(Bloomberg) -- Treasury Secretary Janet Yellen said that western democracies have become “too vulnerable” to countries that use their market positions as geopolitical leverage, and called for the US and Europe to coordinate their approach toward China after having united against Russia.
“We have a common interest in incentivizing China to refrain from economic practices that have disadvantaged us all,” Yellen said in a speech in Brussels on Tuesday. “These practices range from those affecting trade and investment, to development and climate policies, to approaches to provide debt relief to countries facing unsustainable debt burdens.”
Yellen said there’s “a strong case for pursuing common goals jointly, not unilaterally.” In that way, “China is more likely to respond favorably if it cannot play one of us off against another,” she said.
Chinese President Xi Jinping has assiduously sought to persuade the European Union to maintain a “strategic autonomy” amid the deepening US-China superpower rivalry. He delivered that message directly in calls with his German and French counterparts earlier this month.
Yellen, delivering an annual lecture at the Brussels Economic Forum, said “We should all aspire to encouraging China to drop objectionable practices. If we can do so, we will stand a better chance of competing with China on a level playing field, which will benefit our businesses and consumers.”
The Treasury chief was speaking little more than a month after her most strident remarks to date on China, blasting Beijing for practices that “unfairly damage” the national-security interests of others.
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In Tuesday’s remarks, Yellen warned that “we have become too vulnerable to countries using their market positions in raw materials, technologies, or products to exercise geopolitical leverage or disrupt markets for their own gain.”
Russia has weaponized energy, she said, while economies around the world now are dependent on so-called rare earths from China.
“These minerals and materials comprise vital inputs in aviation, vehicle production, battery manufacture, renewable energy systems, and technology manufacturing,” Yellen said. China accounts for 60% of rare-earth mining and nearly 40% of reserves, giving it “geostrategic leverage.”
China is also “building a consequential market share in certain technology products and seeks a dominant position in the manufacture and use of semiconductors,” Yellen said. “And China has employed a variety of unfair trade practices in its efforts to achieve this position.”
“We need to consider how to incentivize the ‘friend-shoring’ of supply chains to a greater number of trusted countries for a variety of products, so we can continue to securely extend market access, with lower risks to our economy, as well as to those of our trade partners,” the Treasury chief said.
Yellen also reiterated her appeal for a new approach toward assisting developing nations, a theme she discussed last month at spring meetings of global finance chiefs.
“We need to look beyond our current models, as official development finance, helpful as it may be, will never be sufficient,” she said. “The question is how to tap the much deeper pools of private capital to mobilize the trillions needed to deliver on the aspirations of the next generation.”
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