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Janet Yellen has a potent message for the world and for folks at home weary of US commitments abroad: America isn’t done as a global force, if only because it’s primarily to the country’s own advantage.
Whether the rest of the world is buying what she has to sell is a different question. While many foreign officials welcome the jolts of fiscal and monetary caffeine supplied by America, the nation no longer commands unfettered deference. China has impressed with the resilience of its economy after a dive at the start of last year, and is likely to exert at least as powerful a pull in coming years. Beijing is also putting a lot of effort into bolstering its capital markets. Though not on a par with the US, China’s bond market is becoming more attractive to investors.
In the pandemic era, Yellen’s video remarks to the Chicago Council on Global Affairs was her first big speech on the global scene since becoming Treasury Secretary in January. And it was clearly timed to herald her entry into meetings of the International Monetary Fund and World Bank. Finance ministers and central bankers from the hundreds of countries that attend these gatherings — virtually, this year because of Covid-19 — know her well from her time as Federal Reserve chair. But few probably have heard her talk like this.
As a senior cabinet member, her new role is far more political. She’s also freer to paint on a bigger canvas than central bank interest rates and rules. Fed chiefs are notoriously reluctant to stray beyond their turf. Yellen’s 45-minute address was a forceful articulation of the case for broad and robust international engagement, touching not just on stimulus and classic economic indicators of wellbeing, but linking them to a progressive agenda of healthcare, minority rights, the uplifting of women, respect for diversity, the role of technology and the corrosive force of global inequality. She also wasn’t afraid to fire a shot across China’s bow: “Our economic relationship with China, like our broader relationship with China, will be competitive where it should be, collaborative where it can be, and adversarial where it must be.’’
Yellen was careful to link the case for outreach with self interest. If Donald Trump and Steven Mnuchin, his Treasury secretary, were about America First, the Yellen doctrine might be paraphrased as: We agree, but we safeguard ourselves by making the world a priority. Problems from elsewhere sooner or later wash up on US shores and then invite a greater — and more expensive — response than had they not been left to fester.
The press coverage of Yellen’s address was almost entirely given over to one paragraph towards the end: her proposal for a global minimum corporate tax rate. She decried the race to the bottom, as well she might. If the US lifts its corporate rate, as the administration is proposing, America risks being undercut by countries like Ireland, Luxembourg and Singapore.
The response has been guardedly encouraging. Paolo Gentiloni, the European Union commissioner for economic affairs, welcomed “this new multilateral atmosphere with the new US administration and the strong possibility of cooperation in the global arena. One of the main results could be finding agreements in global taxation.’’ But sentiments don’t necessarily translate into an agreement and Yellen is a long way from the finish line. Asian countries haven’t had much to say on the issue.
—Bloomberg