Yellen Meetings in China Could Cool Tensions
Author: Greg Valliere
July 5, 2023
ISSUES DIVIDING THE TWO COUNTRIES are so enormous that major breakthroughs are unlikely, but Yellen is highly regarded in China and is determined to resume normal contacts. We think she will succeed in improving communications, which is the primary goal of her trip.
BOTH COUNTRIES HAVE REASONS TO COOL THE TENSIONS: China’s economy is sputtering, and U.S. economic growth may ease in the second half — thanks to fresh headwinds from organized labor and a blow to disposable income from the resumption of student loan payments this fall.
THERE ARE HUGE ISSUES TO DISCUSS: Tariffs that President Trump imposed on Chinese goods are still in effect; President Biden has been working to restrict China’s access to critical technology such as semiconductors; and new restrictions curbing American investment in China are looming.
OF ALL THE ECONOMIC ISSUES, the primary one involves computer chips; the U.S. has placed limits on chips to be sent to China, which has angered Beijing, which needs chips for projects such as AI. The Biden administration is mulling further controls on advanced chips and on American investment into cutting-edge Chinese technology.
THE SO-CALLED “CHIPS ACT” that passed last year, designed to boost the industry in the U.S., has infuriated Chinese officials, since it includes restrictions on investing in China. U.S. companies that accept Washington money to build new chip facilities in this country are forbidden to make new, high-tech investments in China.
THIS HAS LED TO SANCTIONS FROM CHINA: The most recent target was Micron Technology, a U.S. memory chip maker that failed a Chinese security review in May. That move could cut Micron off from selling to Chinese companies that operate key infrastructure, putting nearly 10% of company’s global revenue at risk. In recent months, U.S. consulting and advisory firms in China also have faced a crackdown.
ANOTHER ISSUE FACING YELLEN will be the impact on U.S. business of new Chinese national security restrictions, which will increase espionage laws. This may provoke the U.S. to crack down on companies with ties to China, like the social media app TikTok, the shopping app Temu and the clothing retailer Shein, which are facing increasing scrutiny over their labor practices.
OTHER ISSUES INCLUDE: China’s reluctance to restructure loans to third world countries; Beijing’s alleged policy of maintaining a weak renminbi; human rights abuses; provocative military exercises which have seen Chinese planes and ships come perilously close to U.S. assets; and of course China’s trade with Russia, helping Moscow in its war with Ukraine.
IT’S A FULL PLATE but we think Yellen will tone down the rhetoric, which was inflamed when Biden called Xi a “dictator” days after Secretary of State Antony Blinken visited Beijing. There’s always heated rhetoric between the two countries, but in private leaders would like to set the stage for compromises later this year.
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