The Yellen Doctrine Is So Much More Than Corporate Taxes

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Janet Yellen has a potent message for the world and for folks at home weary of U.S. commitments abroad: America isn't done as a global force, if only because it's primarily to the country's own advantage.  

Whether the rest of the world is buying what she has to sell is a different question. While many foreign officials welcome the jolts of fiscal and monetary caffeine supplied by America, the nation no longer commands unfettered deference. China has impressed with the resilience of its economy after a dive at the start of last year, and is likely to exert at least as powerful a pull in coming years. Beijing is also putting a lot of effort into bolstering its capital markets. Though not on a par with the U.S., China’s bond market is becoming more attractive to investors. 

In the pandemic era, Yellen's video remarks April 5 to the Chicago Council on Global Affairs was her first big speech on the global scene since becoming Treasury Secretary in January. And it was clearly timed to herald her entry into meetings of the International Monetary Fund and World Bank. Finance ministers and central bankers from the hundreds of countries that attend these gatherings — virtually, this year because of Covid-19 — know her well from her time as Federal Reserve chair. But few probably have heard her talk like this.

As a senior cabinet member, her new role is far more political. She’s also freer to paint on a bigger canvas than central bank interest rates and rules. Fed chiefs are notoriously reluctant to stray beyond their turf.  Yellen’s 45-minute address was a forceful articulation of the case for broad and robust international engagement, touching not just on stimulus and classic economic indicators of wellbeing, but linking them to a progressive agenda of healthcare, minority rights, the uplifting of women, respect for diversity, the role of technology and the corrosive force of global inequality. She also wasn’t afraid to fire a shot across China's bow: “Our economic relationship with China, like our broader relationship with China, will be competitive where it should be, collaborative where it can be, and adversarial where it must be.’’ 

Yellen was careful to link the case for outreach with self interest. If Donald Trump and Steven Mnuchin, his Treasury secretary, were about America First, the Yellen doctrine might be paraphrased as: We agree, but we safeguard ourselves by making the world a priority. Problems from elsewhere sooner or later wash up on U.S. shores and then invite a greater — and more expensive — response than had they not been left to fester. 

In my years of listening to economic aides and central bankers drone on, rarely have I heard a finance minister weave macro messages into an even half-way compelling strategic framework. Those that come to mind are former Australian treasurer, and later prime minister, Paul Keating, Anwar Ibrahim, one-time finance minister of Malaysia and constant contender for the premiership, and Sri Mulyani Indrawati, finance minister of Indonesia, who is sometimes floated as a potential vice president.

If you missed this lecture on the hard and soft power of American financial diplomacy, you can be forgiven. The press coverage of Yellen’s address was almost entirely given over to one paragraph toward the end: her proposal for a global minimum corporate tax rate.  She decried the race to the bottom, as well she might. If the U.S. lifts its corporate rate, as the administration is proposing, America risks being undercut by countries like Ireland, Luxembourg and Singapore.  (My Bloomberg Opinion colleague David Fickling wrote about this here.) 

The response has been guardedly encouraging. Paolo Gentiloni, the European Union commissioner for economic affairs, welcomed “this new multilateral atmosphere with the new U.S. administration and the strong possibility of cooperation in the global arena. One of the main results could be finding agreements in global taxation.’’ But sentiments don’t necessarily translate into an agreement and Yellen is a long way from the finish line. Asian countries haven’t had much to say on the issue.  

Yellen’s challenge is that she isn't pitching into a vacuum. China hasn’t stood still while the U.S. went on a binge of isolationist rhetoric under Trump. Beijing will contribute more than one-fifth of the total increase in the world’s gross domestic product in the five years through 2026, according to Bloomberg calculations based on IMF forecasts published Tuesday. The U.S. will chip in about 15%, followed by India and Japan, with 8.4% and 3.5% respectively. China’s bond market, once regarded warily, is starting to become popular as well, even if it doesn't come close to the influence of U.S. Treasury securities.  

China aside, there is also skepticism about the depth and seriousness of America’s commitment. In Singapore, where I now work, economists and executives have spent the past few months saying it’s great to hear that America cares, but what does it mean in practice? Is there really the broad appetite within America for global engagement that there was decades ago when Pax Americana — commercially, as well as politically — predominated? Don't forget, they add, with a tut-tut tone, America elected Trump once. Who is to say there won’t be another like him? 

Some of the sentiments that gave rise to Trump aren’t dormant. Yellen’s speech referred to the “hollowing of the middle class” and that while “we embraced trade as an engine for growth, we neglected those who did not benefit.’’ Yellen has yet to dismantle any significant Trump-era economic step to constrain China, and signaled she isn’t in a hurry to do so. Although she has been an advocate of markets and free trade, Yellen’s stance toward Beijing is a sign of the times. China has few friends in Washington, a sharp contrast with the 1990s, when Yellen served in the Clinton administration. A proposal to replenish the IMF's coffers, supported by Yellen, has run into fierce Republican opposition in Congress, in part because of concerns American adversaries would benefit — along with friends. As the fund’s biggest shareholder, the U.S. would give the most. 

It’s a pity that Yellen’s line on global corporate taxes got so much oxygen. Focusing on that one plank obscures the insights gleaned from listening to her vision of the world. I listened to the entire speech, then read the text, a couple of times. Do the same.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

©2021 Bloomberg L.P.

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