Yellen Leaves Legacy of Alliances That Trump Is Threatening to Torch

(Bloomberg) -- A small globe sits on the corner of Janet Yellen’s desk, covered in cork and pierced by dozens of colorful pins marking all the places she traveled as Treasury secretary.

Most Read from Bloomberg

The office has always been internationally focused — but no recent holder had to operate in a global economy so fractured by war and great-power rivalry. Yellen sought to navigate it by shoring up ties that were strained during Donald Trump’s confrontational first term. She’ll depart with the US poised to retreat once again from its traditional alliances under another Trump presidency, now just days away.

ADVERTISEMENT

Yellen became the Biden administration’s most effective interlocutor with China, tasked with steadying the world’s key economic relationship while maintaining Trump-era trade pressures and roping new partners into that campaign. Then, when Russia invaded Ukraine a year into her term, Yellen’s Treasury took the lead in an international effort to punish Moscow that rewrote the rules of economic warfare.

The lesson that Yellen takes away, in a wide-ranging discussion of her time at the Treasury, is clear: The US can get much more done in the world by joining forces with like-minded nations.

“Taking a very unilateral approach, I think, is a mistake,” she said in an interview in December. “We have worked hard to rebuild our relationships with our allies and pursue objectives to the maximum extent jointly.”

Yellen can point to a number of examples where her policy of engagement bore fruit, even if it fell short of the highest hopes.

US-led sanctions imposed steep costs on Russia, and Yellen championed innovative mechanisms to curb Moscow’s oil revenue — without roiling world markets — and leverage frozen Russian assets into financial support for Ukraine. Ultimately, none of the measures could bring Russia’s economy to a standstill or prevent its military advance.

ADVERTISEMENT

‘We Have Our Grievances’

On China, Yellen took charge with ties at a multi-decade nadir after the Trump trade wars, the pandemic and a spy balloon incident. She restored critical lines of contact, whose lapse she has described as “dangerous,” while also delivering tough news to Beijing — including new high-tech export curbs that were all the more effective because US allies in Europe and Asia were persuaded to join in. Even as Yellen rebuilt some trust, though, she failed to convince China to back away from manufacturing subsidies that hurt American businesses.

“Obviously, we don’t agree with China about a lot of matters, and we have our grievances,” Yellen said. “But it is valuable to understand, to avoid misunderstandings, and to have communication channels.”

It’s been a tricky exercise for Yellen. Her thinking on China and trade, as an academic and policymaker, was rooted in an era that celebrated globalization, and has evolved as national security questions came more into focus. Yet it’s precisely her background and technocratic chops that seem to have made the Treasury chief effective when it came to dealing with Beijing.

On her first trip there as secretary — a closely watched, high-stakes outreach — there were some small signs she was making headway. At one dinner, senior Chinese officials brought Yellen copies of a book she’d written about the US economy in the 1990s, so she could sign them. On her second trip, the warm welcome continued even as she berated Beijing for subsidizing its export-oriented manufacturers.

ADVERTISEMENT

Between those two visits, the US and China set up economic and financial working groups that would meet regularly to identify areas of cooperation and communicate grievances. The new bodies came in handy in the fall of 2023.

On the eve of a summit between Presidents Joe Biden and Xi Jinping in San Francisco, the US branch of Industrial & Commercial Bank of China Ltd. came under a crippling cyberattack. China’s largest bank was left in danger of being unable to settle trades, including in the US Treasuries market.

The strike was eventually blamed on a Russian criminal gang, but its source was not immediately known, and Yellen worried that China might think the US had engineered an embarrassing incident just before the summit. “If we had no trust whatsoever, my guess is that this could have turned into another balloon incident,” she said.

Instead, Yellen — who’d scheduled a separate meeting with her Chinese counterpart, He Lifeng — assured him that the US would help resolve the problem, which was swiftly overcome. Later that week, it was Yellen who was asked to greet Xi at the airport on his arrival in the US.

“In international policymaking the dogs that don't bark are just as important as the dogs that do,” said Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center. “There are a lot of problems that could be problems that don't become problems because years of hard work are put in,” and Yellen’s work in China exemplifies that, he said. “Her being able to go there, preview some of the decisions that were coming, explain them, I believe helped mute some of the reaction from the Chinese.”

ADVERTISEMENT

That fits with Yellen’s broader reflections on the China file. “I’m not saying we’ve had overwhelming success,” she said in the December interview. Still, “we’ve developed channels where we’re quietly working on it without it blowing up into a major thing. And I think this is useful.”

