Amid rising tensions between the U.S. and China, Treasury Secretary Janet Yellen made her first trip to Beijing last week. Over the course of several days, the secretary met with several key officials, including her counterpart, Vice Premier He Lifeng, and Premier Li Qiang, the second-most-powerful Chinese official, to discuss a range of issues, including trade, climate change and national security. According to Yellen, who called the talks “constructive,” the visit was meant to help improve the relationship between the world’s largest two economies.

“We’ve grown apart and misunderstandings have developed,” Yellen said. “And to stabilize our relationship, to put a floor under it and hopefully begin to improve it over time, it’s necessary to meet to discuss our differences openly, with respect, candidly.”

“Marketplace” host Kai Ryssdal traveled with Yellen during her trip and spoke with her in the American Embassy after talks had concluded. The following is an edited transcript of their conversation.

Meeting with China is “necessary”

Kai Ryssdal: Last time we spoke, back in March, you were pretty clear that what you’re trying to do with the Chinese is establish a floor to this relationship to stop it from getting more destabilized. And I guess my question is, do you think this trip has done that? 

Janet Yellen: I think it’s certainly been constructive and helped. Because really, over the last several years, and especially with COVID, there’s been very little communication between people, not only officials, but also just citizens of America and China. We’ve grown apart and misunderstandings have developed. And to stabilize our relationship, to put a floor under it and hopefully begin to improve it over time, it’s necessary to meet to discuss our differences openly with respect, candidly, and to develop channels of regular communication. And that certainly was a major goal of my trip. I think it was successful in that sense. 

Ryssdal: So let me take you back then to a speech you gave in April as a precursor to this trip. And in point of fact, you mentioned in that speech you wanted to come to Beijing in the near future. And you said one of the things you’re trying to get across to the Chinese is that, and this is a quote from your speech, “China’s economic growth need not be incompatible with U.S. economic leadership,” right? So let me poke you in the eye a little bit. What if the Chinese give a speech and say “America’s economic growth need not be incompatible with Chinese leadership?” How do you react to that?

Yellen: Well, we need to find ways to both work together to have a significant role in the global economy, to each have influence, to each thrive, and interact in ways that are good not only for ourselves, but for the world as a whole. And certainly China has expressed the view that it’s important for both of us to be able to thrive in a global economy. 

Ryssdal: So, let me go about it a different way then. One of the things you’ve said repeatedly, you said it on this trip, you’ve said it in all the speeches you’ve given and in the public presentations, is that you want to make it clear that the Chinese understand that America taking steps in its national security do not mean that we are going to compete with them unfairly economically, right? You want to make sure that national security is a prime factor in the American policy. 

Yellen: Yes.

Ryssdal: How did they react to that when you bring that up? I mean, you spent 10 hours, as you just said in this press conference, you spent 10 hours over two days. And I guess my question is when you say it’s national security, it’s not economic competition, what do they say to you? 

Diversifying supply chains

Yellen: Well, they’re concerned, of course, that it may be economic competition and that our motive may go beyond national security. And when they see a sequence of actions, and we’ve taken a number of actions over time, they are concerned that cumulatively, we may go beyond national security considerations. So my job is to try to explain to them that we have been and intend to be transparent about the actions that we’ve taken and are contemplating, that the motive and objective is national security. Although beyond that, we’ve made clear that supply chain resilience is also important, especially in the aftermath of the pandemic, and that some of the actions that we’re taking, we’ve taken, reflect our desire to diversify our supply chains. And so I spent many hours with my counterpart going through in detail our concerns and addressing them and making clear that they have an open channel of communication. If they’re concerned that the impact of our actions goes well beyond national security and has a negative impact on their well-being broadly, that we’re open to listening to that concern.

Ryssdal: Did they reciprocate and say “Janet, you can call me anytime?”

Yellen: Well, we have certainly agreed that we will maintain open channels of communication and deepen our discussion of concerns that one another have.

Ryssdal: That’s not a yes.

Yellen: Well, it’s, it’s pretty much a yes in the sense that we fully expect to have more frequent communications at many different levels and have opportunities to explore concerns. 

Ryssdal: I want to get to the derisking and decoupling thing that you have talked about. And there is sentiment out there amongst the Chinese that what you’re trying to do, what you and the Biden administration are trying to do is to decouple from the Chinese economy, the two biggest economies in the world separating in a way. And you’re trying to make the point that derisking the American economy, providing our national security and changing our supply chains, is not decoupling. How do you make the average American understand that? 

