Yellen says China trade deal has ‘hurt American consumers’

By Alan Rappeport and Keith Bradsher

Treasury Secretary Janet Yellen has cast doubt on the merits of the trade agreement between the United States and China, arguing that it has failed to address the most pressing disputes between the world’s two largest economies and warning that the tariffs that remain in place have harmed American consumers.

Yellen’s comments, in an interview with The New York Times last week, come as the Biden administration is seven months into an extensive review of America’s economic relationship with China. The review must answer the central question of what to do about the deal that former President Donald Trump signed in early 2020 that included Chinese commitments to buy American products and change its trade practices.

Tariffs that remain on $360 billion of Chinese imports are hanging in the balance, and the Biden administration has said little about the deal’s fate. Trump administration officials tried to create tariffs that would shelter key American industries like carmaking and aircraft manufacturing from what they described as subsidized Chinese exports.

But Yellen questioned whether the tariffs had been well designed. “My own personal view is that tariffs were not put in place on China in a way that was very thoughtful with respect to where there are problems and what is the U.S. interest,” she said at the conclusion of a weeklong trip to Europe.

President Joe Biden has not moved to roll back the tariffs, but Yellen suggested that they were not helping the economy.

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

But reaching any new deal could be hard given rising tensions between the two countries on other issues. The Biden administration warned U.S. businesses in Hong Kong on Friday about the risks of doing business there, including the possibility of electronic surveillance and the surrender of customer data to the authorities.

Chinese officials would welcome any unilateral American move to dismantle tariffs, according to two people involved in Chinese policymaking. But China is not willing to halt its broad industrial subsidies in exchange for a tariff deal, they said.

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

Getting China to buy American made

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

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

Phase 1 also included a Chinese pledge to buy an additional $200 billion of American goods and services through the end of this year. The agreement was intended to make sure that China did not retaliate for American tariffs by discouraging Chinese companies from buying American goods.

Although China has resumed large-scale purchases of U.S. goods since the countries’ trade war, neither the overall value of these purchases nor the composition of purchases has met the Trump administration’s hopes.

China fell short of its commitments by 40% last year and is off by more than 30% so far this year, said Chad P. Bown of the Peterson Institute for International Economics, who has been tracking the purchases. The pace of agricultural purchases has picked up, but China is not buying enough cars, airplanes or other products made in the United States to meet its obligations.

China also pledged in the Phase 1 agreement that its purchases of American goods would continue rising from 2022 through 2025.

Biden’s blended approach

The Biden administration is cognizant that all of these purchase requirements have frustrated American allies who feel that the agreement has cost them sales.

One reason China is not eager to reopen potentially acrimonious negotiations over American tariffs and Chinese subsidies is that the Phase 1 agreement has transformed trade relations between the two countries, said the people familiar with Chinese economic policymaking. Trade has gone from being one of their biggest sources of friction to becoming one of the least contentious areas of their relationship.

Under Biden, the United States has maintained pressure on China and in some respects stepped it up, focusing on concerns about its humanitarian record that Trump usually overlooked.

The Treasury Department, with its close ties to Wall Street, has long been much more wary of antagonizing China than the Office of the U.S. Trade Representative, a separate Cabinet-level agency that oversees trade policy. Katherine Tai, Biden’s trade representative, has said little so far about the Phase 1 agreement, preferring to emphasize instead that the administration is still developing its policy toward China.

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

She expressed those concerns publicly during a speech in Brussels this week, telling European finance ministers that they should work together to counter “China’s unfair economic practices, malign behavior and human rights abuses.”

The comment made waves within the Chinese government. A spokesman for China’s Ministry of Foreign Affairs, Zhao Lijian, said that “China categorically rejects” Yellen’s remarks and described them as a smear.

The Biden administration has won praise for maintaining a hawkish stance toward China without the provocative approach of the Trump administration, which destabilized the global economy with tariffs and a trade war.

“Joe Biden has done what he said he would do — he has collected the allies and got them aligned in a similar manner on similar issues in a way that greatly strengthens America’s position vis a vis China,” said Craig Allen, president of the US-China Business Council.

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