Remarks by Secretary of the Treasury Janet L. Yellen on the U.S.-China Economic Relationship

WASHINGTON – On Thursday, December 14, Secretary of the Treasury Janet L. Yellen delivered remarks on the U.S.-China economic relationship at the U.S-China Business Council’s 50th Anniversary Dinner in Washington, DC. 

As Prepared for Delivery

Good evening. Thank you to the U.S.-China Business Council for the invitation and to Marc for the introduction. 

We are here to celebrate the 50^th anniversary of the U.S.-China Business Council. We also mark a little over a year since the meeting between President Biden and President Xi in Bali, Indonesia. Following this meeting, President Biden directed me and other senior officials to deepen our communication with China, setting in motion actions from my visit to China in July to meet China’s new economic team to the Treasury Department’s launch of the Economic and Financial Working Groups with the Chinese government. The Working Groups have now met twice, and I welcomed my counterpart, Vice Premier He Lifeng, to San Francisco in November before President Biden met with President Xi almost exactly one month ago today. 

Throughout this diplomacy, issues that are important to many of you in the audience today, such as market access, have been top of mind for me. I’ll discuss this and other areas tonight as I step back to reflect on the foundations of the economic approach we’re pursuing; the progress we’ve made over the past year; and our plans for the year ahead.

I. Foundations of Our Economic Approach to China

The Biden Administration strategy towards China begins with investing at home and rebuilding alliances abroad. When President Biden took office, considerable work was needed both domestically and internationally. The Trump Administration had failed to make investments at home in critical areas like infrastructure and advanced technology, while also neglecting relationships with our partners and allies that had been forged and strengthened over decades. This left America more vulnerable and more isolated in a competitive global economy that demands that nations take exactly the opposite approach. It damaged our global standing and meant significant missed economic opportunities for American firms and workers. 

Over the past three years, the Biden Administration has course corrected. We’re investing at home through President Biden’s Investing in America agenda. The Administration’s economic plan helped power a historically fast recovery from the pandemic. The Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act—together with the private sector investments they’re driving—are fueling economic growth, building the clean energy industries of the future, and increasing opportunity for people and places in America that have historically been left behind. 

We’re also deepening our economic ties with countries around the world, including those in the Indo-Pacific. In my trips to India, Indonesia, Japan, South Korea, and Vietnam, I saw the region’s dynamism firsthand. Greater economic integration with the region—when pursued strategically—can be immensely beneficial. We can boost production at home to serve expanding markets, creating jobs for American workers. And we can partner to bolster our economic security, including through building more secure supply chains, increasing America’s resilience while enabling more growth in Indo-Pacific economies. 

As I’ve said before, America’s fundamental economic strength means that we have nothing to fear from healthy economic competition, with China or any other country. Our strength positions us to seek new opportunities while navigating challenges. It’s within this context that we’ve shaped our economic approach to China. 

I and other U.S. officials have repeatedly stated that the United States does not seek to decouple from China. This would be damaging to both our economies and would have negative global repercussions. In my speech on the U.S.-China economic relationship in April, I made this clear. I also laid out three objectives for our relationship. The United States will pursue a healthy economic relationship with China, one that benefits both sides. We will seek to cooperate with China on global challenges. And because our national security must remain our foremost priority, we will deploy our economic tools when needed to secure our country’s national security interests and protect human rights. 

II. Progress So Far

Over the past year, we’ve advanced this vision. I’ll start with our pursuit of a healthy economic relationship. 

When the U.S.-China Business Council was established, China’s share of global GDP was less than 3 percent. Now, it’s almost 18 percent. China has become the United States’ third largest trading partner after Canada and Mexico; the United States is China’s largest. This provides a tremendous opportunity, one I know many Council members and others here today see clearly. American exports to China and Chinese investment in the United States can support American jobs. And American businesses can benefit from access to key inputs that allow them to lower production costs, become more competitive, and create even more jobs.  

But for too long, American workers and firms have not been able to compete on a level playing field with those in China. The PRC deploys unfair economic practices, from non-market tools, to barriers to access for foreign firms, to coercive actions against American companies. These policies harm American workers and firms. Over the past year, we’ve consistently raised these concerns through the Working Groups and direct diplomacy. Let me be clear: I will always champion your interests and work to make sure that American workers and firms are treated fairly. 

