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    As Lebanon Collapses, Riad Salameh Faces Questions

    People can’t get their money from banks, the currency has crashed and Riad Salameh’s reign at the central bank is facing allegations of fraud.BEIRUT, Lebanon — For decades, Riad Salameh, Lebanon’s central bank chief, was lauded at home and abroad as a financial wizard who kept the economy running and the currency stable despite wars, assassinations and frequent political turmoil.Not anymore.This country at the crossroads of the Middle East is suffering from a collapse of historic proportions: Its banks are largely insolvent, unemployment is soaring, its currency has crashed and many Lebanese blame Mr. Salameh for shortages that have left them struggling to afford food, scrambling to find medication and waiting in long lines to fuel up their cars.Now, Mr. Salameh is being accused of a perhaps more unforgivable sin: enriching himself and his inner circle through years of corruption. Paris anticorruption judges opened an investigation this month into criminal allegations that Mr. Salameh, one of the world’s longest-serving central bank chiefs, fraudulently amassed an outsize fortune in Europe by abusing his power. The judicial investigation follows a preliminary inquiry by the French National Financial Prosecutor’s Office.Prosecutors in Switzerland have asked Lebanese authorities for help with a separate investigation into suspected embezzlement and money laundering linked to Mr. Salameh and his associates.The allegations have caused a sensation in a country enduring a crisis that the World Bank said recently could rank in the top three worldwide over the last 150 years, a “brutal” economic contraction of a magnitude “usually associated with conflicts or wars.”Despite the meltdown, Mr. Salameh, the architect of Lebanon’s monetary policy since 1993, has faced no serious calls for his ouster, even though he oversaw a strategy that required ever more borrowing to pay existing creditors, what some critics have called the world’s largest Ponzi scheme.Riot police officers stood guard in front of the Lebanese central bank in March during a rally against power cuts after two power plants shut down.Wael Hamzeh/EPA, via ShutterstockWhat shields Mr. Salameh from scrutiny at home is his central role in Lebanon’s complex sectarian and often corrupt web of business and political interests. More than 20 interviews with Lebanese, Western and monetary officials, economists and former colleagues of Mr. Salameh’s paint a picture of a brilliant and shrewd yet secretive operator who built an empire inside the central bank and used it to make himself essential to rich and powerful players across Lebanon’s political spectrum.“He is no longer the head of the central bank. He is the accountant for this mafia,” said Jamil al-Sayyed, a member of Parliament and former head of Lebanon’s General Security agency, the body that oversees domestic security and issues identity cards and passports. “He protects them, and in protecting him, they protect themselves.”But the investigations in France and Switzerland pose new threats to his standing.The French judges are investigating a complaint by Sherpa, a French anticorruption group, that accuses Mr. Salameh, his brother Raja Salameh, other relatives and Marianne Hoayek, who heads the central bank’s executive office, of illicitly sweeping funds from Lebanon into Swiss banks and then laundering millions in France through high-end real estate purchases, including luxury property near the Eiffel Tower. The judges have broad powers, which include seeking cooperation from the Lebanese authorities and freezing assets if the origin of their funding appears illegal.Mr. Salameh’s lawyer in France, Pierre-Olivier Sur, said Mr. Salameh disputed the entirety of the allegations.Separately, the Swiss attorney general’s office is examining a web of bank accounts from Switzerland to Panama that it says Mr. Salameh and his brother may have used to shelter the “possible embezzlement” of central bank funds and to “carry out money laundering.”Swiss prosecutors say documents show that Mr. Salameh hired Forry Associates, a brokerage firm owned by his brother, to handle central bank sales of government bonds, and that from 2002 to 2015 the bank transferred at least $330 million in commissions to the firm’s Swiss account. Mr. Salameh has said that the contract was legal.Large sums in the Forry account were moved to Swiss accounts held by Mr. Salameh, and a portion of the money was ultimately used to buy millions of euros’ worth of real estate in France, Germany, Britain and Switzerland, Swiss prosecutors said.At Heaven’s Joy in Beirut, a center for the elderly and people in need. More than half of the country’s 6.7 million people may be living below the poverty line, the World Bank said.Diego Ibarra Sanchez for The New York TimesBeyond the real estate, Swiss prosecutors are looking into allegations that Raja Salameh transferred over $200 million from Forry’s Swiss account to his accounts in Lebanese banks with powerful political ties. Among them was Bankmed, owned by the family of Rafik Hariri, the former Lebanese prime minister who appointed Mr. Salameh as central bank chief, and whose son Saad Hariri is the country’s most prominent Sunni Muslim politician.Neither Mr. Salameh nor his brother or associates have been charged by Swiss or French prosecutors. It is unclear how long the investigations will take.Talk of self-dealing by Mr. Salameh has circulated for years. In