Yellen touts trade’s ‘saving friends’ with an eye on China and Russia | international trade

Seoul, South Korea – US Treasury Secretary Janet Yellen used a visit to South Korea to call for “friendship” of supply chains in partner countries to mitigate skyrocketing inflation and shortages of key goods .

After touring a South Korean battery facility on Tuesday, Yellen highlighted the threat posed by “unreliable countries” and reiterated calls for US allies such as South Korea and Japan to boost cooperation. to ensure the fluid movement of goods.

Yellen said countries could use the support of friends to build limited networks for trade in essential or complementary goods, avoiding the risks of relying on hostile countries.

While Yellen did not identify any hostile countries by name, the senior US official in April described Russia and China as threats to the global economic order, which should not be allowed to use their position in the market to “disrupt our economy or exert unwanted geopolitical influence. .

Yellen is nearing the end of a tour of Asia that also included stops in Japan and a meeting of financial officials from the Group of 20 (G20) countries in Indonesia.

Throughout her trip, Yellen condemned the Russian invasion of Ukraine and criticized Russian President Vladimir Putin for launching a destabilizing war at a time when the world economy is grappling with the fallout from the COVID-19 pandemic and the climatic pressures.

The US Treasury Department said in a statement after Yellen’s meetings in Indonesia that the war in Ukraine “has caused global spillovers in food, energy and other commodities” and that “a cap on the price of oil Russian” could “restrict Putin’s income.” war machine and limit the impact of Russia’s war on energy prices.”

US Treasury Secretary Janet Yellen has called for more trade cooperation between US allies such as South Korea and Japan. [File: Ahn Young-joon/pool visa AFP]

However, it is not certain that friend-shoreing will solve the pressing problems of high energy and food prices.

Some economists argue that the strategy compromises the free trade that is necessary for goods to remain abundant and affordable in markets around the world. Analysts have also argued that friendly relations can backfire when countries that feel left out restrict the supply of goods in response.

Deborah Elms, executive director of the Asian Trade Center in Singapore, said linking friends can be “distorting,” but it remains to be seen what kind of effects the system Yellen is calling for might have.

“Yes [friend-shoring] if companies make decisions about sourcing or supplying to ‘less risky’ places, that may not be much different from current behaviors,” Elms told Al Jazeera.

“Governments already adjust the rules to favor some places over others, for example by signing trade agreements to remove impediments to trade or to facilitate the movement of goods and services between their markets,” Elms added.

“At the moment, governments seem to be doing little more than encouraging companies to think about friendship building. If that were to change into an active set of policies to give clear preferences to some markets over others, it could become much more problematic.”

Washington’s efforts to direct trade through regional allies could also further inflame competition with China, the world’s second-largest economy.

The two superpowers are already locked in a tense competition for economic and military influence in Asia, leaving middle-power countries like South Korea sometimes making difficult calculations about how to maintain productive ties with both.

Colin Mackerras, a professor at Griffith University in Australia, said the United States should aim to foster cooperation rather than boost ties with particular countries and exclude others.

“A reasonable grouping would better include China, not exclude it,” Mackerras told Al Jazeera.

“By any calculation, it is the largest economy in Asia and probably soon, despite recent and not-so-recent setbacks, it will be the best in the world. We should work together to solve problems, not compete.”

After touring a battery factory operated by LG Energy Solution, a subsidiary of LG, a major South Korean conglomerate, Yellen set out to visit President Yoon Suk-yeol, who took office in May vowing to strengthen ties with USA

Yellen will also meet her South Korean counterpart Choo Kyung-ho, with whom she will discuss a Russian oil price cap aimed at limiting Moscow’s revenue, and Bank of Korea Governor Rhee Chang-yong.

Yoon Suk-yeol
South Korean President Yoon Suk-yeol has sought closer ties with the United States. [File: SeongJoon Cho/Bloomberg] (Bloombergs)

The two countries have a comprehensive alliance dating back to when they fought on the same side in the 1950-53 Korean War. Yoon accused his predecessor, leftist President Moon Jae-in, of compromising ties with Washington as part of an ultimately unsuccessful campaign of reconciliation with North Korea, the South’s nuclear-armed neighbor.

Yoon may be motivated to show closeness to Washington as his approval ratings slide amid a sluggish economy and a scandal involving the leader of the conservative People Power Party.

While Seoul and Washington share a desire for deeper trade cooperation, both sides face tougher decisions about how to manage economies beset by rising inflation and low growth.

With inflation in June reaching its highest level since the 1997-98 Asian financial crisis, the Bank of Korea recently revealed a historic 0.5 percentage point hike to its benchmark interest rate, a move aimed at cooling the economy. and lower prices which also risks stifling borrowing and investment.

South Korean policymakers routinely face pressure to keep pace with US interest rates to prevent investors from withdrawing their money and moving to other markets that promise higher returns.

“The biggest challenge for Yoon, at least for now, is the instability of the exchange rate and the problem of capital flight. But that is beyond her control,” Shin Se-don, an economics professor at Sookmyung Women’s University in Seoul, told Al Jazeera.

“To avoid chaos, the government has to raise the interest rate at least as much as the United States.”

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