U.S. and European officials should synchronize their efforts to mitigate China’s economic clout, according to Treasury Secretary Janet Yellen.
“We have a set of common vulnerabilities that we should address,” Yellen told the Brussels Economic Forum. “My point is to suggest that we should consider ways to maintain free trade and, at the same time, lessen some of these risks.”
Western democratic officials began to grow uneasy about fragile supply chains in the weeks after the outbreak of the coronavirus pandemic, which exposed international dependence on China for hospital masks and other protective gear. The war in Ukraine continued that lesson, as Europe’s need for Russian natural gas has forced Western societies to finance Russian President Vladimir Putin’s invasion, but Yellen shifted the attention back to Beijing, starting with China’s domination of the rare earths market.
“China is responsible for 60% of rare-earth mining and nearly 40% of reserves, giving the country geostrategic leverage,” she said. “In addition, China is building a consequential market share in certain technology products and seeks a dominant position in the manufacture and use of semiconductors. And, China has employed a variety of unfair trade practices in its efforts to achieve this position.”
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That warning followed in the wake of a milestone meeting of U.S. and European Union officials tasked with the development of a trade and technology council established last year. The council intends to create “a common market for tech” that is large and secure enough to prevent China from dominating key nodes of trans-Atlantic markets and thus gaining strategic advantages over Western governments.
“Our task is multifold, to put forward and carry out a compelling vision for global trade and technology in a way that serves our people, protects our interests, and promotes innovation and our democratic values, including respect for human rights,” a senior administration official told reporters this weekend. “And, so, the goal here is really to find ways to ensure that our competition policies, our technology regulations, are complementary and that our markets are ever more interconnected.”
That initiative expanded over recent months into a mechanism to enforce economic sanctions against Russia, including a measure to deprive Moscow of the right to import sensitive Western technology, in retaliation for the assault on Ukraine. That emphasis on Russia does not alter the fact that President Joe Biden’s administration remains “worried about China-related supply chains,” as a senior official put it, and Yellen amplified that warning in Brussels as she urged European officials to pursue the “friend-shoring” of supply chains that are currently Russian through China and Russia.
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“What I am proposing is that we properly account for the externalities stemming from these other considerations — concentration, geopolitical concerns, security risks, and values,” she said. “I believe that we need to consider how to incentivize the ‘friend-shoring’ of supply chains to a greater number of trusted countries for a variety of products, so we can continue to securely extend market access, with lower risks to our economy, as well as to those of our trade partners.”