the WikiLeaks diplomatic cables, a former U.S. ambassador to Lebanon, Jeffrey Feltman (now special envoy for the Horn of Africa), described Mr. Salameh in 2007 as having “whiffs of rumored corrupt behavior, a penchant for secrecy and extralegal autonomy at the Central Bank.”Mr. Salameh, 70, declined to be interviewed for this article, did not respond to written questions and has denied any wrongdoing. He has repeatedly said he accumulated a personal fortune of $23 million during a 20-year career as a banker at Merrill Lynch before being tapped to head the central bank. Raja Salameh could not be reached for comment.Riad Salameh told CNBC last year before the investigations were announced that he would not resign over Lebanon’s financial troubles because he had a “strategy to get out of this crisis.” He defended his record, saying he had kept Lebanon “afloat while it lived wars, assassinations, civil strife and so on.”“It is really unfair to judge Lebanon as if it was Sweden,” he said.But some Lebanese question how Mr. Salameh can remain at the helm of the central bank. Inflation has surged to 80 percent, overseas investors have left and more than half of the country’s 6.7 million people may be living below the poverty line, the World Bank said.“He is responsible for monetary policy, and it has failed dramatically,” said Henri Chaoul, a former adviser to Lebanon’s minister of finance who resigned last year. “Under what rules of law and governance is he still around?”Rafik Hariri, center, the former Lebanese prime minister who appointed Mr. Salameh as central bank chief.Jamal Saidi/ReutersA polished, canny political operator who is a Lebanese-French dual citizen, Mr. Salameh has been enmeshed in Lebanon’s politics since Rafik Hariri named him central bank governor in 1993. Mr. Salameh had been Mr. Hariri’s private banker at Merrill Lynch.Mr. Hariri was trying to rebuild Lebanon after a disastrous 15-year civil war, and Mr. Salameh set out to stabilize the currency and reel in foreign investment.Mr. Salameh fixed the Lebanese pound at about 1,500 to the dollar, a peg that would underpin the economy for more than 20 years but required a constant stream of dollars to stay sustainable.The system was fragile because it risked collapse if the money ran out. But every time Lebanon faced new crises, external help kept coming. The assassination of the elder Mr. Hariri in 2005 and a destructive war between the Lebanese militant group Hezbollah and Israel in 2006 brought inflows of international aid. Wealthy members of the Lebanese diaspora continually sent foreign currency home.Mr. Salameh’s supporters hailed him as a skilled savior for keeping the economy stable in a country where nothing else seemed to be. As governments came and went, running chronic budget deficits, Mr. Salameh held fast to the money reins.In Lebanon’s sect-based political system, the president must be a Maronite Christian, which Mr. Salameh is, and his reputation as a financial mastermind at one point made him a contender for the country’s highest office. He once told a businessman who asked about his economic plans, “Get me the presidency and I’ll tell you.”Mr. Salameh also used his post to do favors for power brokers in Lebanon’s political system, according to former central bank employees and foreign officials who spoke on the condition of anonymity. Sons of prominent officials got jobs at the central bank. Businessmen, politicians and journalists producing favorable coverage allegedly benefited handsomely from central bank-subsidized loans and other financial arrangements that most likely would have raised red flags with regulators in other countries.But after decades of relative stability, Mr. Salameh’s system began to unravel. By 2015, Lebanon’s ratio of debt to economic output — a measure of debt’s burden on a nation’s economy — was the third highest in the world, at 138 percent; when Mr. Salameh took office, it was 51 percent, ranking 97th. Next door, a civil war was raging in Syria, raising fears of instability.Protesters last month in Beirut took to the streets, angered by deteriorating living conditions and government inaction.Bilal Hussein/Associated PressCommercial banks, saddled with risky Lebanese sovereign bonds, had been required to keep 15 percent of foreign currency deposits in the central bank to shore up its reserves, and Mr. Salameh attracted further deposits with even higher interest rates.Interest rates on dollar deposits at commercial banks also rose, in some cases to 20 percent or higher, to attract dollars in what some analysts describe as a Ponzi scheme, in which new money was always needed to pay creditors.In late 2019, the system came crashing down. Banks imposed limits on withdrawals and the central bank began dipping into its reserves, which included large amounts of depositors’ money, to maintain the currency’s peg to the dollar. Antigovernment protesters set fire to A.T.M.s, and banks locked their doors.“As long as the system was working, no one cared,” said Dan Azzi, a former Lebanese banker. “Now that it has failed, everyone is angry.”The government’s default on a $1.2 billion bond payment in March 2020 underscored the collapse. “Our debt has become greater than Lebanon can bear,” Prime Minister Hassan Diab said in a televised speech.The coronavirus pandemic and a huge explosion in the port of Beirut last August further devastated the economy.Estimates put the central bank’s losses at $50 billion to $60 billion. The International Monetary Fund has offered assistance, but Lebanese officials accuse Mr. Salameh of blocking an audit sought by the United States and other countries that would unlock I.M.F. aid, as well as a separate investigation into alleged fraud at the central bank.Most Lebanese have said goodbye to whatever savings they had while the currency has crashed, reducing salaries once worth $1,000 a month to about $80. The central bank is burning through its reserves, spending about $500 million per month to subsidize imports of fuel, medicine and grain.