As the West imposes punishing sanctions on Russia, nations who flout the values of the international economy will face consequences. And those who continue to stand on the sidelines, such as China, may well be harmed if they don’t “respect these principles now when it counts.”
That was the forceful message sent by US Treasury Secretary Janet L. Yellen during a special address at the Atlantic Council on Wednesday ahead of next week’s spring meetings for the International Monetary Fund (IMF) and World Bank. Reiterating the Biden administration’s willingness to push Russia toward “economic, financial, and strategic isolation,” Yellen said international leaders would also push to mitigate the economic impacts of the war on those nations most dependent on its energy, food, fertilizer, and commodities.
Yellen emphasized that world leaders cannot wait for Russia’s attack on Ukraine to end before preparing for a new future of international cooperation, invoking as precedent the Bretton Woods Conference—in which economic leaders met to discuss a post-World War II future even as the Allied invasion of Normandy was ongoing.
Read on to learn more about that future from Yellen’s speech and conversation with Rana Foroohar of the Financial Times, including the treasury secretary’s propositions for economic integration which could define American policy for years to come.
Read the full transcript
A stark warning
- Yellen said that Russia’s decision to invade Ukraine “predestined an exit from the global financial system” and that the Kremlin “will be forced to choose between propping up its economy and funding the continuation of Putin’s brutal war.” She did leave room for reconciliation, if peace comes soon: “Russia could end this unnecessary war and the near-term impact could be contained.”
- And her criticism of China was aggressive, particularly by the careful standards of the Treasury Department: “China cannot expect the global community to respect its appeals to the principles of sovereignty and territorial integrity in the future if it does not respect those principles now when it counts.”
- Yellen also implied that China could face significant economic blowback itself, if it does not use its recently affirmed special relationship with Russia to “make something positive” and “help to end this war.” “The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia,” she said.
- The message wasn’t just meant for China, but also for those other countries “who are currently sitting on the fence, perhaps seeing an opportunity to gain by preserving their relationship with Russia and backfilling the void left by others.” While she didn’t name any countries specifically, Indian Prime Minister Narendra Modi met with US President Joe Biden on Monday to discuss India’s use of Russian energy among other topics.
The ‘redrawn’ contours of the world economy
- Yellen started her address by saying it was “evident” that the COVID-19 pandemic and the war in Ukraine had changed the course of the global economy. One of her key takeaways: The US should move to favoring the “friend-shoring” of supply chains to “a large number of trusted countries,” around shared values of international cooperation and perhaps environmental standards or digital currency—a strategy that includes a “deepening partnership” with Europe on trade and more. “Rather than being highly reliant on countries where we have geopolitical tensions and can’t count on ongoing, reliable supplies, we need to really diversify our group of suppliers,” she told Foroohar.
- Yellen wants to empower the IMF as a “financial firefighter,” saying the world was less successful in protecting poorer countries from the economic effects of the pandemic and Russia’s war with Ukraine, leading to a “divergence in global prospects.” Yellen said it is ironic that the world has been “awash in savings,” yet hasn’t fully funded education, health care, and infrastructure investments in developing countries: “Experts put the funding needs in the trillions, and we have so far been working in billions.”
- Spiking commodity prices are creating more immediate needs in the developing world, which Yellen said should be a focus of the IMF and World Bank meetings: “This will be an urgent concern for us next week to try to think about how we can stave off starvation around the world.”
A healthier, greener, global architecture
- Citing recent United Nations reports, Yellen said that world powers “must redouble our efforts to decarbonize our economies,” using tools such as carbon pricing, regulation, and subsidies to achieve emissions reductions. She acknowledged that these efforts will have varying effects on production costs and trade competitiveness, which means countries will have to “work together” to avoid trade tensions during the transition.
- She also called for strengthening the global health architecture, pointing to the pandemic as proof that the costs of inadequate preparation are much higher than the upfront cost to solidify pandemic prevention, detection, information sharing, and crisis response. Among those efforts are the proposed Financial Intermediary Funds, a vehicle to “help fill in the gaps in health system investments at the country, regional, and global level.”
- Reordering the global economy amid a once-in-a-century pandemic and major European war is a daunting notion. “Some may say that now is not the right time to think big,” Yellen said. “Yet, I see this as the right time to work to address the gaps in our international financial system that we are witnessing in real time.”
Nick Fouriezos is an Atlanta-based writer with bylines from every US state and six continents. Follow him on Twitter @nick4iezos.