Yellen Says China Trade Deal Has ‘Hurt American Consumers’

WASHINGTON — Treasury Secretary Janet L. 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.

Ms. Yellen’s comments, made in an interview with The New York Times this 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 J. Trump signed in early 2020 that included Chinese commitments to buy American products and reform 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 car making and aircraft manufacturing from what they described as subsidized Chinese exports.

But Ms. 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 Biden has not moved to roll back the tariffs, but Ms. 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 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.

It might be possible to make some adjustments at the margins of these policies, but China is not willing to abandon its ambitions, said both people, who spoke on condition of anonymity because they were not authorized to discuss the issue publicly.

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

“Even if we go back to the negotiating table, it will be tough to reach an agreement,” said George Yu, a trade economist at Renmin University in Beijing.

The Trump administration also sought, without success, to persuade Chinese officials to abandon heavy subsidies for high-tech industries. Robert E. Lighthizer, Mr. Trump’s trade representative, ended up imposing tariffs aimed at preventing subsidized Chinese companies from driving American companies out of business.

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 tariffs have played a particularly large role in the auto industry.

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

Chinese car exports have surged this spring as new factories come into production, many of them built with extensive subsidies. But the inexpensive Chinese cars have mainly gone elsewhere in Asia and to Europe, even as car prices in the United States have climbed.

Ms. Yellen did not specifically address automotive tariffs.

The terms of 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 percent last year and is off by more than 30 percent 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 manufactured 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 Mr. Biden, the United States has maintained pressure on China and in some respects stepped it up, focusing on concerns about its humanitarian record that Mr. Trump usually overlooked.

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

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

China has also been accelerating the pace of “decoupling” from the United States, directing its technology companies to avoid initial public offerings in the United States and list in Hong Kong instead. That has been a big blow to Wall Street firms that have reaped large 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 wary of antagonizing China than the Office of the United States Trade Representative, a separate cabinet agency that oversees trade policy. Katherine Tai, Mr. 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.

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

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

The big question is what comes next.

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

“It’s politically toxic to be seen to be weak on China, so you’re going to need to have your ducks in a row in terms of your economic arguments,” Mr. Bown said.

Despite the recent animosity, the United States was able to help coax China into joining the global tax agreement that Ms. Yellen has been helping to broker. The Biden administration believes that China wants to be part of the multilateral system and that fully severing ties between the two countries would not be healthy for the global economy.

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

Keith Bradsher reported from Beijing.