“Lebanon has been living on borrowed time, and now the chickens have come home to roost,” said Toufic Gaspard, a Lebanese economist and former adviser at the I.M.F. “The whole banking system has collapsed, and we have become a cash economy.”The crash has soured many Lebanese on their once celebrated central banker.“I can’t say anything good about Riad Salameh,” said Toufic Khoueiri, a co-owner of a popular kebab restaurant, while having lunch with a friend in Beirut. “Our money is not stuck in the banks, but simply stolen.”His friend, Roger Tanios, a lawyer, said he had once admired Mr. Salameh for keeping Lebanon financially stable but had changed his mind.Mr. Salameh, he said, had gone spectacularly off course.“Every country has its mafia,” Mr. Tanios said. “In Lebanon, the mafia has its country.”Ben Hubbard reported from Beirut, and Liz Alderman from Paris. 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    Yellen Says China Trade Deal Has ‘Hurt American Consumers’

    The Treasury secretary said an agreement made by the Trump administration, which remains under review, had failed to address fundamental problems between the two countries.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, 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 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 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 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.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 the 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 MadeThe 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 Motor 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 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 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 ApproachThe 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 an 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.Katherine Tai, the U.S. trade representative, has said little so far about the Phase 1 agreement, preferring to emphasize that the administration is still developing its policy toward China.Pete Marovich for The New York TimesThe 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 had held a virtual call with Liu He, China’s vice premier. They discussed the economic recovery and 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 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 the Biden administration’s review of the China trade policy was taking so long most likely because the Trump administration had 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.”Alan Rappeport reported from Washington, and Keith Bradsher from Beijing. More

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    China reports strong export numbers despite shipping delays.

    BEIJING — China has prospered during much of the coronavirus pandemic as the world’s factory, making everything from face masks to exercise equipment for housebound consumers. Demand for its products doesn’t appear to be slowing even as Western economies reopen.China’s General Administration of Customs announced on Tuesday that the country’s exports surged 32.2 percent in June compared with the same month last year. The increase caught many economists by surprise, as one of China’s biggest ports was partially closed for most of June and China’s exports of medical supplies have begun to level off.China’s export performance in June “is quite impressive and not so easy to understand,” said Louis Kuijs, the head of Asia economics in the Hong Kong office of Oxford Economics.Mr. Kuijs said that a little more than a third of the increase in value of Chinese exports might reflect rising prices. Chinese factories are passing on their own higher costs to foreign consumers.Chinese manufacturers face escalating costs these days because prices have increased worldwide over the past year for commodities like iron ore and copper and for industrial materials like steel.China’s currency, the renminbi, has also strengthened against the dollar. So Chinese producers need to charge more dollars to pay the same wages and other costs denominated in renminbi.By raising prices for foreign buyers, Chinese factories can preserve their profit margins — at the risk of contributing to inflation elsewhere.Port and shipping delays are driving the price tags for Chinese goods even higher in foreign markets. The cost of shipping a 40-foot cargo container across the Pacific has ballooned from the usual $4,000 to $5,000 to a record $18,000 or more.Part of the problem lies in China’s drastic actions to prevent new coronavirus variants from spreading. These measures have included forcing port workers into lengthy lockdowns at the first sign of outbreaks.China’s policies have been effective in keeping virus cases to a minimum, but at some economic cost.One of the world’s largest ports, Yantian Port in the southeastern Chinese city of Shenzhen, partially shut down for more than a month from late May through much of June. Shenzhen acted in response to fewer than two dozen coronavirus