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US-China relations
OpinionComment
Stephen Roach
Stephen Roach

The View | US economic war on China will have consequences for all, especially Americans

  • Janet Yellen was right to frame prioritising national security concerns over economic ones as a trade-off, but she only hinted at the possible consequences
  • Compromising trade and capital flows from China and elsewhere could result in slower economic growth, higher inflation and a weaker US dollar

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US Treasury Secretary Janet Yellen gives a speech on the US-China relationship at the Johns Hopkins University School of Advanced International Studies in Washington on April 20. The US’ chronic shortfall of domestic savings will exacerbate the economic consequences of its conflict with China. Photo: Kyodo
Stephen Roach
Five years into a once-unthinkable trade war with China, US Treasury Secretary Janet Yellen chose her words carefully on April 20. In a wide-ranging speech, she reversed the terms of US engagement with China, prioritising national security concerns over economic considerations.
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That ended a 40-year emphasis on economics and trade as the anchor to the world’s most important bilateral relationship. Yellen’s stance on security was almost confrontational: “We will not compromise on these concerns, even when they force trade-offs with our economic interests.”

Yellen’s view is in line with the anti-China sentiment in the United States. The “new Washington consensus”, as Financial Times columnist Edward Luce calls it, maintains that engagement was the original sin of the US-China relationship because it gave China free rein to take advantage of America’s deal-focused naivety.

China’s accession to the World Trade Organization in 2001 gets top billing in this respect: the US opened its markets but China broke its promise to become more like the US. Engagement, according to this argument, opened the door to security risks and human rights abuses. US officials are now determined to slam that door shut.
There is more to come. US President Joe Biden is reportedly about to issue an executive order that will place restrictions on foreign direct investment (FDI) by US firms in certain “sensitive technologies” in China, such as artificial intelligence and quantum computing.
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The US rejects the Chinese allegation that these measures are aimed at stifling Chinese development. Like sanctions against the Chinese telecoms giant Huawei and those being considered against the social media app TikTok, this one is also being justified under national security
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