Apr 5, 2024 - Economy

Yellen: Cutting off economic relations with China isn't "practical"

Yellen in China speaks at a podium

Treasury Secretary Janet Yellen gives a speech at an American Chamber of Commerce event on Friday. Photo: Pedro Pardo/AFP via Getty Images

GUANGZHOU, China Treasury Secretary Janet Yellen told U.S. executives in southern China on Friday that it's neither "practical nor desirable" to cut off economic relations with the country — even as the Biden administration is moving to contain huge business threats from China.

Why it matters: Yellen is aiming to strike a balance between calling out China for "unfair practices" she said were hurting American firms — while highlighting the importance of maintaining U.S.-China economic ties.

What they're saying: "A full economic separation is neither practical nor desirable," Yellen said. "We reject the idea that we should decouple our economy from China."

  • Yellen said she was addressing her concerns about the economic and business backdrop in China in the "spirit of continuing to move the U.S.-China relationship in a constructive direction."

Zoom in: Yellen spoke at an event hosted by the American Chamber of Commerce, a China-based group that represents U.S. firms doing business in the region.

  • Before an audience of business executives in Guangzhou — a trade hub known for its large presence of U.S. firms — Yellen said the Biden administration has watched China's government "pursue unfair practices" against companies operating in China.
  • Yellen said that includes imposing high barriers to access for these companies, among other "coercive" actions.
  • "I strongly believe that this doesn't only hurt these American firms: ending these unfair practices would benefit China by improving the business climate here," Yellen said, adding that she plans to bring up these issues in meetings with Chinese counterparts, including the country's top economic policymaker, this week.

The big picture: China's economy is on rocky footing and foreign investment is slumping. That's one reason why leader Xi Jinping met with U.S. chief executives last month in an effort to gin up support for a presence in China.

  • The Biden administration is wary of other moves the Chinese government is taking to shore up its economy, including offering massive subsidies to its factory sector. The problem, officials say, is that China doesn't have adequate demand to absorb the goods being produced.

In her remarks Friday, Yellen doubled down on the warning that China's state aid is causing a production glut of green energy products, like solar panels and electric vehicles.

  • "Direct and indirect government support is currently leading to production capacity that significantly exceeds China's domestic demand, as well as what the global market can bear," Yellen said.
  • "This can undercut the business of American firms and workers, as well as of firms around the world, including in India and Mexico."
  • Earlier this week, Yellen said she "wouldn't rule out" measures, including possibly trade barriers, to protect U.S. companies that might be at risk from China's efforts to unload its slew of products on global markets.

The intrigue: Yellen, a trained economist who previously served as Fed chair, said China would help its domestic economy by changing its subsidies approach.

  • "It would avoid the resource misallocation that occurs when government subsidies are channeled to firms that wouldn't otherwise be viable," she said. "And that's something that would improve Chinese productivity."

What's next: Yellen will hold extensive talks Friday with Vice Premier He Lifeng, China's economic czar.

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