cases.When the port fully reopened on June 24, shipping executives and freight forwarders hoped that trade would start returning to normal.It has not worked out that way.Dozens of huge container ships fell far behind schedule when they had to wait weeks to dock in Shenzhen. That meant ships later showed up in bunches at ports in other countries, causing further congestion. Chinese export factories also sent goods by truck to alternative ports, like Shanghai’s, leaving them overcrowded as well.Zhao Chongjiu, China’s deputy minister of transport, defended his country’s tough coronavirus measures. “Everyone knows that during an epidemic, workers in ports must be placed under lockdown, and various countries have taken corresponding measures, so the efficiency of loading and unloading would be reduced,” he said when Yantian reopened.By mid-June, the freight yard was so crammed with containers at Shanghai’s vast, highly automated Yangshan Deep Water Port that the stacking cranes barely had room to lift containers on and off ships. Dong Haitao, a senior administrator at the adjacent free trade zone, blamed foreign ports for failing to handle arriving containers on time.“Their schedule of shipments has been disrupted, but not ours,” he said.Shipping rates for containers have continued to rise steeply in the weeks since Yantian Port reopened. The increase is widely expected to keep going as stores in the United States in particular race to restock shelves for returning shoppers and also start preparing for the Christmas shopping season.“Each week these rates go up another few hundred dollars,” said Simon Heaney, the senior manager for container shipping research at Drewry Maritime Research in London. “Nobody seems to have any answers, and the only thing we can hope for is Chinese New Year — and that’s obviously a long way off.”Factories in China typically close for several weeks during the Lunar New Year celebration, which could give the world’s ships time to catch up. But next year’s holiday does not start until the end of January.Liu Yi More

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    The Bond Market Is Telling Us to Worry About Growth, Not Inflation

    The economy remains hot, but the future is looking less buoyant than it did just a short while ago.Steam rising from a grate in New York’s financial district on Thursday morning. Swings in the bond market this week pointed to more subdued expectations about inflation.Mark Lennihan/Associated PressFor months, the United States has been experiencing the growing pains of an economy rebooting itself — surging economic activity, yes, but also shortages, gummed-up supply networks and higher prices.Now, shifts in financial markets point to a reversal of that economic narrative. Specifically, the bond market has swung in ways that suggest that a period of slower growth and more subdued inflation could lie ahead.The yield on 10-year Treasury bonds fell to 1.29 percent on Thursday, down from a recent high of 1.75 percent at the end of March and the fourth straight trading day of decline. The closing price of inflation-protected bonds implied expectations of consumer price inflation at 2.25 percent a year over the coming decade, down from 2.54 percent in early May.These are hardly panic-worthy numbers. They are not the kind of jaw-dropping swings that markets show in moments of extreme turbulence, and analysts attribute the moves in significant part to technical factors as big investors shift their portfolios.Moreover, there is a reasonable argument that the economy will be better over the medium term if it experiences moderate growth and low inflation, as opposed to the kind of breakneck growth — paired with shortages and inflation — seen in the last few months.But the price swings do show an economy in flux, and they undermine arguments that the United States is settling into a new, high-inflation reality for the indefinite future.In effect, the bet in markets on explosive growth and resulting inflation is giving way to a more mixed story. The economy remains hot at the moment; the quarter that just ended will most likely turn out to be one of the strongest for growth in history. But market prices aim to reflect the future, not the present, and the future is looking less buoyant than it did not long ago.The peak months for injection of federal stimulus dollars into the economy have passed. The legislative outlook for major federal initiatives on infrastructure and family support has become murkier. The rapid spread of the Delta variant of Covid-19 has brought new concern for the global economic outlook, especially in places with low vaccination rates. That, in turn, could both hold back demand for American exports and cause continued supply problems that result in slower growth in the United States.“The overriding concern being reflected in the bond market is that peak growth has been reached, and the benefits from fiscal policy are starting to fade,” said Sophie Griffiths, a market analyst with the foreign exchange brokerage Oanda, in a research note.The evidence of a more measured growth path was evident, for example, in a report from the Institute for Supply Management this week. It showed the service sector was continuing to expand rapidly in June, but considerably less rapidly than it had in May. Anecdotes included in the report supported the idea that supply problems were holding back the pace of expansion.