Yellen says trade deal with China has “hurt American consumers”

WASHINGTON – Treasury Secretary Janet L. Yellen has questioned the merits of the U.S.-China trade deal, arguing it has failed to resolve the most pressing disputes between the two most major economies of the world and warning that the tariffs that remain up have hurt American consumers.

Ms. Yellen’s comments, made in an interview with The New York Times this week, come as the Biden administration began a seven-month in-depth review of U.S. economic relations with China. The review must answer the central question of what to do with the deal former President Donald J. Trump signed in early 2020, which included Chinese commitments to buy American products and reform its business practices.

Tariffs that remain on $ 360 billion in Chinese imports are at stake, and the Biden administration has not said much about the fate of the deal. Trump administration officials attempted to create tariffs that would protect major U.S. industries like auto and aircraft manufacturing from what they described as subsidized Chinese exports.

But Ms Yellen asked if the tariffs had been well designed. “My personal view is that the tariffs have not been put in place on China in a very thoughtful way compared to the problems and the interest of the United States,” she told the ‘after a one-week trip to Europe.

President Biden has not decided to cut tariffs, but Ms Yellen has suggested they are not helping the economy.

“Tariffs are taxes on consumers, in some cases it seems to me that what we did hurt American consumers and the kind of deal the previous administration negotiated really didn’t resolve in many ways. the fundamental problems we have with China, ”she said.

But reaching a new deal could be difficult given growing tensions between the two countries on other issues. The Biden administration on Friday warned U.S. companies in Hong Kong about the risks of doing business there, including the possibility of electronic surveillance and handing over customer data to authorities.

Chinese officials would welcome any unilateral U.S. move to dismantle tariffs, according to two people involved in shaping Chinese policy. But China is unwilling to end its large industrial subsidies in exchange for a tariff deal, they said.

Xi Jinping, China’s top leader, has sought technological autonomy for his country and the creation of millions of well-paying jobs through government assistance to Chinese manufacturers of electric cars, commercial aircraft, semiconductors and other products.

It might be possible to make some adjustments on the sidelines of these policies, but China is unwilling to give up its ambitions, said the two, who requested anonymity because they were not authorized to discuss. publicly of the matter.

University experts in China share the government’s skepticism about the possibility of reaching an early deal.

“Even if we return to the negotiating table, it will be difficult to reach an agreement,” said George Yu, trade economist at Beijing Renmin University.

The Trump administration has also sought, unsuccessfully, to persuade Chinese authorities to drop heavy subsidies to high-tech industries. Robert E. Lighthizer, Mr. Trump’s trade representative, ended up imposing tariffs aimed at preventing subsidized Chinese companies from bankrupting American companies.

Getting China to buy American made

The United States and China named last year’s pact the phase 1 deal and promised to negotiate a second phase. But that never happened.

Tariffs have played a particularly important role in the automotive industry.

In response to Mr. Trump’s 25% tariff on gasoline and electric cars imported from China, American automakers like Ford have scrapped plans to import cheap cars from their Chinese factories. Chinese automakers like Guangzhou Auto have also abandoned their plans to enter the US market.

Chinese car exports have increased this spring as new factories go into production, many of which are built with large subsidies. But cheap Chinese cars have mostly gone elsewhere in Asia and Europe, even as car prices in the United States have soared.

Ms. Yellen did not specifically address auto tariffs.

The terms of the first phase of the trade deal included the requirement for a high-level review this summer. The deal requires China to stop forcing foreign companies to transfer their technology to Chinese companies doing business there.

Phase 1 also included a Chinese pledge to purchase an additional $ 200 billion in U.S. goods and services until the end of this year. The deal was meant to ensure that China would not retaliate against U.S. tariffs by discouraging Chinese companies from buying U.S. goods.

Although China has resumed large-scale purchases of US goods since the countries’ trade war, neither the aggregate value of those purchases nor the mix of purchases have met the hopes of the Trump administration.

China missed its 40% pledges last year and is more than 30% behind so far this year, said Chad P. Bown of the Peterson Institute for International Economics, who tracked the purchases. . The pace of agricultural purchases has accelerated, but China is not buying enough cars, planes or other products made in the United States to meet its obligations.

