Yellen Talks Tough on China, Warning of Fallout Over Russia Ties
Yellen to Warn Governments Against Undermining Russia Sanctions
(Bloomberg) -- Treasury Secretary Janet Yellen on Wednesday delivered a pointed warning to China on its alignment with Russia, suggesting potential economic consequences from the international community depending on how it approaches President Vladimir Putin’s invasion of Ukraine.
“China has recently affirmed a special relationship with Russia,” Yellen said in a speech Wednesday to the Atlantic Council. “I fervently hope that China will make something positive of this relationship and help to end this war.”
Yellen used the speech -- at a think tank established in the 1960s to foster support for NATO and the concept of collective security, and coming a week before a spring gathering of global finance chiefs -- to lay out the contours of a revitalized international financial and economic architecture. While she said she hopes to avoid a “bipolar” split between U.S.- and China-led systems, her remarks may deepen bilateral tensions.
In some of her sharpest comments on China since taking office, the Treasury chief warned that “going forward, it will be increasingly difficult to separate economic issues from broader considerations of national interest, including national security.”
“The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia,” she said.
‘Friend-Shoring’
Yellen backed the strategy of “friend-shoring,” where supply chains depend on allies rather than “countries where we have geopolitical tensions.”
“We cannot allow countries to use their market position in key raw materials, technologies, or products to have the power to disrupt our economy or exercise unwanted geopolitical leverage,” she said.
President Xi Jinping’s government has refrained from joining the U.S.-led sanctions on Russia, while calling for respect for the principles of sovereignty and territorial integrity. China has also declared that Russia’s moves on Ukraine are “not comparable at all” to Beijing’s determination to reunify Taiwan with mainland China.
“China cannot expect the global community to respect its appeals to the principles of sovereignty and territorial integrity in the future if does not respect these principles now when it counts,” Yellen said.
Fence Sitters
She also reiterated that for nations “sitting on the fence” over the international effort to punish Russia, any moves to undermine sanctions would draw the ire of the U.S. and its allies.
In the face of moves by Xi to lay out China’s authoritarian system as a model for emerging and developing nations across the globe, Yellen said “the future of the international order” was at stake.
Yellen also rebutted any criticism that the efforts led by Washington to isolate Russia from the dollar-based global financial system were “motivated by any one country’s foreign-policy objectives.”
The U.S.-led neutralizing of about half of Russia’s foreign-exchange reserves, and cutting off a swathe of Russian institutions from accessing dollar-based financial infrastructure, has raised questions among some analysts about whether it’s abusing the greenback’s dominance.
Dollar’s Role
Yellen in her speech suggested, however, that the U.S. and its allies were acting to safeguard international rules, rather than violate them. Russia, instead, is the one that’s broken with a global norms, the secretary indicated.
“We are acting in support of our principles -- our opposition to aggression, to widespread violence against civilians and in alignment with our commitment to a rules-based global order that protects peace and prosperity,” she said.
Washington and its allies were successful in exacting deep damage even after Russia’s central bank largely removed U.S. dollars from its $640 billion-plus reserves -- power that could potentially encourage some emerging markets to turn instead to other currencies for international trade and finance.
Saudi Arabia reportedly was last month considering accepting yuan payments for oil sold to China, for example.
It will be a long time, “if ever” that the dollar is replaced in the global financial system, Yellen said in answering questions after the speech.
Yellen also used the speech to call on governments to extend the cooperation shown in punishing Russia to other urgent global projects, from fighting climate change to upping the effort on vaccine distribution.
She urged the IMF and multilateral development banks to be modernized “so that they are fit for the 21st century.”
Nations also need to consider the governance of the IMF “to ensure that it reflects both the current global economy and also members’ commitments to the IMF’s underlying principles and objectives,” Yellen said.
The Treasury chief called for larger support for developing countries from development banks, bilateral official donors and creditors and the private sector, including for needed infrastructure and climate objectives.
“The response to date is not to the scale needed,” she said. “Experts put the funding needs in the trillions, and we have so far been working in billions.”
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