Yellen Says China Commerce Deal Has ‘Damage American Customers’

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WASHINGTON – Treasury Secretary Janet L. Yellen has expressed doubts about the merits of the U.S.-China trade deal, arguing that it failed to resolve the most pressing disputes between the world’s two largest economies and warned that tariffs will remain in place Place have harmed American consumers.

Ms. Yellen’s comments in an interview with the New York Times this week come after the Biden administration began a seven-month full review of US economic relations with China. The review must answer the central question of what to do with the deal that former President Donald J. Trump signed in early 2020, which includes Chinese pledges to buy American products and change its trading practices.

Tariffs remaining on $ 360 billion worth of Chinese imports are pending and the Biden government has said little about the fate of the deal. Trump administration officials sought to create tariffs that would protect key American industries such as automobiles and aircraft from what they termed subsidized Chinese exports.

However, Ms. Yellen questioned whether the tariffs were well designed. “My personal opinion is that the tariffs on China were not introduced very carefully in terms of where there are problems and what the interests of the US are,” she said at the end of a week-long trip to Europe.

President Biden did not move to lift the tariffs, but Ms. Yellen indicated that they would not help the economy.

“Customs are consumer taxes. In some cases, it seems to me what harm we have done to American consumers, and the kind of deal the previous administration negotiated has in many ways not resolved the fundamental problems we have with China, ”she said.

However, with increasing tensions between the two countries on other issues, reaching a new deal could be difficult. The Biden administration on Friday warned US companies in Hong Kong of the risks of doing business there, including the possibility of electronic surveillance and the disclosure of customer data to the authorities.

Chinese officials would welcome any unilateral American move to dismantle tariffs, according to two people involved in Chinese policy-making. But China is unwilling to stop its broad industrial subsidies in exchange for a tariff deal, they said.

Xi Jinping, China’s top politician, seeks technological independence for his country and the creation of millions of well-paying jobs through government support for Chinese manufacturers of electric cars, commercial aircraft, semiconductors and other products.

Some adjustments could possibly be made on the sidelines of this policy, but China is unwilling to give up its ambitions, said the two people, who spoke on condition of anonymity because they were not empowered to discuss the issue publicly.

Academic experts in China share the government’s skepticism that a quick deal can be reached.

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

The Trump administration also tried unsuccessfully to convince Chinese officials to abandon the high subsidies to high-tech industries. Robert E. Lighthizer, Mr. Trump’s sales representative, eventually imposed tariffs to prevent subsidized Chinese companies from driving American companies out of business.

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

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

In response to Trump’s 25 percent tariffs on imported gasoline and electric cars from China, American automakers like Ford Motor have abandoned plans to import cheap cars from their Chinese factories. Chinese automakers like Guangzhou Auto have also postponed plans to enter the American market.

Chinese auto exports have soared this spring as new factories go into production, many of which have been built with substantial subsidies. But the cheap Chinese cars have mostly gone elsewhere in Asia and to Europe while car prices have increased in the US.

Ms. Yellen did not specifically address car tariffs.

The first phase of the trade deal called for a high-level review this summer. The agreement obliges China to stop forcing foreign companies to transfer their technology to Chinese companies that do business there.

Phase 1 also included a Chinese commitment to buy an additional $ 200 billion in American goods and services by the end of this year. The deal was designed to ensure that China does not take revenge on American tariffs by preventing Chinese companies from buying American goods.

Updated

July 19, 2021, 2:28 p.m. ET

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

China missed its commitments by 40 percent last year and is more than 30 percent behind this year, said Chad P. Bown of the Peterson Institute for International Economics, who is tracking the purchases. The pace of agricultural purchases has accelerated, but China is not buying enough US automobiles, planes, or other products to meet its commitments.

China has also pledged in the Phase 1 agreement that its purchases of American goods will continue to increase from 2022 to 2025.

The Biden administration recognizes that all of these purchase requests have frustrated American allies who believe the deal cost them sales.

One reason China is reluctant to resume potentially bitter negotiations on American tariffs and Chinese subsidies is because the Phase 1 deal changed trade relations between the two countries, said those familiar with Chinese economic policies. Commerce has gone from being one of their greatest points of friction to one of the least controversial areas of their relationship.

Under Mr Biden, the United States has maintained and in some ways increased pressure on China, focusing on concerns about its humanitarian record that Mr Trump has usually overlooked.

In March, the Biden government imposed sanctions on high-ranking Chinese officials in a joint effort with the UK, Canada and the European Union to punish Beijing for human rights violations against the predominantly Muslim Uighur minority.

In June, the White House took steps against forced labor in the supply chain for solar modules in China’s Xinjiang region, including a ban on imports from a silicon producer there. It also settled a dispute with Europe over aircraft subsidies to Boeing and Airbus in June so that the United States could more effectively bind allies together to counter China’s ambitions to dominate key industries.

China has also accelerated the pace of “decoupling” from the US, ordering its tech companies to avoid going public in the US and listing in Hong Kong instead. It was a severe blow to Wall Street firms, which have received high advisory fees from Chinese companies listing their shares in the United States.

The Treasury Department, with its close ties to Wall Street, has long been much more cautious of angering China than the Office of the United States Trade Representative, a separate cabinet agency that oversees trade policy. Mr. Biden’s sales representative, Katherine Tai, has said little about the Phase 1 deal, instead stressing that the government is still developing its policy towards China.

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

She publicly voiced these concerns during a speech in Brussels this week, calling on European finance ministers to work together to tackle “China’s unfair economic practices, malicious behavior and human rights violations.”

The comment caused a stir in the Chinese government. A Chinese Foreign Ministry spokesman, Zhao Lijian, said that “China categorically rejects what Ms. Yellen said,” calling it slander.

The Biden administration has received praise for maintaining a restrictive stance on China without the provocative approach of the Trump administration, which destabilized the world economy with tariffs and a trade war.

“Joe Biden has done what he promised to do – he has rallied the allies and similarly aligned them on similar issues in a way that greatly strengthens America’s position vis-à-vis China,” said Craig Allen, president of the US-China Business Council.

Michael Pillsbury, the Hudson Institute fellow who was one of Mr. Trump’s top China advisors, said the Biden administration’s approach to China is becoming tougher and “more effective” than Mr. Trump’s because of Mr. Trump’s advisors Biden agreed that the United States could not successfully confront China on its own.

The big question is what’s next.

Mr Bown of the Peterson Institute said the Biden administration’s review of China’s trade policies most likely took so long because the Trump administration took so many comprehensive and sometimes contradicting measures that it was a complicated portfolio to inherit. Complex political calculations also have to be made when the tariffs are abolished.

“It is politically harmful to be seen as weak against China, so you have to have your economic arguments back-to-back,” Bown said.

Despite the recent hostilities, the United States managed to get China to join the global tax treaty that Ms. Yellen was instrumental in. The Biden government believes that China wants to be part of the multilateral system and that a complete separation of relations between the two countries would not be healthy for the world economy.

“I think we should maintain economic integration in terms of trade, capital flows and technology where we can,” Ms. Yellen said, adding that the relationship needs to balance security requirements. “Of course, national security considerations need to be considered very carefully and we may need to take action when it comes to Chinese investments in the United States or other supply chain issues where we really see a national security need.”

Alan Rappeport reported from Washington and Keith Bradsher from Beijing.