China also pledged in the Phase 1 agreement that its purchases of U.S. products will continue to increase from 2022 to 2025.

Biden’s mixed approach

The Biden administration is aware that all of these buying demands have frustrated US allies who believe the deal has cost them sales.

One of the reasons China is unwilling to reopen potentially acrimonious negotiations over US tariffs and Chinese subsidies is that the Phase 1 agreement has transformed the trade relationship between the two countries, people said. familiar with the development of Chinese economic policy. Trade has gone from one of their biggest sources of friction to one of the less controversial areas of their relationship.

Under Mr. Biden, the United States kept the pressure on China and in some ways stepped it up, focusing on concerns about its humanitarian record that Mr. Trump generally ignored.

In March, the Biden administration imposed sanctions on senior Chinese officials as part of a multinational effort with Britain, Canada and the European Union to punish Beijing for human rights violations against the largely Muslim Uyghur minority group.

In June, the White House took action to crack down on forced labor in the solar panel supply chain in China’s Xinjiang region, including banning imports from a silicon producer there. He also set aside a dispute with Europe over aircraft subsidies for Boeing and Airbus in June so the United States could more effectively rally its allies to counter China’s ambitions to dominate key industries.

China has also stepped up the pace of “decoupling” from the United States, ordering its tech companies to avoid initial public offerings in the United States and list in Hong Kong instead. This has been a blow to Wall Street companies which have garnered hefty advisory fees from Chinese companies that have listed their shares in the United States.

The Treasury Department, with its close ties to Wall Street, has long been far more reluctant to oppose China than the Office of the U.S. Trade Representative, a separate ministerial agency that oversees trade policy. Katherine Tai, Mr Biden’s trade representative, has said little about the Phase 1 deal so far, preferring instead to point out that the administration is still developing its policy towards China.

Ms. Yellen’s formal meetings with her Chinese counterparts have so far been rare. The Treasury Department announced last month that it had held a virtual call with Liu He, Chinese vice premier. They discussed economic recovery, areas of cooperation, and Ms. Yellen voiced her concerns about China’s human rights record.

She publicly expressed these concerns during a speech in Brussels this week, telling EU finance ministers they should work together to tackle “China’s unfair economic practices, malicious behavior and human rights violations. ‘man’.

The comment made waves within the Chinese government. A spokesman for the Chinese Foreign Ministry, Zhao Lijian, said that “China categorically rejects” Ms. Yellen’s remarks and called them libel.

The Biden administration has received praise for maintaining a hawkish stance towards China without the Trump administration’s provocative approach, which has destabilized the global economy with tariffs and a trade war.

Joe Biden did what he said he would do – he brought the allies together and similarly aligned them on similar issues in a way that significantly strengthens America’s position vis-à-vis of China, ”said Craig Allen, President of the United States. -Chinese trade council.

Michael Pillsbury, the Hudson Institute scholar who was one of Trump’s top Chinese advisers, said the Biden administration’s approach to China was shaping up to be tougher and “more effective” than that of Mr. Trump because Mr. Biden’s aides were united in their belief that the United States cannot successfully confront China on its own.

The big question is what comes next.

Mr Bown, of the Peterson Institute, said the Biden administration’s review of China’s trade policy was probably taking so long because the Trump administration had taken so many sweeping and sometimes contradictory steps that it took was a complicated wallet to inherit. There are also complex political calculations to be made when it comes to removing tariffs.

“It’s politically toxic to be seen as weak against China, so you’re going to have to line up with your economic arguments,” Bown said.

Despite recent animosity, the United States was able to help China join the global tax deal that Ms. Yellen helped negotiate. The Biden administration believes that China wants to be part of the multilateral system and that severing ties between the two countries completely would not be healthy for the global economy.

“I think we should maintain economic integration in terms of trade flows, capital and technology where we can,” Ms. Yellen said, adding that the relationship must balance security requirements. “Obviously, national security considerations need to be assessed very carefully and we may need to take action where, in terms of Chinese investment in the United States or other supply chain issues, we let’s really see a need for national security. “

Keith Bradsher reported from Beijing.