Yellen says appropriate for U.S. firms to assess China geopolitical risks

By David Lawder

NEW YORK (Reuters) – U.S. Treasury Secretary Janet Yellen said on Wednesday that businesses reviewing their supply chains should be mindful of the geopolitical risks surrounding China’s threats to Taiwan as well as other Chinese practices that have raised U.S. national security concerns.

Yellen told the New York Times DealBook Summit in New York that the Biden administration has made clear that it respects Beijing’s “one China” policy, but it was “extremely important” to maintain a peaceful relationship between China and Taiwan and peace in the Taiwan Strait.

Asked what would happen to American businesses if China made good on longstanding threats to seize control of Taiwan by force, Yellen said: “So this is something that certainly we would not want to see happen. But we are seeing a range of geopolitical risks rise to prominence, and it’s appropriate for American businesses to be thinking about what those risks are.”

U.S. companies are beginning to think about such supply chain risks more seriously, including over Taiwan and Chinese practices that have raised national security concerns, Yellen said.

The U.S. Treasury chief has recently encouraged the diversification of supply chains away from China to market-oriented democracies such as India, a concept she has dubbed “friend-shoring.” She said one of the goals of tax credits for electric vehicles assembled and with batteries sourced in North America was to reduce “overdependence on China” for critical minerals for EV batteries.

But she said continued strong business ties between the United States and China were important for the global economy. Yellen met with China’s central bank governor two weeks ago at the G20 summit in Indonesia in her first in-person engagement with a high ranking Chinese economic official, and said she is hoping for more frequent engagement between the world’s two largest economies.

“I expect, certainly hope and expect that there will continue to be very strong ties between China and the United States when it comes to mutually beneficial trade and investment,” Yellen told the DealBook summit. It would not be beneficial “either to the United States or to China or to the global economy to see that erode.”

Tariff reductions

Yellen, who earlier this year had advocated easing some tariffs on Chinese goods, said that most people would not notice any reductions of such tariffs in a major way.

“These tariffs on China were imposed because of unfair trade practices that still exist. It would have some impact on prices or inflation on a one-shot basis,” Yellen said. “What one should not overestimate is what impact lowering the tariffs would have.”

The U.S. Trade Representative’s office is currently conducting a four-year review of the tariffs on some $370 billion worth of Chinese imports.

Covid lockdowns

Yellen also said China’s persistent COVID-19 lockdowns were disrupting production and hampering efforts to end disruptions to global supply chains and rebuild goods inventories.

“It certainly is a threat to the progress we’ve made on healing supply chain difficulties, and those have really contributed importantly to inflation,” Yellen said.

She said that she does not know what the right strategy is for China to manage COVID-19, but Beijing’s policies were having a global impact.

“Certainly there’s a difficult situation that China faces in managing this and we can see that their economy is slowing, perhaps to the point where it will really negatively impact the entire global outlook,” Yellen said.

(Reporting by David Lawder; Editing by Andrea Ricci)