Her remarks outlining Washington's approach to US-China ties come ahead of Asia-Pacific Economic Cooperation (APEC) meetings this month in San Francisco -- where President Joe Biden is expected to meet Chinese leader Xi Jinping for the first time since they conferred in Bali last year.
"We know the US-China relationship is among the most consequential in the world," Yellen told an event in Washington. "We need to get it right."
She said the United States is working to collaborate on international issues including climate change and debt difficulties in low-income countries.
But Washington will not compromise on protecting its national security interests and advancing human rights, Yellen added.
She stressed that US national security actions would be "narrowly targeted," citing recent outbound investment restrictions that Washington insisted were not aimed at curbing China's growth, but at preserving national interests.
Another key aspect to the US approach is maintaining mutually beneficial ties, Yellen said, adding that this means "responding appropriately to China's unfair economic practices."
Noting that all eyes are on a potential Biden-Xi meeting, Asia Society Policy Institute vice president Wendy Cutler told reporters after Yellen's speech that strained US-China ties will not be turned around overnight.
The expectation should be towards "modest steps which over time could help build trust and maybe deliver some outcomes that are mutually beneficial," Cutler said.
- Deeper ties-
Yellen also made a case for deeper economic ties with the Asia-Pacific region, arguing that greater engagement boosts trade, jobs and security both at home and abroad.
Her speech takes place as Secretary of State Antony Blinken is set to visit Japan, South Korea and India after his latest crisis trip to the Middle East -- keeping a US focus on Asia.
The Biden administration is committed to boosting trade and investment with countries in the Asia-Pacific region, said Yellen, with almost a quarter of US global exports already headed there.
Making the case for trade expansion, she said this boosts production at home and allows US businesses to expand operations and create more jobs.
Economic engagement is also key to bolstering US supply chain security, she said, citing the approach of "friendshoring," or diversifying US supply chains across allies and partners.
"We're starting to see the impacts in the data," Yellen added.
"Across sectors from auto parts to electronics, the US is importing more from key partners like India and Vietnam, as well as from Mexico, and is less dependent on one single country, in this case, China," she said.
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