Yellen says Washington might 'respond to unintended consequences' for China due to tech export curbs

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Treasury Secretary Janet Yellen arrives for a news conference at the U.S. Embassy in Beijing, Sunday, July 9, 2023. (AP Photo/Mark Schiefelbein)

BEIJING – Treasury Secretary Janet Yellen on Sunday said she agreed Washington will listen to Chinese complaints about security-related curbs on U.S. technology exports and might “respond to unintended consequences” as she ended a visit to Beijing aimed at reviving strained relations.

Yellen defended “targeted measures" on trade that China’s leaders complain are aimed at hurting its fledgling tech industries. She said the Biden administration wants to “avoid unnecessary repercussions" but gave no indication of possible changes.

Relations between the two biggest economies are at their lowest level in decades due to disputes about technology, security and other irritants. A key Chinese complaint is limits on access to processor chips and other U.S. technology on security grounds that threaten to hamper the ruling Communist Party's development of smartphones, artificial intelligence and other industries.

“We will open up channels so that they can express concerns about our actions, and we can explain and possibly in some situations respond to unintended consequences of our actions,” Yellen said at a news conference.

Yellen talked with China’s No. 2 leader, Premier Li Qiang, and other officials during 10 hours of meetings. She had a five-hour session Saturday with her Chinese counterpart, Vice Premier He Lifeng. Treasury officials said in advance there were no plans for her to meet Chinese leader Xi Jinping.

Yellen received a warm welcome and prominent coverage by the state press, but Chinese officials gave no sign they would change industrial or other policies that Washington and other governments say violate Beijing's free-trade commitments. On Saturday, He said Washington should “adopt a rational and pragmatic attitude" to improve relations.

On Sunday, Yellen announced no agreements on major disputes or plans for future activity but said her department and Chinese officials would have “more frequent and regular” communication.

U.S.-Chinese political strains are adding to uncertainty that is dampening the willingness of consumers and businesses to spend and invest.

China's economic growth rebounded to 4.5% in the first quarter of 2023 from last year's 3% after anti-virus controls on travel and business activity were lifted in December. But factory activity and consumer spending decelerated in the quarter ending in June.

Xi accused Washington in March of trying to hold back China's industrial development.

Beijing has been slow to retaliate for U.S. technology restrictions, possibly to avoid disrupting its own industries. But three days before Yellen's arrival, the government announced unspecified controls on exports of gallium and germanium, metals used in making semiconductors and solar panels. China is the biggest producer of both.

Yellen said she tried to reassure officials Washington doesn't want to decouple or separate its economy from China, while it tries to “de-risk” trade.

The Biden administration is pressing semiconductor makers to move production to the United States to reduce reliance on Taiwan and other Asian suppliers, which is seen as a security risk. Washington wants to develop alternatives to Chinese supplies of rare earth elements, metals used in smartphones, wind turbines and other products.

“They have expressed some concern that de-risking amounts to decoupling,” Yellen said. She said she tried to “assure my Chinese counterparts that this is by no means the same thing.”

“The de-risking involves attention to clearly articulated and narrowly targeted national security concerns, as well as broader concern with diversifying our supply chains, which the United States is doing in a few important sectors,” she said.

Throughout her visit, Yellen appealed for “healthy economic competition,” a reference to complaints Beijing violates its free-trade commitments by subsidizing and shielding politically favored industries from private and foreign competition.

Yellen said she had expressed concern to Chinese officials about “coercive activities” against U.S. companies.

That follows raids on consulting firms and the detention of staff members without explanation and what the U.S. government says is arbitrary detention or prohibitions on people leaving China that some complain are used to pressure them in business disputes.

Chinese leaders are trying to revive investor interest, but foreign companies are uneasy about their status after Xi and other officials called for economic self-reliance. The ruling party has also expanded an anti-spying law that has fueled uncertainty about what law firms or consultants can do.

On Saturday, Yellen appealed to He for cooperation on climate change, the debt burdens of developing countries and other global challenges. She said their governments shouldn't let disagreements about trade and security derail economic and financial relations.

Beijing broke off climate discussions with Washington last August in retaliation for a visit by then-Speaker Nancy Pelosi of the House of Representatives to Taiwan, the self-ruled island democracy claimed by China as part of its territory.

President Joe Biden’s climate envoy, John Kerry, is due to become the next senior official to visit China next week. China and the United States are the world’s top emitters of climate-changing carbon.

China signed an agreement last month to restructure the debt of Zambia, including billions of dollars lent under Beijing's Belt and Road Initiative to build ports and other infrastructure across Asia and Africa. Treasury officials pointed to that as successful cooperation.