“Business conditions continue to rebound; however, like everywhere, the challenges in the supply chain are numerous,” reported one anonymous retailer that participated in the I.S.M. survey. “We continue to see cost increases, delayed shipments, pushed-out lead times, and no clarity as to when predictive balance returns to this market.”The bond market shifts could leave the Federal Reserve wrong-footed in contemplating plans to unwind its efforts to support the economy. At a policy meeting three weeks ago, some Fed officials were ready to proceed with tapering bond purchases in the near future, and some expected to raise interest rates next year, in contrast with a more patient approach that Jerome Powell, the Fed chairman, has advocated.In one of the odder paradoxes of monetary policy, what was perceived in markets as greater openness at the Fed to raising interest rates has contributed to declines in long-term interest rates. Global investors are betting that potential pre-emptive monetary tightening will cause a stronger dollar, slower growth and less ability for the Fed to raise rates in the future without tanking the economy.“The market read the views of the minority within the Fed about tapering and about raising rates as signals the Fed has blinked on its decision to allow the economy to run hot,” said Steven Ricchiuto, chief U.S. economist at Mizuho Securities. “A weaker global economy and stronger U.S. dollar all imply greater potential for us to import global deflation.”There are silver linings to the reassessment taking place in markets. Lower long-term rates make borrowing cheaper for Americans — whether that is Congress and the Biden administration considering how to pay for infrastructure plans, or home buyers trying to afford a house.And the adjustment in bond prices can give Fed officials more confidence that inflation is set to be consistent with their goals in the years ahead, even as businesses face supply shortages and spiking wages at the moment.For example, bond prices now imply that inflation will be 2.1 percent per year between five and 10 years from now, down from expectations of 2.4 percent in early May. The Fed aims for 2 percent inflation (though targeting a different inflation measure from the one that is used in the value of inflation-protected bonds).That could make it less likely the Fed acts prematurely out of fear that inflation will get out of control, recent communication problems notwithstanding.Markets aren’t all-knowing, and the signals being sent by bond prices could turn out to be wrong. But investors with, collectively, trillions of dollars on the line are betting that the rip-roaring economy of summer 2021 is going to give way to something a good bit less exciting. More

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    High Lumber Prices Add Urgency to a Decades-Old Trade Fight

    WASHINGTON — A trade dispute over Canadian lumber that began when Ronald Reagan was president has become a political problem for President Biden, with home builders and members of Congress urging the administration to try to strike a deal that could help bring down the cost of critical building materials.Lumber prices remain far above prepandemic levels, even after falling sharply in recent weeks, an increase driven in part by strong housing demand and an abundance of home improvement projects during the pandemic. The higher-than-normal prices are among a wide range of supply chain complications that have cropped up as the economy picks up steam.But unlike other commodities that have been in short supply, lumber is also the subject of a long-running trade dispute between the United States and Canada, adding a layer of diplomatic intrigue to the scramble for in-demand building materials. The two countries are locked in a thorny disagreement over softwood lumber, which is widely used to build single-family homes.In the latest chapter of the dispute, the Trump administration in 2017 imposed duties on Canadian softwood lumber imports in response to what it deemed unfair trade practices. Now, with lumber prices driving up the cost of new home construction, the Biden administration is facing pressure to seek a resolution to the long-running spat.“If you look at the structure of home building — a lot of wood there,” said Representative Brian Higgins, Democrat of New York, whose Buffalo-area district borders Canada. “So the cost of softwood lumber is going to profoundly influence the cost that is inevitably passed on to the consumer.”The National Association of Home Builders, an influential trade group, has been particularly vocal about the issue, and numerous lawmakers have taken an interest as well. Last month, a bipartisan group of nearly 100 House members, led by Mr. Higgins and Representative Kevin Hern, Republican of Oklahoma, wrote to Katherine Tai, the United States trade representative, urging her to seek a deal with Canada.But signs of diplomatic progress have been scarce, and Canadian lumber producers may soon face higher duties. The Commerce Department said last month that it tentatively planned to double the duties later this year, to 18.3 percent from 9 percent for most producers.The move was cheered by the American lumber industry, but it drew criticism from U.S. home builders along with the Canadian government and the country’s lumber industry. Chuck Fowke, a custom home builder in Florida and the chairman of the National Association of Home Builders, said the planned increase “shows the White House does not care about the plight of American home buyers and renters.”Commerce Secretary Gina Raimondo, who met with the home builders group last