The Day Janet Yellen Buried Trump’s Foreign Policy

Revenge is a dish best served cold, as Treasury Secretary.

More than three years after Donald Trump decreed an end to Janet Yellen’s tenure as Fed Chair, Yellen effectively decreed an end to Trumpism. Or at least as it relates to US foreign policy.

Headlines on Monday revolved mostly around Yellen’s declaration of support for a global minimum corporate tax rate in order to stop what she described as a “race to the bottom,” but her remarks on foreign policy were arguably more notable.

“Over the last four years, we have seen firsthand what happens when America steps back from the global stage,” Yellen said, in a direct condemnation both of Trump and her predecessor, Steve Mnuchin. “America first must never mean America alone.”

She didn’t stop there. Her admonition of Trump was as explicit as it could be absent outright vitriol.

Yellen did acknowledge that the US and other advanced nations failed on multiple fronts over the past three decades. As the global economy evolved, lawmakers sowed the seeds for populism by turning a blind eye to the plight of those left behind by globalization. But, she said, the solution cannot be isolationism, which Yellen warned is doomed to fail in an interconnected world. Below, find key excerpts from her remarks to The Chicago Council on Global Affairs.

When I was born, the United States was still recovering from the Great Depression and World War II. These tragedies cost countless lives; too many families lost nearly everything. But from the devastation we learned an invaluable lesson: The United States must not go it alone.

In the aftermath of the destruction, the United States built strong political and security alliances that have helped keep our country safe and helped our economies flourish. We created global institutions, such as the United Nations, and financial institutions, such as the International Monetary Fund and World Bank, to reduce economic conflict and address global poverty. With strong US leadership—and working together with our allies—we contained communism and created a dynamic world economy and growing markets for US exports. America’s middle class prospered. Millions across the world were lifted out of poverty.

But over the years, new problems developed that were not properly addressed. In the push to grow our economies, we neglected our environment. As we embraced new technologies, we didn’t do enough to prepare our workers and our education systems for the changes underway. While we embraced trade as an engine for growth, we neglected those who did not benefit. And in the most recent period, when we might have adopted policies at home to face these issues and joined with our allies to address issues abroad, we isolated ourselves and retreated from the international order that we created.

Over the last four years, we have seen firsthand what happens when America steps back from the global stage. America first must never mean America alone. For in today’s world, no country alone can suitably provide a strong and sustainable economy for its people. Over time, a lack of global leadership and engagement makes our institutions and economy vulnerable.

[…]

Credibility abroad begins with credibility at home. How can America help lead the world out of the dual crises of pandemic and economic recession if we can’t lead ourselves out of it?

[…]

Beyond our borders, as the pandemic has made clearer than ever before, the global community is in this together. We will fare better if we work together and support each other.

[…]

The United States needs to have a strong presence in global markets on a level playing field. We will cooperate with willing partners to protect and enforce a rules-based order. 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.

We will defend democracy and the human rights of all people—of women and girls, LGBTQ+ individuals, and people of every race, ethnic background, and religion—to help ensure that those rights are protected at home and abroad.

Spoken like… well, like something more than a Treasury Secretary, that’s for sure.

At the risk of overstating the case, Yellen’s remarks on Monday may be remembered as a minor landmark, notwithstanding how inherently oxymoronic it is to use “minor” and “landmark” next to each other in a sentence.

While Joe Biden has made it abundantly clear that the US seeks to reengage with allies and partners around the globe, Yellen crystallized it into a lecture. In the absence of any sweeping, grandiose speeches from Biden or Kamala Harris (outside inauguration day), it’s fair to characterize Yellen’s Monday remarks as the most definitive, comprehensive statement yet on American foreign policy post-Trump.

That it came from Yellen isn’t surprising. I’ve variously described the current administration as a kind of caretaker government, run by committee. This is an extension of a dynamic which, ironically, began to take shape during the pandemic, when Mnuchin was at Treasury. He and Jerome Powell quietly instituted what amounted to a technocratic shadow government in order to ensure that even if everything else fell completely apart (which it basically did), Americans wouldn’t starve and the country’s capital markets would remain intact, even if it meant creating the largest disconnect between financial asset prices and the underlying economy in history.

Fast forward to 2021 and I’d argue the caretaker description still fits, the difference being that the White House is now contributing to the cleanup effort as opposed to representing an existential threat. Biden is doing an admirable job as Mr. Fix-It, but it’s exceedingly difficult to shake the feeling that this collaborative effort is — how should I put this? — more collaborative than usual.

It’s true that Republicans have been sidelined almost entirely, but make no mistake, this isn’t a government run by a single “decider” (as George W. Bush famously described the presidency). There are multiple deciders. And Yellen is one of them.

And look, that’s fine. As long as it works. I suggested from the day Yellen was tipped as Treasury Secretary that she’d likely be remembered as one of the most influential people to ever hold the post. Her speech on Monday was evidence to support that contention.

Addendum

It’s also worth noting that a steady hand at Treasury could bolster the dollar at the margins. One of my most treasured talking points revolves around the extent to which the only real threat to dollar hegemony is unpredictable, capricious US foreign policy.

The dollar’s status as the world’s premier reserve currency is threatened more by US foreign policy than it is by any deficit, no matter how large. For instance, the constant weaponization of the USD and the US financial system through draconian sanctions aimed at punishing perceived “foes” (sometimes for not very good reasons) along with the 2018 experience (when the rest of the world was again reminded that financial stability outside the US depends almost entirely on the Fed not erring by overtightening during a hiking cycle), are likely to be the key drivers of continued de-dollarization. Not deficits and not “money printing.”

Recall that during the initial stages of Trump’s efforts to squeeze Iran, Europe established a special purpose vehicle aimed at helping Tehran circumvent some Treasury sanctions in the interest of preserving stability in the country and averting a societal collapse that could destabilize the region. That SPV was, in essence, a de-dollarization push – and it was spearheaded by the UK, Germany and France.