Yellen Says Decoupling Would Be Disastrous but Problems With China Real

Treasury Secretary Janet Yellen said no decision has been made yet on whether there will be an executive order limiting outbound investment in China. "It's still something being discussed in the administration and the timing of it is not yet certain," she said on "Face the Nation" from China, before she returned from a diplomatic visit there. "But I wanted to explain to my Chinese counterparts that if we go forward with this executive order, that we will do so in a transparent and narrowly targeted way." She said what's being considered is only for "very narrow high technology areas," and should not significantly impact overall investment in China.

She said an objective of her trip was to tell her Chinese counterparts "that national security is something that we can't compromise about and we will protect, and we will do so even if it harms our own narrow economic interests. But that when we take such actions, which do have an effect on the Chinese economy, that we will make sure that they are transparent, narrowly targeted, and well explained."

Yellen said China has controls on outbound investment.

Yellen told the show's host that the visit was "very constructive," and that their meetings were "very substantive."

The host asked her about enforcement actions against U.S. services firms that the Chinese said were needed because of a new espionage law. Yellen said she raised that issue, and China didn't say it would stop treating market research as spying.

"It's something that we will have further conversations about, and try to address over time," she said. "But I also heard from American firms here that they see enormous opportunities and it's important to them that we maintain healthy economic relations with China so that American businesses and American workers can benefit from the opportunities here and vice versa."

Yellen also spoke with a group of reporters over the weekend, and said "The U.S. and China have significant disagreements. Those disagreements need to be communicated clearly and directly. But President Biden and I do not see the relationship between the U.S. and China through the frame of great power conflict. We believe that the world is big enough for both of our countries to thrive. Both nations have an obligation to responsibly manage this relationship: to find a way to live together and share in global prosperity."

"We believe it is possible to achieve an economic relationship that is mutually beneficial in the long term -- one that supports growth and innovation on both sides. Indeed, I noted that China’s growth has lifted hundreds of millions out of poverty and made clear that the United States is not seeking to decouple from China. There is an important distinction between decoupling, on the one hand, and on the other hand, diversifying critical supply chains or taking targeted national security actions. We know that a decoupling of the world’s two largest economies would be disastrous for both countries and destabilizing for the world. And it would be virtually impossible to undertake. We want a dynamic and healthy global economy that is open, free, and fair -- not one that is fragmented or forces countries to take sides.

"I also communicated to my counterparts that healthy economic competition is only sustainable if it benefits both sides. I pressed them on our serious concerns about China’s unfair economic practices. That includes the breadth and depth of China’s non-market policies, along with barriers to market access for foreign firms and issues involving intellectual property."

Yellen said she also expressed concern about China's recently announced export restrictions on minerals used in chipmaking, and said "potentially" it was retaliatory for U.S. and Dutch export restrictions.

"I also raised the importance of ending Russia’s brutal and illegal war against Ukraine. As we continue to monitor the domestic situation in Russia, U.S. support for Ukraine will not change. And I communicated that it is essential that Chinese firms avoid providing Russia with material support or assistance with sanctions evasion," Yellen said.