month, said afterward that she would seek to “identify targeted actions the government or industry can take to address supply chain constraints.”Finding a resolution to the trade dispute is unlikely to be a simple undertaking for the Biden administration. “There’s really nothing that the administration can do quickly,” said Scott Lincicome, a senior fellow at the libertarian Cato Institute, who criticized the lumber duties and the system that allows domestic industries to seek them.The United States and Canada have been at odds over lumber since the 1980s. The saga has gone on for so long that lumber disputes over the years are commonly referred to with Roman numerals, akin to the Super Bowl. The current dispute is called Lumber V; Lumber IV took place during the George W. Bush administration.The friction between the United States and Canada over softwood lumber stems in large part from the differences in how timber is harvested in the two countries. While most timberland in the United States is privately owned, most of Canada’s forestland is publicly owned, and companies pay fees set by provincial governments to harvest timber from their land.A lumberyard in Victoria, British Columbia. Canadian lumber producers may soon face higher duties. James MacDonald/BloombergA sawmill in Chemainus, British Columbia. The U.S. Commerce Department said it tentatively planned to double the duties this year to 18.3 percent for most Canadian producers.James MacDonald/BloombergAmerican lumber producers contend that the fees are artificially low and amount to an unfair government subsidy. The United States and Canada have reached a series of agreements over the years regarding lumber imports into the United States, but the most recent deal expired in 2015.“The core problem, and partly why you can never resolve this, comes down to structure,” said Eric Miller, a former Canadian official and the president of the Rideau Potomac Strategy Group, a consultancy.In 2016, toward the end of the Obama administration, the American lumber industry petitioned the government to impose duties on Canadian softwood lumber imports in response to what it contended were unfair trade practices. The proceedings continued under the Trump administration, which in 2017 imposed duties of 20.2 percent for most Canadian producers. The rate was lowered to 9 percent last year.The status of the long-running dispute took on a new urgency as the price of lumber soared over the past year. The National Association of Home Builders estimated in April that higher lumber costs had added nearly $36,000 to the price of an average newly constructed single-family home. A benchmark for the price of framing lumber set a record high of $1,515 per thousand board feet in May, four times the price at the beginning of 2020, before beginning to plummet. Last week, the price stood at $930, still more than double its level at the start of 2020, according to Fastmarkets Random Lengths, the trade publication that publishes the benchmark.“As an economist, it is very hard to understand why we’re taxing something we don’t produce enough of,” said Robert Dietz, the chief economist for the National Association of Home Builders.On the other side of the issue are U.S. lumber producers. The U.S. Lumber Coalition, an industry group, has argued that strong demand, not duties, is driving lumber prices and that the duties make up only a small portion of the total cost of lumber for new homes.The coalition credits the duties with strengthening the U.S. lumber industry, saying in a statement that American sawmills had expanded capacity in recent years, producing an additional 11 billion board feet of lumber since 2016. “More lumber being manufactured in America to meet domestic demand is a direct result of the trade enforcement, and the U.S. industry strongly urges the administration to continue this enforcement,” the coalition said.Dustin Jalbert, a senior economist at Fastmarkets, a price reporting firm, attributed the chaotic lumber market and high prices in large part to effects from the pandemic. At the start of the pandemic, he said, sawmills “assumed the worst” and curbed production, only for the housing market to rebound and for demand to soar.Mr. Jalbert said the duties stemming from the U.S.-Canada dispute were not a major reason for the high prices. “In terms of the short-term pricing situation, it’s lower down the list in terms of the factors that are driving the record prices that we’ve seen in the market,” he said.Mr. Dietz of the home builders association acknowledged in an interview last month that “you could suspend the lumber tariff and you’re still not going to cool off this market,” adding, “A lot of the driving forces are on the demand side.”The National Association of Home Builders, a trade group, estimated in April that higher lumber costs had added nearly $36,000 to the price of an average newly constructed single-family home.Wes Frazer for The New York TimesThe status of the long-running dispute took on a new urgency as the price of lumber soared over the past year.Wes Frazer for The New York TimesBut he argued that getting rid of the duties would still be a useful step. “This is not a moment where we need to be saying: ‘Well, that’s going to help, but it’s not going to solve the problem. Therefore, it’s not a solution,’” he said.Even if the lumber duties are playing only a modest role in the current market conditions, the issue has still grabbed the attention of lawmakers. Ms. Tai and Ms. Raimondo both faced questions about lumber during hearings on Capitol Hill this spring.