The Biden administration's attempt to "surgically" sever economic relations with China is proving difficult to implement.
Yellen visits Vietnam
Treasury Secretary Janet Yellen visited Vietnam last week to discuss her push for "friendshoring," a term she uses to urge companies to move supply chains out of China to friendlier countries. Trade between the US and Vietnam has exploded over the past five years, reaching about $140 billion in 2022 from $60 billion in 2018.
During a tour of a factory in Hanoi that relies on some Chinese components, Yellen said she saw great potential to deepen that relationship. In meetings with Vietnamese Prime Minister Pham Minh Chinh and other Communist Party leaders during her visit , she repeatedly praised the growing ties.
Whoseon as a threat
Many of these alternative trading partners, such as Vietnam or South Korea, are themselves deeply intertwined with China. China's dominance in clean energy technologies has made the Biden administration hesitant to force companies to shun Chinese products altogether. And pinpointing the industries in which the US and its allies see Chinaas a threat is difficult.
Earlier this month, Yellen told her Chinese counterparts in Beijing that the US aims to reduce exposure to China in key sectors without jeopardising trade and investment flows that benefit both countries.
US has yet to define which firms are of concern
The incoming rule takes the requirements one step further by prohibiting qualifying batteries that contain any materials from a "foreign person of interest."
Whether the Biden administration broadly defines "foreign entity of interest" to include many Chinese suppliers, or more narrowly focuses only on certain firms, it will have huge implications for the availability of credit. Chinese companies dominate the production of battery components and the supply of minerals in them. The complete elimination of Chinese products from the supply chain could prove impossible for car companies in the near future. Some US companies are even planning to team up with Chinese battery firms.
In an interview, Yellen said defining a "foreign entity of concern" was "quite complicated," adding that Treasury's rules would remain within the bounds of the Inflation Reduction Act.
New rules on limit investment in China
The Biden administration is also preparing new rules to restrict some US investment in China , but is still working out how the rules will apply to foreign subsidiaries of US firms, among other things. The restrictions will apply to US private equity and venture capital investments in semiconductors, quantum computing and artificial intelligence.
The order aims to prevent US investors from helping Chinese companies develop technology that could be used against the US or its allies in a military confrontation.
The US encourages its allies
The US is encouraging its allies in Europe to take similar steps to protect supply chains and limit Beijing's access to Western expertise. For them, too, it is difficult to strike the right balance.