Treasury Secretary Janet Yellen said Wednesday that she expects the US to decouple economically from China in certain areas to protect “national security” but that a complete technological decoupling is not likely.
Like other Biden officials, Yellen made it clear she views China as the top foreign adversary. “China is our most serious competitor and it poses challenges to our security and our democratic values,” she told the Senate Finance Committee.
Yellen said she was looking at a range of ways to counter China. “We’re looking at the full range of tools that we have to push back to redress practices that harm us [and our] national security and our broader economic interests,” she said.
While she favors some decoupling, Yellen said she “would worry somewhat about complete technological decoupling.” Part of her concern is that she believes the US’s allies would not want to cut off doing business with China completely.
“If we are too broad in our policies in terms of how we approach this, we can lose the benefits that come from having globally integrated technology systems where advances in one country benefit countries worldwide,” she said.
While the US is increasingly becoming more adversarial with China, the two countries’ economies are still entirely reliant on each other. The US has taken small steps to be less reliant on Chinese supply chains, but a complete decoupling from China, the US’s top trading partner, would take years of effort.
One example of US efforts to decouple is a massive $250 billion China bill that was passed in the Senate last week. The bill would allocate about $52 billion to subsidize domestic semiconductor manufacturing to make the US less reliant on Chinese chip-makers.
The Biden administration recently completed a 100-review of US supply chains. Based on the report, Biden is forming a trade “strike force” that would seek to bolster supply chains and counter what the US calls China’s “unfair trade practices.”
The Pentagon recently identified China as its top “pacing challenge,” meaning the US is preparing for war with China. An armed conflict at this point is not realistic due to the economic reliance the US has on China. While it may be a slow process, if the US takes serious steps to decouple from China as it further militarizes the Indo-Pacific, the risk of war will significantly increase.