“The home builders, the Realtors, everybody in my state is talking about the cost of lumber,” Senator John Thune of South Dakota, the No. 2 Senate Republican, told Ms. Tai last month.Ms. Tai seemed to fault Canada for the stalemate. “In order to have an agreement and in order to have a negotiation, you need to have a partner,” she told Mr. Thune. “And thus far, the Canadians have not expressed interest in engaging.”Adam Hodge, a spokesman for Ms. Tai, said the United States was “open to resolving our differences” with Canada over softwood lumber. But, he added, “That would require addressing Canadian policies that create an uneven playing field for the U.S. industry, and to date, Canada has been unwilling to adequately address these concerns.”A spokeswoman for Mary Ng, the Canadian international trade minister, offered a different take on the Canadians’ interest in engaging on the issue.“Minister Ng has raised the United States’ unfair and unwarranted duties on softwood lumber at every opportunity, including directly with the president, with Secretary Raimondo and with Ambassador Tai, and we welcome discussions,” the spokeswoman, Alice Hansen, said. Prime Minister Justin Trudeau also raised the matter with Mr. Biden on the sidelines of the Group of 7 summit in Britain this month, Ms. Hansen said.At a recent parliamentary hearing, Ms. Ng described the duties as “a tax on the American people” that makes housing more expensive for them.“We do believe that a negotiated settlement would be in the best interest of both countries,” she said. “But in the meantime, we must defend against these unwarranted tariffs, which we will continue to do.” More

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    Ambassador Tai Outlined Biden’s Goal of Worker-Focused Trade Policy

    The U.S. trade representative called for stronger worker protections in trade policy as the administration looks to curb the negative impact of globalization.Katherine Tai, the United States trade representative, emphasized in a speech on Thursday that America is focused on protecting workers through trade policy and that it would try to push trading partners to lift wages, allow collective bargaining and end forced labor practices.The speech, Ms. Tai’s first significant policy address, highlighted the Biden administration’s goal of re-empowering workers and minimizing the negative effects of globalization, which has encouraged companies to move jobs and factories offshore in search of cheaper labor and materials.Less clear is how the administration will, in practice, accomplish those goals.“For a very long time, our trade policies have been shaped by folks who are used to looking at the macro picture — big economic sectors,” Ms. Tai said in an interview ahead of the speech, which she delivered at an A.F.L.-C.I.O. town hall. “We’ve lost sight of the impact of these policies, the really real and direct impact they can have on regular people’s lives, and on our workers’ livelihoods.”Ms. Tai, who spoke from prepared remarks, portrayed the administration’s push as trying to correct for decades of trade policy that put company profits ahead of workers and helped erode worker power in the United States.“A worker-centered trade policy means addressing the damage that U.S. workers and industries have sustained from competing with trading partners that do not allow workers to exercise their internationally recognized labor rights,” she said. “This includes standing up against worker abuse and promoting and supporting those rights that move us toward dignified work and shared prosperity: the right to organize and to collectively bargain.”Ms. Tai emphasized that the United States is already enforcing worker protections in the new North American trade agreement and trying to curb forced labor in the fishing industry at the World Trade Organization.On Wednesday, the Biden administration made its second request in a month for Mexico to review whether workers at two separate auto facilities were being denied the collective bargaining rights that were agreed to under the terms of the United States-Mexico-Canada Agreement.“These enforcement actions matter,” Ms. Tai said in her speech, noting the aim is to “protect the rights of workers, particularly those in low-wage industries who are vulnerable to exploitation.”Last month, the administration submitted a proposal to the World Trade Organization aimed at curbing “harmful subsidies to fishing activities that may be associated with the use of forced labor, such as illegal, unreported, and unregulated fishing.”Still, it remains to be seen how — or whether — the United States will effectively push for stronger labor standards outside of North America. Ms. Tai’s speech did not say directly how the administration would try and encourage some of its biggest trading partners, like China, to adjust trade practices.Asked what the plans are for other continents, Ms. Tai said, “In every direction that we have opportunities to formulate trade policies, we see opportunities to bring this worker-centered spirit to our work.”When it comes to China, she suggested that the goal was to work with other countries that have economic structures similar to the United States’, pairing with allies to “put ourselves on stronger competitive footing, to compete for the industries of the future.” More

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    U.S. asks Mexico to review a second complaint about labor violations in its auto industry.

