Treasury Secretary Janet Yellen arrives at Japan’s G7 finance summit this week with her ambitious economic agenda hijacked by a heated partisan dispute over the U.S. debt ceiling that threatens a new financial catastrophe and a landmark tax agreement blocked by Republicans.

Last year, Yellen spearheaded G7 sanctions against Russia for its invasion of Ukraine. She’ll likely spend much of the two-day conference in Niigata convincing the same group that a U.S. payments default won’t destroy the global economy.

The move shows how deeply U.S. party disagreements may affect global economic ambitions and the Biden administration.

“Yellen has a challenging G7 brief. Harry Broadman, a former White House, World Bank, and U.S. trade official, said the debt ceiling “puts egg on the face of the U.S. as an economy globally” and distracts from other activities.

Since January, Republicans have controlled the House of Representatives, making it harder for Yellen to fulfill Democratic international negotiating commitments such as U.S. participation in the 15% global minimum corporation tax, which she gained approval for in 2021.

“Governing in the U.S. now on economic matters is as tough as I’ve seen it because there is such intransigence, particularly on the Republican side,” said Berkeley Research Group managing director Broadman.

Before a high-stakes meeting with President Joe Biden on Tuesday, Republican House of Representatives Speaker Kevin McCarthy said Biden “has got to stop ignoring problems” and needed debt limit spending concessions to reduce the U.S. deficit.

Yellen, who did not attend the meeting, will address at a press conference in Japan on Thursday the risks of a U.S. debt default, which the Treasury indicated could happen as soon as June 1. She will warn about “the global impact of this standoff and highlight the need to avoid default,” a senior Treasury official said.
The dollar is the reserve currency, and Treasury debt is the world’s safest and most liquid financial asset, which Yellen stated would be lost in a default.

She must also persuade G7 finance ministers and central bank governors that U.S. regional lenders won’t collapse following a third large bank failure.

Yellen postponed her trip to Japan to personally phone U.S. business executives and appear on multiple major television shows to warn legislators that failing to extend the $31.4 trillion borrowing ceiling would be a “catastrophe” for global financial markets and the economy.