implementing or designing measures against China.

China’s Premier Li Qiang, who met with Yellen Friday, told her that “overstretching” the concept of security “does no good for the economic development of the two countries and the whole world,” according to Xinhua, China’s state news agency. That message was repeated in Yellen’s five hours of engagement with her newly appointed top economic counterpart, Vice Premier He Lifeng, according to Xinhua.

The Treasury chief repeatedly sought to emphasize that deep and broad bilateral economic relations are a good thing. It’s important for the two nations to “make sure businesses understand there is a wide swath of economic interactions that are uncontroversial to both sides,” she said.

For China, the engagement occurred against a backdrop of a weaker-than-expected economic recovery in the wake of the end of pandemic restrictions.

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Yellen’s message may ease any concerns among U.S. allies that Washington has embarked on a path dedicated to fragmenting the global economy between an American and a Chinese bloc. Washington has put pressure on Japan and the Netherlands to join its restrictions of exports of key cutting-edge technological exports to China.

From the perspective of the broader global community, Yellen’s visit — coming weeks after Secretary of State Antony Blinken’s trip to Beijing — offers an image of responsible engagement at a time when many nations are deeply opposed to having to choose sides in any new Cold War.

Yellen’s language in Beijing “sent a very strong signal to the business and international community, and to the rest of the world, that the U.S. and China should work together,” said Henry Wang, founder of the Center for China and Globalization, a policy research group in Beijing.

The U.S. and China have been stepping up efforts to boost influence in the so-called Global South. Yellen will have an opportunity to allude to the newly reinstated high-level engagement with China when she meets with fellow finance chiefs from the Group of 20 emerging and developed nations in India this month.

Her remarks in Beijing also suggested a new term to describe U.S. efforts to promote trade and investment in places other than China.

“We seek to diversify, not to decouple,” Yellen said on Friday. The following day, she said “I’ve heard my Chinese counterparts express skepticism about decoupling — and have expressed some concern that derisking amounts to decoupling. And I felt that it was extremely important for me to address this issue.”

She emphasized that “derisking involves attention to clearly articulated and narrowly targeted, national-security concerns, as well as broader concern with diversifying our supply chains,” applied only to “a few important sectors.”

A Xinhua commentary published Friday said that “acts of short-sightedness and a Cold-War mindset will easily damage any progress already made to rekindle bilateral ties.” It also said that pushing for derisking “would not fool the Chinese side to believe the United States has given up its efforts to contain China.”

Tariff issue

A true rapprochement would arguably require the U.S. and China dismantling the raft of trade-tariff increases levied during the Trump administration.

Tariffs were raised in the talks in Beijing, Yellen said Saturday. The U.S. is now conducting, by statute, a four-year review of those measures. “The results are not yet in,” she said.

Any broad reduction in tariffs would involve political risk for Biden, who’s seeking reelection in November 2024. Republican candidates have staked out strong anti-China stances, and GOP lawmakers would likely lambast a return to business-as-usual in the economic relationship.

“It’s unrealistic to think economics can be divorced from national-security concerns,” said Mark Sobel, a former senior Treasury official who’s now U.S. chairman of the Official Monetary and Financial Institutions Forum.

“Yellen’s trip will not likely alter the underlying dynamic of the economic relationship,” he said.

National Security Advisor Jake Sullivan told reporters aboard Air Force One on Sunday as Biden traveled to London that “there’s been no change” in the frozen military-to-military contacts between China and the U.S.

New team

Yellen’s meetings marked an opportunity for the administration to get to know President Xi Jinping’s new economic team, which has taken shape since he broke modern precedent last October by extending his tenure as head of the dominant Chinese Communist party.

A Treasury official said the team went into the talks without much understanding of how the new officials worked together. Yellen’s visit has kicked off with sit-downs with her former counterpart, Liu He — a fluent English-speaking veteran of the international stage with whom she had developed a rapport — and Yi Gang, the U.S.-educated titular governor of the central bank.

“Liu He and Yi Gang spoke English and, in general, knew international relations much better than the current team,” said Alfred Wu, an associate professor at the National University of Singapore’s Lee Kuan Yew School of Public Policy. “The current team has mostly been promoted within the country, they’ve never been exposed to the international environment.”

The U.S. side didn’t enter the meetings with any expectation of specific progress, a Treasury official said, speaking on condition of anonymity to describe the talks. In the end, the group got a warm reception and the key session with He Lifeng went notably longer than expected, the official said. Both sides agreed that they want to see more, continued communication, at multiple levels, the official said.

“It was great to see her here, great to see her continue to have discussions that Secretary Blinken had,” said Michael Hart, president of AmCham China, who met with Yellen during her visit.

“This past couple of weeks we’ve had more CEOs coming to town,” Hart said in an interview on Bloomberg TV on Monday morning. “Hopefully we’ll have more senior government officials coming soon.”

—With assistance from Lucille Liu, Rebecca Choong Wilkins and Philip Glamann.

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