    The Biden administration is invoking provisions in a new trade agreement to ask Mexico to look into accusations of labor violations at an auto-parts plant near the U.S. border.The action, announced Wednesday by the Labor Department and the Office of the United States Trade Representative, follows a complaint by groups including the A.F.L.-C.I.O., the nation’s largest federation of unions, that workers were being denied the rights of free association and collective bargaining.The A.F.L.-C.I.O. said workers at the Tridonex plant in Matamoros, across the border from Brownsville, Texas, had been harassed and fired over their efforts to organize with an independent union in place of one controlled by the company. Tridonex is owned by Cardone Industries, an aftermarket auto-parts manufacturer based in Philadelphia.It is the second time that the United States has sought Mexican review of a labor rights matter under the United States-Mexico-Canada Agreement, which took effect last summer. The accord has a “rapid response” mechanism that provides for complaints to be brought against and for penalties to be applied to an individual factory.“This announcement demonstrates our commitment to using the tools in the agreement to stand up for workers at home and abroad,” Katherine Tai, the U.S. trade representative, said in a statement, noting that Mexico has 10 days to agree to conduct a review and, if it agrees, 45 days to remedy the situation.Last month the United States asked Mexico to review whether labor violations had occurred at a General Motors plant in the central state of Guanajuato in connection with a recent vote on a collective bargaining agreement. Mexico agreed to the request the same day. More

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    U.S. and Europe Look for Tariff Cease-Fire as Biden Heads Overseas

    The Biden administration is trying to ease trade tension with allies, in part to help counter China.WASHINGTON — The United States and the European Union are working toward an agreement that would settle long-running disputes over aircraft subsidies and metals tariffs that set off a trade war during the Trump administration as President Biden looks to re-engage with traditional American allies.The two sides are hoping to reach an agreement by mid-July with a goal of lifting tariffs that both governments have placed on each other’s goods by Dec. 1, according to a joint statement that is being drafted before the U.S.-E.U. summit that Mr. Biden will attend in Brussels next week.Resolving trade tensions with Europe and other allies is a key goal of the Biden administration, which is trying to repair relationships that fractured under President Donald J. Trump, whose provocative approach to trade policy included punishing tariffs. Mr. Biden and other administration officials have said they want to rebuild those relationships, in part so that the United States can work with allies to counter China and Russia.The joint statement suggested an eagerness on both sides of the Atlantic to end a trade fight that has resulted in tariffs on a wide range of goods — including American peanut butter, orange juice and whiskey as well as levies on European wine and cheese.“We commit to make every effort possible to find comprehensive and durable solutions to our trade disputes and to avoid further retaliatory measures burdening trans-Atlantic trade,” the document said.The draft was reported earlier by Bloomberg News.The desire to reach an agreement came as Mr. Biden departed on Wednesday for a summit meeting in Britain with the leaders of the Group of 7 nations, his first international trip as president.As he boarded Air Force One, he indicated that his priority was to mend relations with his counterparts.“Strengthening the alliance and make it clear to Putin and to China that Europe and the United States are tight, and the G7 is going to move,” Mr. Biden said of his goals for the trip.Discussions about easing tariffs come at a critical time for the global economy as countries emerge from the pandemic. Widespread shortages of commodities because of supply chain bottlenecks and growing consumer demand have been pushing up prices and causing concern among policymakers.In March, the United States and European Union agreed to temporarily suspend tariffs on billions of dollars of each other’s aircraft, wine, food and other products as both sides try to find a negotiated settlement to a dispute over the two leading airplane manufacturers.The World Trade Organization had authorized both the United States and Europe to impose tariffs on each other as part of two parallel disputes, which began almost two decades ago, over subsidies the governments have given to Airbus and Boeing. The European Union had imposed tariffs on about $4 billion of American products, while the United States levied tariffs on $7.5 billion of European goods.The two governments are also trying to resolve a fight over the steel and aluminum tariffs that Mr. Trump imposed in 2018. The 25 percent tariffs on imports of European steel and 10 percent on aluminum spurred retaliation from Europe, which imposed similar duties on American products like bourbon, orange juice, jeans and motorcycles.The negotiations come as the United States is broadly reviewing its trade policy with a new focus on multilateralism.Last week, the Biden administration suspended retaliatory tariffs on European countries in response to digital services taxes that they have imposed as negotiations over a broader tax agreement play out.As part of the effort to deepen ties, the United States and European Union plan to establish a trade and technology council to help expand investment and prevent new disputes from emerging. It will also focus on strengthening supply chains for critical technology such as semiconductors, which have been in short supply in the last year.The alliance represents another tool the administration intends to use to push back against China’s growing economic influence, which Mr. Biden has repeatedly referred to as a threat to the United States. While the president has so far steered clear of hitting China with new tariffs, he has yet to remove the levies Mr. Trump imposed on $360 billion worth of Chinese goods. Last week, the administration barred Americans from investing in Chinese companies linked to the country’s military or engaged in selling surveillance technology used to repress dissent or religious minorities.The draft document says, “We intend to closely consult and cooperate on the full range of issues in the framework of our respective similar multifaceted approaches to China.”The U.S.-E.U. summit will take place next Tuesday.Matina Stevis-Gridneff More