Yellen’s China Tour Re-Affirms Failed Status Quo

U.S. Treasury Secretary Janet Yellen’s talks with Chinese leaders last week re-affirmed a status quo that has been disastrous for American businesses and workers for decades.

During meetings with new Chinese Vice Premier He Lifeng, Yellen played down the idea that the U.S. was seeking a “decoupling” from China, instead opting for far more conciliatory language. Though more conflict over trade and investment is sure to come, Yellen – and by extension President Joe Biden – came off as eager to appease Beijing, even as China grows more aggressive on the world stage.

In one awkward incident that seemed to capture the ethos of the trip, Yellen bowed multiple times to Lifeng while enthusiastically shaking his hand. Diplomatic protocol experts called the move “embarrassing” for the United States and flagged it as a sign of American weakness.

In all, Yellen’s visit was a reminder that Biden’s policy toward China has been largely to return to the same deference shown by almost every modern American president – with the notable exception of Donald Trump.

Biden’s failure on China is reflected in the numbers. The U.S. trade deficit with China grew by 8.3 percent last year, reaching $382.9 billion. Although the deficit is on pace to be smaller this year, it will nonetheless be far larger than the U.S. trade deficit with any other country.

Moreover, despite reports of economic struggles in China, the country’s economy is still growing at a rapid clip. The Centre for Economics and Business Research, a U.K. think tank, now projects that China will overtake the U.S. as the world’s biggest economy in 2030.

Two big reasons for China’s continued growth are the facts that China still enjoys “most favored nation” trade status with the United States and is categorized as a “developing nation” by the World Trade Organization (WTO) – both things Biden had a direct hand in bringing about and has done nothing to change.

In short, being a “most favored nation” (MFN) means that the country granting that status to another will provide certain trade advantages and privileges that are equal to or better than those given to any other country. These advantages typically include lower tariffs on goods and reduced trade barriers, such as quotas or restrictions, on imports. Currently, all countries except Belarus, Cuba, Russia, and North Korea have MFN status with the U.S.

The U.S. first granted China MFN status under President Jimmy Carter in 1979. However, some U.S. lawmakers began to question this status following the Tiananmen Square massacre and other human rights abuses in the 1980s and 1990s.

It was during one contentious debate over the renewal of China’s MFN status in 1991 that Americans first got a glimpse into the corruption and corporate interests that drove favorable treatment of China. In the middle of one congressional hearing on the MFN renewal bill, a lobbyist who introduced himself as a private citizen and human rights activist, was exposed as a representative of multinational giant Occidental Chemical.

“Is it in [Occidental’s] vested interest what you are doing?” one senator asked. “Yes, sure it is,” the lobbyist replied. “If MFN would have to be removed, my company would certainly lose sales to China.”

Amid heightened awareness over China’s human rights abuses, many American companies also began shipping jobs overseas, with tens of thousands going to China. One senator at the time remarked that U.S. trade policy was a “caricature” of good governance, since U.S. leaders “had an economic plan for every country from Mexico to Malaysia, but shamefully turned their backs on the American people.”

Some conservative leaders warned that continuing to grant China MFN status amounted to little more than a bailout of one of the most dangerous totalitarian regimes in the world.

In 1991, John Cregan, president of a group called the Taxpayers Alliance Against the Bailout of Communism, said that China’s Soviet-style communism could not be reformed, only abandoned. As he explained, the U.S. offering Beijing trade subsidies and other favorable policies only acted as a buoy for the communist regime, prolonging totalitarian rule in China.

Cregan was ultimately proven correct – in large part thanks to the massive outflow of technology and capital to China during the Clinton administration. In one of the most consequential decisions in the history of American trade policy, Congress granted China permanent MFN status on September 19, 2000. Since that time, what would come to be known as “China Trade Shock” has cost the United States more than two million jobs.

Since then, many congressional Republicans have recognized the error and introduced legislation to revoke China’s MFN status – something even some Democrats seem open to. Former President Donald Trump has pledged to sign such legislation if he is elected president next year, a cue other 2024 GOP hopefuls have picked up on as well.

However, incumbent President Joe Biden has remained largely silent on the issue – perhaps altogether unsurprising given that Biden, then a senator from Delaware, was one of the “yes” votes in favor of permanent MFN status for China in 2000.

In the year that followed, Biden, from atop his perch as the senior Democrat on the Senate Foreign Relations Committee, also guided China through the process to full membership in the WTO. With WTO membership in hand, China was quickly granted “developing nation” status – a distinction it still holds despite having the second-largest economy in the world and more than 30 percent more billionaires than the United States.

Developing nation status grants a country special rights designed to accelerate economic growth like higher subsidies and better tariff rates, along with access to low-cost loans. Despite the fact that China is actively trying to undermine U.S. economic leadership and may surpass America in GDP relatively soon, WTO developing nation status means China enjoys the same benefits as some of the poorest countries in the world.

In 2019, President Trump issued a memorandum calling for reforms to how WTO categorizes developing nations, explicitly stating that “China most dramatically illustrates” his point. “The WTO is in desperate need of reform, without which the WTO will be unable to address the needs of workers and businesses or the challenges posed by the modern global economy,” Trump continued.

But Biden quickly abandoned Trump’s reform efforts upon taking office, instead returning to the same failed strategies he had pursued as a senator decades ago. And as Yellen’s recent trip to China made clear, without another change in leadership, it seems unlikely Biden will deviate from his current approach.

Ben Solis is the pen name of an international affairs journalist, historian, and researcher.