Indo-Pacific Allies Should Not Have to Choose Between the US and China

By David Lawder

WASHINGTON – On Thursday, U.S. Treasury Secretary Janet Yellen addressed Asian nations, aiming to reassure them that the U.S. strategy towards China would not result in a detrimental split of the global economy that would require countries to choose sides.

In a speech preceding the upcoming Asia Pacific Economic Cooperation Summit in San Francisco, Yellen stated that a complete decoupling of the U.S. and Chinese economies is "simply not practical," especially considering the intricate nature of Asian supply chains and their significant economic connections to China.

Her remarks were intended to alleviate rising worries regarding the geopolitical fragmentation of the global economy into U.S. and China-led factions, driven by increasing national security-focused export and technology restrictions between the two largest economies.

"A total separation of our economies, or any approach that forces nations, including those in the Indo-Pacific, to choose sides, would have serious negative consequences worldwide," Yellen expressed. "We have no desire for such a divided world and its catastrophic effects."

Yellen emphasized that the U.S. is instead focused on "de-risking and diversifying" its economic ties to China by investing in domestic manufacturing and enhancing relationships with allies and partners globally, particularly in the Indo-Pacific region.

She noted that while national security measures are essential, the objective is to keep them precisely targeted, not aimed at "stifling growth in China."

Yellen’s statements were made during an event hosted by the Asia Society as the U.S. prepares to welcome leaders and senior officials from APEC nations from November 11-17. The White House is also planning a potential meeting between President Joe Biden and Chinese President Xi Jinping during the summit.

TRADE AND INVESTMENT LINKS

Yellen reaffirmed the Biden administration’s commitment to enhancing trade and investment with Indo-Pacific countries, highlighting the region’s strategic significance ahead of the APEC conference.

Strengthening economic connections with Indo-Pacific countries will bolster U.S. supply chains and provide access to a growing market for American exports, she noted.

"As we approach APEC later this month, let me say unequivocally: Assertions that America is distancing itself from the Indo-Pacific are completely unfounded," Yellen stated in her remarks. "We are strengthening our economic relations throughout the region, which holds great potential for both the U.S. economy and the Indo-Pacific."

The Biden administration has also announced a seventh round of negotiations for its Indo-Pacific Economic Framework for Prosperity (IPEF) initiative scheduled for next week in San Francisco, aiming to secure some agreements ahead of the APEC summit.

While not a traditional free trade agreement, IPEF represents the Biden administration’s key initiative for economic engagement with Asian nations, offering them a trade and investment alternative to China.

Yellen mentioned that deeper integration with Indo-Pacific countries would be mutually beneficial. She highlighted the substantial growth in U.S. trade with the region, which reached $2.28 trillion in 2022, an increase of 25% since 2019, with the region accounting for nearly a quarter of U.S. exports.

"The economic rationale for increasing our trade and investment is evident. The Indo-Pacific is a vibrant and rapidly expanding region. As it develops, we gain access to an ever-growing customer base for U.S. businesses and workers," Yellen remarked.

SUPPLY CHAIN SECURITY

The increase in trade with the region has been partly attributed to the reshaping of U.S. supply chains away from China, a trend that began with tariffs enacted by former President Donald Trump in 2018 and accelerated during the COVID-19 pandemic.

Yellen asserted that economic collaboration with Indo-Pacific countries, including Vietnam, is essential for enhancing supply chain security and avoiding the bottlenecks and shortages experienced during the pandemic recovery. She reiterated her aim to diversify supply chains by engaging in "friend-shoring," or depending on trusted partners as sources of supply.

"Achieving resilience through partnerships with Indo-Pacific nations will bring benefits to their economies as well," Yellen concluded.