Yellen’s recent voyage strengthens a transformed landscape of U.S.-China relations

U.S. Treasury Secretary Janet Yellen’s recent visit to China has paved the way for increased high-level communication between the two countries. Yellen is the second U.S. Cabinet member to visit China in a month, with John Kerry, special presidential envoy for climate, also planning to travel to China in the coming days. These visits mark a departure from earlier this year when geopolitical tensions caused travel plans to be postponed. However, with talks and communication resuming, the market is expected to adjust to this “new normal” and become less volatile, according to Yifan Hu, regional chief investment officer and head of macroeconomics Asia Pacific at UBS Global Wealth Management.

Official statements from both the U.S. and China indicate plans for further talks and the strengthening of communication and exchanges. However, differences still exist between the two countries, with China requesting the removal of tariffs on Chinese goods and an end to pressuring Chinese companies. Meanwhile, the U.S. is considering investment restrictions on high-end Chinese tech, although Yellen assured that any curbs on U.S. outbound investments would be narrowly targeted. Yellen’s visit aims to prevent unintended escalations that could harm the economic relationship between the two nations. The pandemic caused a lack of contact between senior officials, leading to potential misunderstandings, but Yellen’s trip has been successful in forging relationships and creating opportunities for more frequent communication at staff levels.

Increasing communication helps set boundaries for government actions and prevents unintended escalations. Yellen emphasizes the importance of maintaining a fragile stability in the economic relationship between the U.S. and China. The recent meetings between Yellen and senior Chinese officials, including Premier Li Qiang, have strengthened relationships and fostered constructive dialogue. While no individual meeting is expected to bring about a breakthrough, the normalization of direct communication can support this fragile stability. Both countries can anticipate more visits and meetings between cabinet officials in the future, signaling a commitment to managing their bilateral relationship.

Yellen’s 10 hours of talks during her trip involved meetings with Finance Minister Liu Kun, People’s Bank of China party secretary Pan Gongsheng, Vice Premier Liu He, and former People’s Bank of China Governor Yi Gang. These meetings have been seen as substantial breakthroughs in establishing personal connections and building mutual understanding. As the current Biden administration has around a year and a half left in office, there is an opportunity to further develop senior-level diplomacy between the U.S. and China, which will help manage their consequential bilateral relationship more effectively.

Yellen concludes her trip by expressing hope for a phase in the U.S.-China relationship where senior-level diplomacy becomes a natural element in managing bilateral ties.