What would Janet Yellen mean for US relations with China?

Though Yellen’s personal views on China are well documented, she will have to face growing bipartisan distaste for China.

As President-elect Joe Biden announces the first of his cabinet picks, the face of his administration is slowly beginning to take shape.

In the role of treasury secretary, Biden has said he will nominate former Federal Reserve chair Janet Yellen.

Yellen is an established figure in Washington, DC., having served not only as chair of the Federal Reserve during the Obama administration, but also in a number of positions in the Clinton administration.

Choosing Yellen would have immediate implications for a number of topics, most notably regarding the kind of economic stimulus that will be pursued following Biden’s inauguration in January and the path Biden’s administration will take toward economic recovery.

But Yellen’s name has implications elsewhere, particularly with regard to relations with China.

As treasury secretary, Yellen would be a central figure in negotiating the aftermath of four years of increasingly hostile political and economic relations between the United States and China and will also be a central figure in the negotiation of any future trade deals or levied sanctions.

TMS explains what Treasury Secretary Janet Yellen would mean for US relations with China.

Background

In 1994, Yellen was one of the first Democratic nominees to serve on the Federal Reserve Board as a “governor,” helping to set monetary policy for Reserve Banks and regulate financial institutions in the country.

In 1997, Yellen was appointed to President Clinton’s Council of Economic Advisers.

Yellen returned to the government with the election of President Barack Obama in 2008. In 2010, she was nominated as vice chair of the Federal Reserve. Following the retirement of Chairman Ben Bernanke in 2014, Yellen was appointed as the new chair – the first woman to hold that position.

Yellen has been a critic of Trump-era fiscal policies, including criticizing the Trump tax cuts for increasing the federal deficit. She has also been a vocal supporter of public entitlement programs and increasing tax revenue.

Hawk or dove?

One of the biggest issues of global significance that Yellen and President-elect Biden will face following January’s inauguration is China. More specifically, in determining what path the US should take in its relations with China after four years of heated rhetoric, trade wars, and a policy of taking on China alone, without allies.

Yellen has spoken at length on US-China relations in the past, fueling expectations of the role the would-be treasury secretary would play under a Biden administration.

During a talk at the Asian Financial Forum in Hong Kong in January this year, Yellen outlined her criticisms of President Donald Trump’s trade war with China, believing it to have achieved little.

Yellen argued that there has not been any “significant rollback of tariffs” despite years of economic conflict, with Trump’s January deal with China not having had a “very noticeable” impact on US households.

It’s true that the preliminary deal the Trump administration agreed on with China changed little. The vast majority of tariffs remained in place on hundreds of billions of dollars worth of imports between the two countries. In the meantime, other nations have pushed on without the US in the creation of new trade blocs, including China.

Yellen is also known to be a strong supporter of open and free trade between nations, particularly through international trading systems. President Trump’s tenure has witnessed a step back from both in the pursuit of an “America First” centered foreign policy.

However, while Yellen disagreed with the means through which the Trump administration has conducted economic relations with China, she has argued that the “United States has real issues in terms of its trade relations with China.” These include American companies having to compete with those subsidized by the Chinese state and having Chinese markets largely closed-off to them.

But these trading disputes are not the only potential source of conflict Yellen has envisioned between the US and China.

Yellen also argued that Trump’s January deal with the country failed to address issues she viewed as “more troublesome.” These included the risk of conflict over emerging technologies, such as competition between the US and China in the fields of artificial intelligence and 5G technologies.

During the January conference, Yellen argued that “technologies developed in one place of the world need to be and can be applied throughout the world, and become the base for further progress of technological innovation.”

If the world were to lose those “synergies,” Yellen warned, such as through conflict over new technologies, that would prove a negative development.

President Trump’s administration has only escalated this conflict in its effort to detach the US from Chinese technologies in the fields of 5G, semiconductors, and more.

Anti-China Climate

Though Yellen’s personal views on China are well documented, she will have to face growing bipartisan distaste for China.

President Trump has already made some final attacks against China in the waning months of his presidency, signing executive orders in November that bar US firms from investing in 31 Chinese companies that US authorities say support China’s military.

The bans are set to come into place in January, just as President-elect Biden takes office.

According to Stephen Innes, chief global market strategist at foreign exchange brokerage Axi, “there will be political pressure not to reverse those,” especially as “a lot of people in the Democratic Party are vehemently against China.”

If confirmed, Treasury Secretary Yellen may have to confront growing bipartisan sentiment against China, its trade practices and human rights record if she chooses to reject the methods used by President Trump in confronting China.

When she was nominated by President Obama to take the role of Federal Reserve Chair in 2014, the White House said of Yellen that she was “known for her sound judgment and ability to build consensus.”

Amid the conflict between the legacy of the outgoing president, a rising bipartisan tide against China, and her own personal views of the two country’s trading and economic relations, Yellen will need this “ability to build consensus” more than ever.

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