Yellen’s China visit: Decoding US checks and balances in Beijing ties

US Treasury Secretary Janet Yellen recently marked her diplomatic footprint on Chinese soil. This four-day visit, primarily economical in purpose, came just three weeks after Secretary of State Anthony Blinken’s crucial diplomatic endeavour - the first top US diplomat to visit China in five years. The two visits signal a calculated step by the US to scale down the rhetoric and reduce friction between the world’s largest and second-largest economies.

Even as economic matters took centre stage during Yellen’s visit, the pervasive shadow of security issues loomed large. Both nations have evolved past the expectations of a harmonious relationship they pursued a decade ago. Today, the priority lies in managing a strategic rivalry, ensuring the competitive spirit does not spiral out of control.

This diplomatic tightrope is being trodden with extreme caution by both parties. Aware of these stakes, Yellen adhered strictly to her prepared statements, attempting to navigate these choppy waters with measured precision. Above all, the US aims to keep this competition contained, hence Yellen’s call for “more regular channels of communication” between the two countries. This underlines a growing concern from the US regarding the insufficiency of communication lines with China.

Continuation of Trump’s policy

The overarching narrative in the US-China relationship has now undeniably become one of competition. Especially over the past few years, the US-China relationship has experienced substantial strain. The seeds of discord were mainly sown during President Donald J. Trump’s term with the imposition of tariffs on Chinese goods—a policy that continues to shape trade dynamics between the two nations.

The rhetoric of change circulated with the onset of the Biden administration, fueling hopes among Chinese officials and a segment of American business that the tariffs might be lifted. Yet, instead of a rollback, President Biden has charted a similar course. Moreover, an additional layer of complexity has been added with imminent restrictions on American investment in China.

Yet, amidst the escalating competition, there exists a cautious determination from both sides, particularly from President Biden and his Chinese counterpart, Xi Jinping, to not let the competitive climate spiral out of control.

This resolve was put to the test recently when balloons suspected to be Chinese spy equipment crossed into US territory. This incident underscored the intense public sentiment favouring competition. It served as a stark reminder that both leaders are under immense pressure from their respective citizenry to maintain a robust stance.

Walking a tightrope

Yellen’s mission has been a formidable one. Her task involves walking a fine line—defending US export control measures while preventing bilateral relationships from spiralling into hostility.

A vital part of this challenge lies in persuading her Chinese counterparts that a plethora of US measures—those blocking China’s access to sensitive technology such as semiconductors in the name of national security—are not designed to sabotage the Chinese economy. Achieving this balance is no small task, especially as both nations continue to establish new barriers to trade and investment.

The Biden administration’s decision in 2022 to place substantial limitations on the export of advanced semiconductors and chip-making machinery to China has thrown a wrench into the gears of China’s technological ambitions.

This strategic decision, focusing on sectors integral to the future of both countries’ economies and military capabilities, has severely hampered China’s attempts to foster developments in artificial intelligence and other advanced computing domains.

The Biden administration is not only considering further controls on advanced chips but is also contemplating a tighter grip on American investment in cutting-edge Chinese technology.

A subsidy programme instituted to strengthen the US semiconductor industry has exacerbated tensions, given its inherent restrictions on investments in China. This programme effectively ties the hands of companies which accept US government funding for building new chip facilities domestically, barring them from making new, high-tech investments in China.

A fresh set of proposed rules are also projected to clamp down on Chinese companies’ access to US cloud computing services – seen as an attempt to close loopholes in earlier restrictions on the Asian giant’s access to advanced chips used in artificial intelligence. US officials justify these measures by asserting that American products and technologies have been fed into Chinese military and surveillance programmes, directly contradicting the national security interests of the United States.

Despite these escalating tensions, China remains a critical player in the global chip industry. As home to numerous factories manufacturing chip-rich products — ranging from smartphones to cars and computers — China represents a substantial market for chips.

China constitutes roughly a third of global semiconductor sales. Even when chips are manufactured in the US, they are frequently sent to China for assembly and testing, reinforcing the country’s pivotal role in this sector.

China is also responding to restrictions by the US. Beijing recently retaliated against the Biden administration’s semiconductor limitations by announcing it would curtail the export of certain critical minerals used in the production of some chips.

In addition, the business environment in China is becoming tense for US companies. A recent example is the US chip giant Micron Technology, which failed a Chinese security review in May. This could risk approximately an eighth of the company’s global revenue, as the company could be prevented from selling to Chinese companies that manage key infrastructure.

Looking to the future, Yellen utilised her meetings in Beijing to argue that the Biden administration’s measures to reduce US economic reliance on China and incentivise domestic production of critical materials are not aggressive tactics for a larger economic war but rather narrowly focused strategies to secure national interests.

This message carries significant weight. China holds nearly $1 trillion of US debt and stands as America’s third-largest trading partner, rendering a sudden severance of ties potentially catastrophic for both nations and the global economy.

However, the forthcoming presidential election in the US is likely to fan the flames of anti-China rhetoric as candidates endeavour to appear staunch on China.

In such a high-stakes environment, it is clear that both policy precision and diplomatic acumen will be required to navigate the turbulent waters of US-China relations moving forward.