If the PRC were to shift away from its state-driven economic approach in industry and finance, I believe that would be better for the PRC as well. Too strong a role for state-owned enterprises can choke growth and an excessive role for the security apparatus can dissuade investment. I hear frequently from American companies about the challenges they’re facing. The Council’s 2023 member survey revealed that companies are reconsidering their investment plans and resource commitments, with a higher portion of companies indicating plans to move some of their operations out of China than in any year since 2016. These trends should be concerning to China, and point to the potential benefits to China of pursuing structural reforms and treating foreign firms fairly. Beyond attracting more foreign investment, this would help address the inefficiencies and vulnerabilities that have resulted from China’s economic practices, at a critical moment in its economic trajectory.

Alongside seeking a healthy economic relationship, we’ve also pursued cooperation with China on global challenges. The physical and economic impacts of climate change continue to mount. Too many low-income and emerging market economies suffer from unsustainable debt. In response, the Biden Administration’s investments at home and deepened ties abroad are restoring America’s leadership in addressing the urgent and severe global challenges of our time. But as the world’s two largest economies, representing 40 percent of global GDP, the U.S. and China together have an obligation to drive collective action, for the benefit of people and economies around the world.

Treasury and the People’s Bank of China co-chair the G20 Sustainable Finance Working Group, though there’s much more to be done to increase our collaboration on climate. We’ve worked with China on sovereign debt issues in developing countries and see potential for recent progress on specific cases to open the door to better and faster resolution for debt-distressed countries, as progress has been too slow. And we’ve advanced work with China to strengthen the international financial system. China has now agreed—along with most other countries—to an equiproportional quota increase at the International Monetary Fund that will strengthen the role of the IMF at the center of the global financial safety net. 

As we’ve pursued a healthy economic relationship and cooperation on global challenges, we’ve also maintained our commitment to protect our and our allies’ national security using economic tools when needed. This is an area where we cannot and will not compromise. But our Administration has also made sure to clearly explain our actions and directly express our concerns. We communicate to avoid misunderstandings that could cause harmful instability. We did this with the rollout of President Biden’s Executive Order on outbound investment last August, where we are taking narrow, targeted action and are being transparent about our rationale and our intent. We’ve also communicated our concerns with certain PRC actions, including its export controls on critical minerals, as well as the support that certain Chinese companies have provided for Russia’s defense industrial sector. 

When I met with Vice Premier He last month, the progress the U.S. and China had made over the past year was evident. We jointly stated that neither side is seeking to decouple; that we welcome the objective of a healthy economic relationship that provides a level playing field; that we are committed to working together on global challenges; and that we will intensify communication going forward. Through our meetings and our statements, we established important parameters for our economic relationship and its future path.

III. The Year Ahead

This progress will serve us in the year ahead. Let me provide an overview of three main priorities for the U.S.-China economic relationship in 2024.

First, over the next year, the United States will aim to continue to responsibly manage the U.S.-China bilateral economic relationship. We know that this relationship will face continued challenges. There are many areas on which the U.S. and China strongly disagree. There is also always the risk of shocks that impact both of our countries. We seek not to resolve all our disagreements nor avoid all shocks. This is in no way realistic. But we aim to make our communication resilient so that when we disagree, when shocks occur, we prevent misunderstanding from leading to escalation and causing harm. 

Our work began by establishing durable communication channels that can withstand challenging circumstances. Next year, the Working Groups will continue to meet regularly. And I plan to take my second trip to China as Treasury Secretary, where a significant portion of the agenda will focus on discussing difficult areas of concern with my counterpart. The United States will maintain our commitment to clear communication on our actions, from our outbound investment regime, to the rollout of additional Inflation Reduction Act provisions, to our sanctions. And we will keep pressing the PRC on its national security actions. Continuing to stabilize our relationship to prevent escalation won’t make news. But our economies, our people—and, again, also economies and people around the world—will be safer and more secure. This is what it means for the U.S. and China to build and responsibly manage our relationship.  

