U.S. Treasury Secretary Janet Yellen outlined the United States' Indo-Pacific economic strategy at a think tank event this Thursday, local time.
Multiple U.S. media outlets reported that at an Asia Society event in Washington, Yellen articulated America's overarching strategy for the Indo-Pacific region. She emphasized that the U.S. is not seeking to decouple economically from China nor is it compelling other nations to choose sides. Instead, the strategy aims to provide more trade opportunities for allies and partners, thereby reducing America's supply chain dependence on China.
Media observers noted that Yellen's remarks seem to set the tone for the U.S. approach ahead of the Asia-Pacific Economic Cooperation (APEC) leaders' summit scheduled for November 11-17 in San Francisco, where U.S. and Chinese leaders might meet.
There have been reports that the U.S. and China have in principle agreed to hold a summit in San Francisco. When asked to confirm this at a press conference on November 1, Chinese Foreign Ministry spokesperson Wang Wenbin said both sides agree to work towards making the San Francisco summit happen. He echoed the sentiments of Director Wang Yi's recent U.S. visit, stating that the journey to San Francisco cannot rely on "autopilot." Both parties need to "return to Bali" and implement the consensus of the two heads of state, overcoming obstacles and building consensus.
In her speech, which some media described as "testing the waters," Yellen reiterated that the U.S. does not seek to decouple from China but needs a "serious and sober" economic policy towards China. Under this guiding principle, she outlined three main goals for the U.S. economic strategy towards China.
Firstly, the U.S. aims to prevent China from gaining an advantage in artificial intelligence or other military technologies. "We will not compromise in this area," Yellen stated.
Secondly, the U.S. hopes to promote a healthy economic relationship that is beneficial to both sides, but the Biden administration will also "reserve the right to challenge any potential unfair trade practices by China."
The third goal is to maintain the ability to cooperate with China on global challenges, such as climate change and debt in low-income countries. In this area, Yellen pointed out the need for clear communication channels, mentioning the importance of the new channels recently established by both finance departments.
Yellen's visit to China in July paved the way for establishing bilateral mechanisms for export controls and a high-level financial working group. On September 22, the U.S. and China announced the establishment of economic working groups, including economic and financial groups, which will meet regularly and irregularly. The first meeting of the U.S.-China financial working group was held via video on October 25.
Addressing concerns about geopolitical divisions due to U.S.-China tensions, Yellen's speech seemed to ease these worries. She stated that the Biden administration does not wish to harm the Chinese economy or force Indo-Pacific nations to choose sides between the U.S. and China, as this would have consequences, and "we are not interested in such a divided world and its catastrophic impacts."
Moreover, Yellen outlined a strategy to expand trade relations with allies and partners in the Indo-Pacific region. She dismissed claims that the U.S. is withdrawing from the region as "completely baseless," asserting instead that "we are deepening our economic ties with the entire region."
Yellen emphasized that the U.S. is "pursuing economic integration" while still protecting national security interests through targeted actions when necessary.
She made it clear that the China strategy is not the entirety of the U.S. Indo-Pacific strategy. The U.S. is expanding trade and investment in the region to strengthen its presence. Economic relations support the U.S. Indo-Pacific strategy, "across the entire Indo-Pacific, we are rebuilding and strengthening old alliances and investing in new partnerships," Yellen said.
Wendy Cutler of the Asia Society Policy Institute found this tone "refreshing." She appreciated that Yellen expanded the focus beyond U.S.-China relations to the entire Indo-Pacific region, which she deemed crucial.
Regarding economic ties with the Indo-Pacific region, Yellen mentioned the growth in trade over the past decade. She cited data showing that since 2019, trade between the U.S. and the Indo-Pacific region has grown by more than 25%. In 2022, trade reached $2.28 trillion, with the U.S. exporting approximately $770 billion in goods and services to the region.
Specifically, Yellen discussed plans to deepen relations with India and Vietnam, highlighting Vietnam's role in the global semiconductor supply chain. She indicated that they are encouraging U.S. companies to invest in Vietnam and collaborate with the Vietnamese government and private sector to support workforce development.
"From auto parts to electronics, the U.S. is importing more from key partners like India, Vietnam, and Mexico, reducing reliance on any one country," she said.
Beyond bilateral cooperation, Yellen also spoke about the U.S. plan to strengthen multilateral engagement, primarily through the "Indo-Pacific Economic Framework" (IPEF). The Biden administration proposed the IPEF last year to establish rules covering areas such as clean energy and supply chain resilience. The group currently has 14 member countries, representing about 40% of the global GDP.
However, analysts say that the U.S. diversifying away from the Chinese supply chain is not an easy task. For instance, a report from the Peterson Institute for International Economics last week stated that as of 2021, China was the largest source of manufactured goods for all IPEF member countries except Brunei and the largest export destination for half of the member countries.
Additionally, expanding trade with the Indo-Pacific region is a contentious issue within the U.S. The country has not joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes 11 members from the Indo-Pacific region, and China has applied to join. The Biden administration currently seems to have little interest in joining.