U.S.-China trade

Yellen: Well, the United States and China have almost $700 billion of trade this year. And most of this trade — and we have American firms that are active in China, and have been active in China, producing, employing Chinese, creating opportunities for American workers and businesses. They have been here for decades. And most of this economic activity brings clear benefits both to the United States and to China, and is completely uncontroversial from a national security standpoint. I was able to meet with businesses here that are active in hospitals, in medical devices, in agriculture, in other areas that really don’t implicate national security concerns. And we both benefit from these economic interactions. And we have not the slightest intention — and I’ve said I think it would be disastrous to attempt to disentangle all of that economic activity and something that would be disruptive to both our economies and the global economy. 

Ryssdal: You, as you say in your speeches, you’re an economist by trade, you look at the world through that lens. And you have been interacting with China for a number of years now, both in your prior capacities, and now in this job. And you’re a labor economist specifically. And I wonder what you see when you look at the Chinese economy from when you first started coming here, and today, right, because it’s a labor challenge that this economy is dealing with? 

Transferable technology to mitigate climate change

Yellen: Well, they have 1.4 billion people. And I guess what I see is an economy that over many decades has opened up, has developed and has lifted many millions of people out of poverty, which is a very substantial achievement. And trade and investment with the United States and with other countries have been part of what’s enabled that progress. I see a country that has advanced in many ways. That is one thing, of course, I noticed being in Beijing, certainly since I was here last is that the air is cleaner, they’ve addressed a serious pollution problem. And while they are, I believe, the world’s largest greenhouse gas emitter, at this point, they have made substantial investments that have resulted in technological innovation, in electric cars, electric batteries, renewables, that just as we’re making investments in these same areas, have the potential to benefit not only our own efforts to reduce greenhouse gas emissions over time, but to be transferable around the world in ways that will make the project of mitigating climate change more cost effective.

Ryssdal: Do you think you can do it? Do you think the Biden administration through your work and Secretary [of State Antony] Blinken’s and Secretary [John] Kerry’s, I mean, [Special Presidential Envoy for Climate] Kerry now, is coming? Can you stabilize it? Because there are so many challenges. 

Yellen: There are challenges, but I believe there is a desire on both sides to stabilize the relationship and to constructively address problems that each of us see in our relationship, to do so frankly, with candor, with respect and to build a productive relationship going forward. 

Ryssdal: This gets to my next question, but when a diplomat says “frankly” and “candidly,” that’s always a code word for “Man, those are tough conversations.”

Common challenges

Yellen: Well, I spent more than five hours yesterday with my counterpart, discussing a very wide range of issues. Importantly, macroeconomic developments in our own economies that influence the global outlook, common challenges that we face around the world and need to address together, and we’ll work productively together to address things concerning debt, and climate change, health issues, sustainable development goals. And we frankly set out our concerns and addressed them in a preliminary way, and invited further in-depth discussions by our staff over time to sort out our concerns. 

Ryssdal: I have to tell you, I was in the pool spray, the photo spray at the top of that meeting, where [Vice Premier] He [Lifeng] would read his statement and you read yours. And we got to the end of yours. And in the last paragraph, you mentioned that we will not compromise on national security concerns, even though it harms us economically. And I was watching [Vice Premier] He when you said that, and you could see his face get a little tense. It was interesting to see.

Yellen: Well, it’s an area of concern, because this is a motivation for us to place some restrictions on technology that can be sold or transferred to China from the United States. Now, I would point out the China has some similar restrictions. It’s a concern on both sides —

Ryssdal: I get that, but I’m sure they’re saying, “Look, the U.S. is doing it, why can’t we do it?” Right? 

Yellen: We both do it because national security is a critical concern. And I certainly made clear that we’re not going to back off protecting national security, that that’s something that they need to understand. But that when we do that, we will try to make sure that our actions are clear, transparent, narrowly targeted and provide channels by which they can tell us if they feel that it goes beyond that and is harming them. 

An economist and a diplomat

Ryssdal: OK, last thing, because I know you and we have a plane to catch. I was thinking about you in this job. You’ve been an economist for decades now. Right? But as I was watching you the other day come down the steps off that plane with the red carpet, and Ambassador [to China Nicholas] Burns and the Chinese government greeting you and all the cameras, it occurred to me — and clearly you’ve thought of this before — you’re no longer an economist, really, you’re a diplomat. And I wonder how you feel about that? 

Yellen: Well, it’s an honor to be able to contribute to the improvement of the functioning of the international economy, which is something that benefits Americans and the entire globe. And this is one of the most important bilateral relationships and economic and financial relationships that we have. And it’s functioning well, should matter and does matter to the American people, the Chinese people and the globe. And being able to contribute to making that relationship work well is a responsibility and an honor to be entrusted with that.