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China Daily Global / 2021-02 / 05 / Page001

Balancing act awaits US treasury chief Yellen

By HENG WEILI in New York | China Daily Global | Updated: 2021-02-05 00:00

US Treasury Secretary Janet Yellen has generally not supported using tariffs in competing with China, believing that the levies disrupt international trade.

"I believe we should try to address unfair trade practices, and the best way to do that is to work with our allies rather than unilaterally," Yellen said during her confirmation hearing on Jan 19 when asked about tariffs.

But trade likely will remain a major issue between the two countries. Despite all the economic measures that the Trump administration took, the US still runs a large trade deficit with China.

US Senator Maria Cantwell, a Democrat from Washington state, which relies on China as a major market for its exports, criticized the tariffs during Yellen's hearing. She cited a US-China Business Council study by Oxford University economists that found the trade war led to a loss of 245,000 US jobs. She also pointed to a study by the Federal Reserve Bank of New York and Columbia University that concluded that the trade conflict trimmed the market capitalization of US companies by $1.7 trillion.

President Joe Biden told The New York Times last month that he wouldn't immediately lift tariffs on roughly $360 billion worth of Chinese goods and would keep the phase one trade agreement for now.

"I'm not going to make any immediate moves, and the same applies to the tariffs," he said.

Yellen, who was confirmed by the Senate on Jan 25 in an 84-15 vote, is the first woman to serve as US treasury secretary.

She stressed climate change as a priority, describing it as an existential threat and a risk to the financial system. "We cannot solve the climate crisis without effective carbon pricing," she said, adding that Biden "supports an enforcement mechanism that requires polluters to bear the full cost of the carbon pollution they are emitting".

On Tuesday, Yellen and International Monetary Fund Managing Director Kristalina Georgieva agreed on the need for multilateral solutions to address debt vulnerabilities and other issues facing the global economy, the Treasury Department said.

"Secretary Yellen conveyed her intention to work closely with the IMF on the priorities of continuing to respond effectively to the COVID-19 pandemic, re-invigorating economic growth to support a strong global recovery, fighting inequality, and forcefully addressing the threat of climate change," the department said in a statement.

Georgieva wrote on Twitter, "We agreed that fighting the pandemic, boosting growth, combating income inequality, and tackling climate change are top priorities, and that global engagement to support low-income countries is essential."

Yellen plans to hire David Lipton, an economist who served as Georgieva's deputy until February 2020, as a senior adviser, Reuters reported.

Experts and global economic officials say they see a growing consensus about the need for a new allocation of IMF Special Drawing Rights, a move akin to a central bank printing money, which was blocked by Yellen's predecessor, Steven Mnuchin.

Georgieva had called for such a move early in the pandemic, but the Trump administration disagreed, arguing it would provide little funding to the countries that most needed it because the drawing rights are distributed in line with each country's shareholding.

The Biden administration has signaled support for a new allocation of Special Drawing Rights, and legislation to back such a move is working its way through the Democrat-controlled Congress.

Hedge fund manager Ray Dalio, in an interview with The Washington Post on Jan 29, said that the new treasury secretary is in a difficult spot, having to balance economic and political demands and should not be presumptive about the US dollar's global reserve-currency status.

"I think the United States has gotten used to being the world's reserve currency, which meant that they think that whatever we can sell the rest of the world, the world will buy, and we're not subject to constraints or that dynamic, so that concerns me a bit," he said.

The US "spends more than it earns, and it finances it with debt by a lot, and it has to sell those (Treasury) bonds, and there are no easy answers to that", Dalio said.

"The dollar is down about 12 percent since the (coronavirus stimulus) actions have taken place. It's important because if you lose your reserve currency status, you lose your exorbitant privilege, really, to get money and borrow it when you need it," he said.

Yellen, 74, who served as Federal Reserve chair during the Obama administration, also the first woman to hold that title, said during her confirmation hearing that she believes in "market-determined exchange rates. The value of the US dollar and other currency should be determined by markets."

Dalio said China "is also opening up its financial markets, and the world is underweighted in its financial markets. … And because the world is overweight in US dollars, the flow into that, to rebalance, is strengthening the renminbi.

"China is now the largest country in trade.… And yet, virtually none of its transactions are done in its currency, about 2 percent.… There will naturally, increasingly be the internationalization (of renminbi) and it will represent an alternative (to the US)," Dalio told the Post.

As hedge fund Citadel LLC emerges as one of the key actors in the recent trading frenzy involving GameStop Corp-and questions arise over whether the activity exposes deeper risks for the financial system-Yellen could find herself drawn into the controversy.

Citadel, together with another fund, extended a $2.75 billion financial lifeline to hedge fund Melvin Capital Management, which had sustained heavy losses by betting against GameStop, an underperforming video-game retailer.

As head of the Financial Stability Oversight Council, Yellen is generally responsible for the health of the entire trading and investing system.

While the treasury secretary normally doesn't get involved in matters involving individual stocks, Yellen is calling a meeting of top financial regulators this week to discuss market volatility driven by GameStop and other stocks.

She will convene the heads of the Securities and Exchange Commission, the Federal Reserve, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission.

Reuters contributed to this story.

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