The last time a US Treasury Secretary visited China, Washington and Beijing were embroiled in a trade war, the Trump administration was preparing to brand China a currency manipulator, and frayed relations between the two countries were unsettling global markets.
Four years later, as Treasury Secretary Janet L. Yellen prepares to arrive in Beijing, many of the economic policy concerns festering between the United States and China continue — or have even increased — despite the less hostile tone of the Biden administration.
The tariffs that President Donald J. Trump imposed on Chinese goods are still in effect. President Biden has worked to restrict China’s access to critical technology such as semiconductors. And new restrictions that curb US investment in China are looming.
Treasury officials have downplayed expectations for major breakthroughs on Ms Yellen’s four-day journey, which begins when she arrives in Beijing on Thursday. They suggest instead that her meetings with senior Chinese officials are to improve communication between the world’s two largest economies. But tensions between the United States and China remain high, and talks between Ms. Yellen and her counterparts are likely to be difficult. She met with Xie Feng, China’s ambassador, in Washington on Monday, and the two officials had a “candid and productive discussion,” according to the Treasury Department.
Here are some of the most contentious issues that have divided the United States and China.
Technology and trade controls
Chinese officials are still angry over the Biden administration’s 2022 decision to place significant restrictions on the types of advanced semiconductors and chip-making machines that can be shipped to China. Those limits have hampered China’s efforts to develop artificial intelligence and other types of advanced computers that are expected to power each country’s economy and military in the future.
The government of the Netherlands, home to semiconductor machine manufacturer ASML, announced new restrictions on the export of machines to China on Friday. China on Monday imposed restrictions on the export of germanium and gallium, two metals used to make chips.
The Biden administration is considering further controls on advanced chips and on US investment in advanced Chinese technology.
Semiconductors have always been one of the largest and most valuable categories of U.S. exports to China, and while the Chinese government invests heavily in its domestic capacity, it lags the United States by many years.
The Biden administration’s grant program to bolster the US semiconductor industry has also baffled Chinese officials, especially as it includes restrictions on investment in China. Companies that accept money from the US government to build new chip facilities in the United States will not be allowed to make new high-tech investments in China.
And while Chinese officials — and some U.S. manufacturers — were hopeful that the Biden administration would lift tariffs on hundreds of billions of dollars in Chinese imports, that doesn’t seem likely. While Ms Yellen questions the effectiveness of tariffs, other top officials within the administration see the tariffs as helpful in encouraging supply chains to leave China.
The administration is using both carrots and sticks to implement policies of “risk reduction” or “friendship” — that is, luring supply chains for crucial products such as electric vehicle batteries, semiconductors and solar panels from China.
Deteriorating business environments
Companies doing business in China are increasingly concerned about negative government attention. The most recent target was Micron Technology, a US manufacturer of memory chips that failed a Chinese security assessment in May. The move could prevent Micron from selling to Chinese companies that manage key infrastructure, jeopardizing about one-eighth of the company’s global revenue. In recent months, consulting and consulting firms in China with foreign ties have faced a crackdown.
US officials are increasingly concerned about the Chinese government’s use of economic coercion against countries such as Lithuania and Australia, and they are working with European officials and other governments to coordinate their responses.
Businesses are also alarmed by China’s increasingly strict national security laws, including a strict counterintelligence law that took effect Saturday. Foreign companies in China are reconsidering their activities and the market intelligence they collect because the law is vague about what is prohibited.
“We think this is very unwise, and we have made that point to several members of the government here,” R. Nicholas Burns, the US ambassador to China, said in an interview in Beijing.
In the United States, companies with ties to China, such as the social media app TikTok, the shopping app Temu and the clothing retailer Shein, are increasingly criticized for their labor practices, their use of US customer data and the way they import products into China. the United States.
China’s currency, the renminbi, has often been a source of concern to US officials, who have sometimes accused Beijing of artificially weakening its currency to make its products cheaper to sell abroad.
The recent weakness in the renminbi may be the most difficult problem for Ms Yellen. The currency is down more than 7 percent against the dollar and nearly 13 percent against the euro over the past 12 months. That drop makes Chinese exports more competitive in the United States. China’s trade surplus in manufactured goods already accounts for one-tenth of the economy’s total output.
The renminbi isn’t alone in falling against the dollar recently – the Japanese yen has plummeted for a variety of reasons, including rising interest rates in the United States as the Federal Reserve tries to curb inflation.
Chinese economists have also blamed that factor for renminbi weakness. Zhan Yubo, a senior economist at the Shanghai Academy of Social Sciences, said the renminbi’s fall was a direct result of the Fed’s recent rate hikes.
At the same time, China has lowered interest rates to help the weak economy. The interest rate banks charge each other for overnight loans — a benchmark that tends to influence all other interest rates — is now just over 5 percent in New York and barely 1 percent in Shanghai. That reverses a long-standing pattern in which interest rates in China have tended to be higher.
The Fed’s rate hikes have made it more attractive for businesses and households to send money from China and invest it in the United States, despite Beijing’s tight limits on foreign money movements.
China pledged three years ago as part of its Phase 1 trade deal with the United States not to seek a trade advantage by lowering the value of its currency. But the Biden administration’s options may be limited if China does allow its currency to weaken.
China has provided more than $500 billion to developing countries through its loan program, making it one of the world’s largest creditors. Many of those borrowers, including several African countries, have struggled economically since the pandemic and are at risk of default on their debts.
The United States, along with other Western countries, has been pressuring China to allow some of those countries to restructure their debt and reduce the amount they owe. But for more than two years, China has been insisting that other creditors and multilateral lenders absorb financial losses as part of any restructuring. This has slowed down the loan repayment process at a time when millions of people in developing countries are facing food insecurity and at risk of further poverty.
In June, international creditors, including China, agreed a debt relief plan with Zambia that would provide a grace period for its interest payments and extend the maturities of its loans. The scheme did not require the World Bank or the International Monetary Fund to write off debt, and gave global policymakers like Ms Yellen hope for similar debt restructuring in poorer countries.
Human rights and national security issues
Tensions over national security and human rights have created an atmosphere of mutual mistrust and have spilled over into economic relations. The flight of a Chinese surveillance balloon across the United States this year has deeply alarmed the American public, and members of Congress have urged the administration to reveal more of what they know about the balloon. Biden’s recent labeling of China’s leader, Xi Jinping, as a “dictator” also confused Chinese officials and state media.
US officials remain concerned about human rights abuses in China, including the suppression of the Hong Kong democracy movement and the detention of mostly Muslim ethnic minorities in the Xinjiang region of northwestern China. A senior Treasury Department official, who spoke on condition of anonymity ahead of Ms Yellen’s trip, said the United States had no intention of shying away from its human rights stance at the rallies in China.
Chinese officials continue to protest the various sanctions the United States has issued against Chinese companies, organizations and individuals for threats to national security and human rights violations, including sanctions against Li Shangfu, China’s defense minister. The Chinese government has cited those sanctions as the reason for its rejection of high-level military dialogues.