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Treasury Secretary Yellen heads to China in the latest attempt to smooth relations

ROB SCHMITZ, HOST:

U.S. Treasury Secretary Janet Yellen heads to China this week. The visit comes at a time of tense relations between the world's two largest economies. And that's why Yellen is going, to try to improve ties even as the U.S. is actively seeking to reduce its economic dependence on China. It's a tightrope act that China specialist Arthur Kroeber has been following closely. He joins us now to talk about it.

Good morning, Arthur.

ARTHUR KROEBER: Good morning. Glad to be here.

SCHMITZ: It's been four years since a U.S. treasury secretary visited Beijing. And in that time, relations between the U.S. and China have worsened considerably. For years, these two economies really needed each other. To what extent is that still the case?

KROEBER: I think that's still enormously the case. You know, all-time - trade is at an all-time high, over $700 billion. You have a lot of U.S. companies that still rely on China as one of their major markets, both for volume and for growth. So there's definitely been some chipping away in certain areas, notably semiconductors. But the level of interdependence is still extremely high.

SCHMITZ: And, you know, the U.S. has been trying to disentangle itself from China more recently, you know, reshoring supply chains, placing controls on semiconductor technology, as you mentioned, you know, keeping Trump era tariffs on Chinese goods in place. I'm curious, how do you think this has shaped how China interacts with the rest of the world?

KROEBER: Well, I think the Chinese have come to the conclusion that it is the purpose of U.S. policy not just to reduce its reliance on China but to slow down China's growth and its technological development. So it's made China a lot more suspicious than it already was of U.S. intentions. So it's created that problem. It's also encouraged the Chinese to ramp up the charm offensive to international companies both from the U.S. and from Europe, and in other areas because they want to continue large inflows of foreign investment and looking for companies to act as a counterweight against political pressure that's coming not only from Washington but also from Europe as well.

SCHMITZ: You know, to what degree does reduced dependence between these two superpowers increase the risk of greater hostilities or even conflict between the two?

KROEBER: Well, if we really get to a point where the economies are significantly less dependent on each other, I think that is a problem. And if you look at two simple examples from the last two decades - we've had an extraordinary period of peace over Taiwan, which is kind of disputed territory. And one of the reasons for that is because the high level of economic interdependence between China and the U.S. and Taiwan means that the costs of China trying to solve that issue by military means are extremely high.

I think you can also see that in the Russia-Ukraine situation, that China has an alignment with Russia. They would probably like to do more to help them in the current situation. But they've been very, very cautious about staying away from exporting weapons to Russia, again, because of the costs, because of their high interdependence. So I don't think we're at a low interdependence level yet.

SCHMITZ: Right.

KROEBER: But if we move more in that direction, it could be more dangerous.

SCHMITZ: So what does this all mean, then, for Secretary Yellen as she meets with her Chinese counterpart this week, you know? In what areas does the U.S. have leverage? And where does China have the upper hand?

KROEBER: Well, I think Yellen's agenda clearly is to try and find areas where the U.S. and China can talk to each other. She's also been, I think, a pretty significant behind-the-scenes moderating influence in U.S. policy. And she's articulated a positive view, that there's still a lot of economic areas of common interest between the U.S. and China. So I think that's one thing that she's trying to do, is, in a certain sense, reassure the Chinese that there is not just a purely adversarial relationship. So I think that's probably her main goal, is reassurance rather than trying to get the Chinese to do something that they're reluctant to do.

SCHMITZ: That's China specialist Arthur Kroeber. Arthur, thanks.

KROEBER: Great. Thank you. Transcript provided by NPR, Copyright NPR.

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