On Thursday, Treasury Secretary Janet Yellen delivered a surprisingly conciliatory speech on China. Speaking at the Johns Hopkins School of Advanced International Studies, Yellen declared: "China’s economic growth need not be incompatible with U.S. economic leadership … We do not seek to ‘decouple’ our economy from China’s."

Yellen added, "We believe that the world is big enough for both of us." Yellen denied that the U.S. was trying to damage China’s economy, and said that U.S. actions such cutting it off from advanced semiconductors were aimed purely at protecting U.S. national security.

"These national security actions are not designed for us to gain a competitive economic advantage, or stifle China’s economic and technological modernization," she said. "Even though these policies may have economic impacts, they are driven by straightforward national security considerations."

The speech cheered trade traditionalists who are critics of the U.S. hard line on China. Adam Posen, president of the Peterson Institute for International Economics, the epitome of the free-trade lobby, said, "The world is a better place today than it seemed to be before this speech."

Yellen spoke while China has been increasing its threats against Taiwan; and while U.S. industrial-policy measures such as the CHIPS and Science Act and the Inflation Reduction Act are explicitly aimed at reducing dependence on China.

The Yellen speech also comes at a time when key U.S. allies are far from having a united China policy with the U.S. German Chancellor Scholz has repeatedly sought to increase Chinese trade and investment deals with the Chinese. And French President Macron embarrassed even his own government with remarks on his recent trip to Beijing that were almost equally critical of Beijing and Washington and proposed Europe as a third unaffiliated bloc.

So what is Yellen up to?

There are two ways of reading the speech. One is that the administration is pursuing a nice cop/bad cop strategy.

The tough policies to restrict China’s access to advanced dual-use technologies will continue, as will the tariffs and sanctions against Chinese products made with slave labor, stolen technology, or illegal subsidies. But Yellen is dispatched to reassure the Chinese that the U.S. still wants to pursue an economic relationship and avoid war.

The other is that Yellen, who has been hard to control by the White House senior staff, is freelancing.

It’s no secret that the Biden administration has been split on China policy. Yellen has been the softest of the soft-liners, criticizing the China tariffs as taxes on the American consumer. The Yellen faction has recently gained a powerful ally when her former Fed colleague Lael Brainard, another soft-liner on trade, was named to head the National Economic Council.

Meanwhile, National Security Adviser Jake Sullivan, Secretary of State Tony Blinken, and the various officials in charge of industrial policy and export controls favor a tougher line. It’s hard to believe that Sullivan was totally blindsided by the Yellen speech. On the other hand, it’s equally hard to believe that he was thrilled by it. The shifting power balance inside the administration gave Yellen the leverage to deliver such a speech at all.

If the U.S. is to have an effective China policy, it needs better coherence and coordination among U.S. allies—and inside its own house.