Treasury Secretary Janet Yellen expressed doubts about last year’s trade deal with China, the first clear statement from the Biden administration detailing its thinking about the future of the agreement between the world’s two largest economies.
“My own personal view is that tariffs were not put in place on China in a way that was very thoughtful,” she told The New York Times in an interview as she returned to the U.S. last week. “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.”
The agreement signed between the Trump administration and China in January 2020 was meant to put a stop to a damaging trade war that triggered tariffs on billions of dollars worth of goods. The Biden administration has to decide whether to keep the deal, scrap it, or seek to replace it with something new.
Eighteen months on, the agreement has turned out to be a truce at best, with both sides continuing to pay more for many imports. But it is also an area of stability in a relationship that has continued to deteriorate, with rising tension over Hong Kong, Taiwan, human rights and the origins of the Covid-19 pandemic.
For its part, the Chinese government has mostly praised the trade deal, even as it has criticized U.S. actions and statements in other tense areas.
“The economic relations between China and the U.S. are in nature mutually beneficial. A trade war would only bring lose-lose results,” Ministry of Foreign Affairs Spokesman Zhao Lijian told reporters Monday when asked about Yellen’s comments. We hope the U.S. can “meet China halfway, resolve the problems in trade relations, and promote the steady and sound development of the trade relations between China and the U.S.,” he said.
But even before Yellen’s remarks, some in China were pessimistic about the future of the agreement.
“The current relative calm on the trade front does not seem to portend glorious days, but thunderstorms,” former diplomat and trade official Zhou Xiaoming wrote last week in an editorial. “Although it is still reviewing its stance toward China,” the Biden administration can be expected to act more decisively and aggressively later this year, he wrote.
Ever-Growing Chinese Surplus
The deal hasn’t reduced the U.S. trade deficit with China, one of former President Donald Trump’s goals.
U.S. exports to China hit a record in the first quarter of the year, but imports from the mainland have soared, boosted first by masks and protective gear, then by electronics and work-from-home equipment, and now by the rebound in general consumption as the economy opens up and people spend their stimulus money.
Purchasing targets agreed to by China expire at the end of the year, and China is well behind where they promised they would be now, although the total should rise as agricultural goods it has bought are harvested and delivered. The two sides also agreed that China’s purchases would continue to rise from 2022 to 2025, although no details were made public.
Whether that is enough for the U.S. remains to be seen. U.S. Trade Representative Katherine Tai in May pledged to build off the deal and said that removing tariffs will depend on the outcome of upcoming conversations with China.
Since starting her job, though, Tai has had just one phone call with her counterpart, head Chinese negotiator Vice Premier Liu He.
That call, like one between Yellen and Liu, didn’t involve detailed negotiations, but was basically a getting-to-know-you conversation, according to people with knowledge of the interactions. Regular talks on the deal meant to take place every six months are yet to happen.
With no sign of when the U.S. will finish its review of its China policy, it’s unclear whether the trade deal’s future will be resolved this year. However, the apparent inability of the two sides to agree on the visit of a senior U.S. diplomat this week doesn’t bode well for talks anytime soon.
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