By David Lawder

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen on Thursday sought to reassure Asian countries that the U.S. approach to China would not lead to a ‘disastrous’ division of the global economy that would force them to take sides.

In a speech ahead of the U.S.-hosted Asia Pacific Economic Cooperation Summit in San Francisco later this month, Yellen said that a full de-coupling of the U.S. and Chinese economies was “simply not practical,” especially given the complexity of Asian supply chains and the region’s deep economic ties to China.

Her comments sought to assuage growing concerns about geopolitical fragmentation of the global economy into U.S.-led and China-led factions amid growing national security-driven export and technology controls between the world’s two largest economies.

“A full separation of our economies, or an approach in which countries including those in the Indo-Pacific are forced to take sides, would have significant negative global repercussions,” Yellen said. “We have no interest in such a divided world and its disastrous effects.”

Yellen said the U.S. instead was pursuing the “de-risking and diversifying” of its economic ties to China, by investing in manufacturing at home and by strengthening linkages with allies and partners around the world, including Indo-Pacific countries.

Yellen said the U.S. would not compromise on national security actions, but aimed to keep them narrowly targeted, not for the purpose of “choking off growth in China.”

Her remarks to an Asia Society event came as the U.S. is preparing to host leaders and other top officials from APEC countries in San Francisco from Nov. 11-17. The White House wants to schedule a meeting between U.S. President Joe Biden and Chinese President Xi Jinping alongside the summit.

TRADE, INVESTMENT LINKS

Yellen said the Biden administration was committed to expanding trade and investment with Indo-Pacific countries, emphasizing the region’s strategic importance ahead of the APEC gathering.

Deeper economic links with Indo-Pacific countries will help make U.S. supply chains more resilient and tap into a dynamic and growing market for U.S. exports, she said.

“As we look toward APEC later this month, let me state unequivocally: Claims that America is turning away from the Indo-Pacific are wholly unfounded,” Yellen said in the excerpts. “We are deepening our economic ties across the region, with tremendous potential benefits for the U.S. economy and for the Indo-Pacific.”

The Biden administration also has called a seventh negotiating round for its Indo-Pacific Economic Framework for Prosperity (IPEF) initiative next week in San Francisco, aimed at reaching some agreements in time for the APEC summit.

IPEF, while far short of a traditional free trade agreement, is the Biden administration’s signature initiative to engage economically with Asian countries and provide them a trade and investment alternative to China.

Yellen said deeper integration with Indo-Pacific countries would benefit the region and the U.S. She noted that U.S. two-way trade with the region reached a value of $2.28 trillion in 2022, up 25% since 2019, with the region taking nearly a quarter of U.S. exports.

“The economic case for our expanding trade and investment is clear. The Indo-Pacific is a dynamic and rapidly growing region. As it grows, we gain a fast-expanding customer base for U.S. firms and workers,” Yellen said.

SUPPLY CHAIN SECURITY

Part of the reason for increased trade with the region has been the migration of U.S. supply chains away from China, a trend that started with tariffs imposed by former President Donald Trump in 2018 and accelerated since the COVID-19 pandemic.

Yellen said economic engagement with Indo-Pacific countries, including Vietnam, is “crucial to bolstering our supply chain security” to avoid bottlenecks and shortages that occurred as the world emerged from the pandemic. She repeated her desire to diversify supply chains to countries in the region through “friend-shoring” or using trusted allies as sources of supply.

“And achieving resilience through partnering with Indo-Pacific countries means gains for Indo-Pacific economies as well,” Yellen said.

(Reporting by David Lawder;editing by Diane Craft)

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