In a sign that plenty of thorny issues remain, Yellen voiced concern to He early this month — in what was likely their last official conversation — about “malicious cyber activity” after US officials said Chinese state-sponsored hackers had breached the Treasury’s networks.

Where Yellen and Biden combined dialogue with a ratcheting of China trade curbs, Trump is vowing a sharper escalation. He’s threatened tariffs as high as 60%, multiples above where they are now. The question of whether that’s a concrete plan or a negotiating ploy remains open.

‘The Moral Argument’

If the task of keeping US allies on board was important to Yellen’s China diplomacy, it was front and center of the response to Russia’s February 2022 invasion of Ukraine.

Financial sanctions had long been a key Treasury tool, especially after the attacks of Sept. 11, 2001. But the breadth, volume and innovation of economic warfare against Russia was unprecedented. Group of Seven economies largely acted in sync, with the US playing a leading role and often cajoling European allies to sign on to more creative measures.

Yellen went to Kyiv, a rare visit to a war zone by a Treasury secretary. For the former Federal Reserve chair and labor economist, this kind of geopolitics — weaponizing economic tools to achieve national security and foreign policy goals — was essentially new territory, and it consumed an ever-larger chunk of her time.

“I’d never really been involved before this job in international negotiations,” Yellen said. She had no doubts that helping Ukraine was the right thing: “The moral argument is overwhelming.”

Over the past year, Yellen sought to convince major partners that they should collectively raise funds for Ukraine by tapping some $300 billion in Russian central bank assets frozen in G-7 nations since early 2022.

The plan required either seizing the funds outright or leveraging them into fresh loans. Allies were initially opposed. Yellen and her top lieutenants embarked on a months-long campaign to assuage them.

‘Herding the Cats’

It helped that she had personal relationships with so many of the key actors from her time at the Fed, European and US officials said. Still, as different objections were raised from London and Berlin to Tokyo, it felt like mission impossible at times. The qualms included legal precedents, financial stability risks and even retaliation by Moscow — and any agreement to tap and deploy the funds would have to hold up under multiple legal systems.

“Herding all of these cats to try to get them to come along is challenging,” Yellen said. “There were moments, during this long thing, I personally just lost hope this was ever going to work.”

In the end, G-7 leaders agreed in June to lend Ukraine $50 billion, to be repaid out of profits earned by the frozen Russian assets. Roughly a month before leaving office, Yellen gathered her staff in the Treasury Department’s main conference room and watched as an official completed the transfer of the US share of the loan, amounting to $20 billion. It was perhaps her last major act as secretary, and she considers it among the most important.

While the US was building a united front among its closest historical and military allies, it failed to persuade much of the rest of the world to join in. Few countries outside the developed world signed up for Russia sanctions, which weakened their impact by leaving plenty of trade avenues open to Moscow.

India is emblematic of the limits of Yellen’s campaign, as tireless efforts to sweeten relations — she made four trips to the subcontinent — fell somewhat flat. Much to the Treasury’s frustration, plenty of goods that are subject to US prohibitions continue to flow from India to Russia.

Under Trump, US policy toward Russia and Ukraine looks likely to shift. The president-elect has put more emphasis on negotiating an end to the conflict — without providing much detail on how — than helping Ukraine to fight a war it’s apparently losing.

‘See the Value’

Trump has pledged to dial back US financial support for Kyiv. He’s shown little interest in maintaining the economic coalition assembled by Biden and Yellen to squeeze Russia — which largely overlaps with the group of nations that have signed up for US-led curbs on China, too.

Yellen acknowledged the risk that the multilateral strategy she’s pursued is in danger of being abandoned in Trump’s second presidency. “The next administration is not known for wanting to take that type of approach,” she said. “But I am still hopeful that they will see the value of international engagement, and that it can contribute to the attainment of objectives that they have.”

If Trump’s recent public statements offer little to support such hopes, there’s perhaps more to be found in the speeches and writings of Scott Bessent, Yellen’s heir apparent at the Treasury, whose confirmation hearings will be held in the Senate on Thursday.

The former hedge fund manager is a veteran of international markets and the debate over global financial architecture. Three years ago, after Yellen outlined the doctrine of “friend-shoring” — the drive to match America’s supply chains with its security alliances — Bessent was full of praise. In an article, he called it “the most important speech in her distinguished career.”

“This is someone who also understands international economic engagement, not from the public sector side like Secretary Yellen, but from the private sector side,” said Lipsky at the Atlantic Council. “So I guess I'm a little more optimistic that these channels will continue in the next administration. At least through Treasury.”

Most Read from Bloomberg Businessweek

©2025 Bloomberg L.P.