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Janet Yellen Calls for Reduced Reliance on Trade with China

Comercio con China

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Treasury Secretary Janet Yellen has made a public call to reduce reliance on trade with China, and asserts the need to structure a reorientation of the world’s trade practices in the face of the current conjuncture with the Russian invasion of Ukraine.

Speaking at the facilities of South Korean technology giant LG Group, the Treasury secretary outlined an idea she calls “friend-shoring,” which involves locating manufacturing in countries geopolitically aligned with the United States.

“Friend-shoring is about deepening relationships and diversifying our supply chains with a greater number of trusted partners to lower risks for our economy and theirs,” said Secretary Yellen in her speech at the LG Group facility.

South Korea, Taiwan and Japan have the capacity to compete with China in the manufacture of microchips (Image: EFE).

Countries such as South Korea, Japan, and Taiwan are key for the United States to eliminate its dependence on semiconductor and battery manufacturing from China.

The geopolitical context

For years, the United States has sought to strengthen its trade ties with Southeast Asia, and even came close to integrating multiple countries into a multilateral agreement known as the Trans-Pacific Partnership Agreement, promoted by the Obama administration. However, during President Trump’s tenure, the United States refused to ratify it.

In her speech at the LG facility, Yellen accused China of engaging in unfair practices to gain dominant positions in certain industries. “We cannot allow countries like China to use their market position in key raw materials, technologies, or products to disrupt our economy or exercise unwanted geopolitical leverage,” the Treasury Secretary reiterated.

The world’s autocracies, starting with Russia, have found in China a place to obtain technology without going through Western controls. Others, such as Iran, conduct shadow banking systems with the complicity of Chinese banks that allow them to move capital around the world without passing through the control of the United States.

With the arrival of Xi Jinping to power, the Chinese Communist Party tightened its control over the economy, and technology giants such as Ant Group have ceased to be innovative start-ups and have become corporations at the service of Chinese regulators.

The revival of Chinese nationalism is also a source of concern for bureaucrats in Washington, who view with trepidation the Asian giant’s intensifying claims to possession of Taiwan, an indispensable source of semiconductors for the world.

Faced with the threat from China, the Taiwanese government has reaffirmed its alliance with the United States and neighbors such as Japan, while beginning to increase the frequency with which it conducts defensive military exercises.

On Japan’s side, its relationship with China has always been frosty. Japan has never acknowledged the crimes committed by its armed forces on Chinese territory during World War II, and at present, a border dispute over the Senkaku Islands is further aggravating the already sour relations between the two Asian powers.

janet yellen
China has managed to strengthen its commercial ties with the Pacific nations, dethroning the United States as its main trading partner (Image: EFE).

South Korea’s relations with China have not been as sour as those of its Pacific counterpart nations. Since the normalization of diplomatic relations in 1992, the two nations have had significant diplomatic rapprochement. China has approached South Korea seeking to counterbalance U.S. geopolitics, and South Korea in turn has approached China in the hope that Beijing will appease their mutually bellicose neighbor, North Korea.

Replacing trade with China is no easy task

The United States currently has import tariffs on $370 billion worth of Chinese goods, yet America will have a difficult task convincing its Pacific allies to replicate its stance.

The United States is no longer the largest trading partner of either Japan or South Korea, and that position has been taken over by China. China’s bilateral trade with South Korea amounts to $241 billion, while trade with Japan exceeds $281 billion.

Even Taiwan has significant investments in mainland China in excess of $193 billion, and trade between the two exceeds $166 billion.

“By working with key allies like Korea to develop stronger supply chains for key components like EV batteries or semiconductors, we can make both of our economies stronger and help ease the blockages that have led to higher prices and delays for American workers and businesses,” Secretary Yellen concluded in her speech at the South Korean giant LG’s facility.

Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica

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