Second, over the next year, we will continue pressing for clarity on China’s economic policies and policymaking to better inform our own decision-making. Fifty years ago, when China was less than 3 percent of the global economy, excess supply or changes in demand in China—in fact, Chinese economic policy more broadly—mattered far less to the rest of the world. Now, at nearly 20 percent of the global economy, China is too large to export its way to growth, and its economic policy choices have far-reaching consequences. The same is true for financial stability. Financial shocks in China—and China’s response to them—do not occur in isolation. Understanding China’s plans, especially how China intends to respond to challenges with local government debt and the real estate market or how it might react if unexpected weaknesses in its economy should arise, is crucial for those of us charged with policymaking in the United States. As we learn more, we will continue to raise concerns on areas where the U.S. and China disagree, from the possible global spillovers of China’s industrial policies to actions China has taken that can disadvantage the private sector. We will also ask for greater transparency on China’s non-market practices and foreign exchange practices. We will reinforce—alongside our partners and allies—that for a healthy economic relationship to be sustainable, it is essential that there is a level playing field for our firms and workers. More clarity will allow us to make better decisions on behalf of our citizens. And it also helps policymakers in the many other economies that could be affected by the choices China makes. 

Third, over the next year, we will aim to accelerate our work with China on areas where our countries and many others would benefit from our collaboration and joint leadership. It is often well-understood that military leaders need to have quick and reliable means of communication to keep a crisis from spiraling out of control. For economic policymakers responding to financial stress, it is also critical to know the counterpart on the other end of the line and be able to make a quick call. To enable this, the United States and China will facilitate exchanges between our financial regulators, as the United States does regularly with major financial centers such as the European Union and the United Kingdom. We already have efforts underway to exchange information about modeling climate stress scenarios, which is crucial to understanding and preparing ourselves for the threat climate change poses to our financial systems. And we are facilitating a similar technical exchange on how each jurisdiction handles—and how we’d best coordinate—if there were a failure of a global systemically important bank, or G-SIB, in the U.S. or China. 

There is also scope for collaboration on anti-money laundering and countering the financing of terrorism, including addressing illicit finance risks associated with cryptocurrency. We are particularly focused on illicit finance and fentanyl, which has become the leading cause of death for Americans aged 18 to 49. In November, President Biden and President Xi agreed to resume bilateral cooperation on counternarcotics, with a focus on disrupting the flow of precursor chemicals used to make fentanyl. We are already seeing progress, and the Treasury Department and Chinese economic policymakers have a key role to play in taking aspects of this cooperation forward.

We will also continue pushing to jointly address global challenges. This could include pursuing coordination on issues like nature and biodiversity as well as adaptation and resilience, or developing common principles to achieve net zero, building on Treasury’s domestic work on net-zero principles for U.S. financial institutions. We will continue to seek faster progress on sovereign debt restructurings in outstanding cases and advocate for needed changes to the debt architecture. We see opportunities for collaboration at the intersection of debt and climate as well, as it is crucial that debt distress not block low-income countries from investing in their sustainable development and taking climate action. And we will look for ways to continue partnering with China on strengthening the international financial architecture, including through evolving the multilateral development banks.

I’ll end by returning to the 50-year mark that today’s event commemorates. Over the past 50 years, China has undergone a massive transformation. The United States has as well. And over the past three years, President Biden has invested at home, built strong economic relationships in the Indo-Pacific region, and, from this place of strength, pursued a pragmatic economic approach to China. It’s an approach rooted in the understanding shared by those in this room that American workers and firms can benefit from healthy competition on a level playing field. And that collaboration between the U.S. and China is necessary to tackle the immense challenges the world faces. But it’s also an approach that recognizes that we are separated by stark differences in perspectives and policies. We’re under no illusion that navigating this relationship will be easy. 

So, today, I don’t declare victory or set goals we can’t achieve. Instead, I affirm the approach we are taking: proceeding purposefully and carefully to responsibly manage our economic relationship. Some benefits of this approach we’ll see quickly. Other benefits we’ll see over time. Still others will be clear only if we consider the alternative: a world in which the relationship between the U.S. and China is unpredictable and tumultuous. In which people around the world fear that our disagreements may escalate into conflict that could undermine their lives and livelihoods. Put simply, as we end the year and look to the year ahead, I am convinced the course we are charting is not just pragmatic. It’s what’s required of the world’s two largest economies if we hope to achieve the best outcomes for our people and for people around the world, for the 50 years to come.  

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