US Treasury Secretary Janet Yellen voiced concerns over China’s export controls on two metals crucial to key technologies, and highlighted the need to diversify rather than decouple supply chains.

Yellen’s comments, delivered Friday at a roundtable with US business people operating in China, kick off two-days of meetings in Beijing for the US Treasury chief, during a long-anticipated trip aimed at finding some common ground between the world’s largest economies.

“During meetings with my counterparts, I am communicating the concerns that I’ve heard from the US business community – including China’s use of non-market tools like expanded subsidies for its state-owned enterprises and domestic firms, as well as barriers to market access for foreign firms,” Yellen said, according to a text of her prepared remarks.

“I’ve been particularly troubled by punitive actions that have been taken against US firms in recent months,” she added.

The Chinese government earlier this year banned US chipmaker Micron Technology Inc.’s products from some of its critical sectors over security concerns. Chinese authorities have also raided US consultancy Bain & Company and New York-based due diligence firm Mintz Group.

She will also meet Chinese Premier Li Qiang on Friday, and is expected to hold discussions with key economic policymakers before departing Sunday. Yellen earlier held informal talks with former Vice Premier Liu He and the People’s Bank of China Governor Yi Gang that the Treasury department described as “substantive.”

Yellen and Liu have a rapport: When they met in January in Zurich, they left their aides behind as they kept talking. Despite retiring earlier this year, Liu is still a trusted figure for President Xi Jinping on dealings with the US and economic matters, the South China Morning Post reported last month, citing people it didn’t identify.

TIT-FOR-TAT
Yellen’s remarks come just a few days after China imposed restrictions on exporting two critical minerals that are crucial to key technologies, the latest escalation in a trade war that ramped up last year with US export controls on semiconductors and chipmaking equipment.

The US Defense Department said on Friday it was invoking the Defense Production Act to boost domestic mining and processing of gallium and germanium, Reuters reported, citing a Pentagon spokesperson.

Meanwhile, the Biden administration is preparing an executive order curbing US outbound investment in China, which may come as soon as late July and which would cover certain investments in sensitive technologies including semiconductors, artificial intelligence and quantum computing.

Responsible Relationship

While in Beijing, Yellen plans to discuss with her counterparts the importance of responsibly managing the US-China relationship, communicating directly about areas of concern, and working together to address global challenges, the Treasury said.

She will seek to find areas of common economic ground and open communication channels amid an increasingly turbulent relationship between the two geopolitical rivals. It will be the first major test of a policy Yellen outlined in April that’s geared toward defending and securing US national security without trying to hold China back economically.

During her remarks, Yellen reiterated her message that the US does not seek a wholesale separation of the two economies, stressing that the US seeks to “diversify” rather than decouple from China. That appeared to mark a softening in language from the “de-risking” strategy that Biden administration officials have adopted in recent months.

“A decoupling of the world’s two largest economies would be destabilizing for the global economy, and it would be virtually impossible to undertake,” she said. “We seek to diversify, not to decouple.”