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    Biden to Restrict Investments in China, Citing National Security Threats

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    The measure to clamp down on investments in certain industries deemed to pose security risks, set to be issued Wednesday, appears likely to open a new front in the U.S.-China economic conflict.The Biden administration plans on Wednesday to issue new restrictions on American investments in certain advanced industries in China, according to people familiar with the deliberations, a move that supporters have described as necessary to protect national security but that will undoubtedly rankle Beijing.The measure would be one of the first significant steps the United States has taken amid an economic clash with China to clamp down on outgoing financial flows. It could set the stage for more restrictions on investments between the two countries in the years to come.The restrictions would bar private equity and venture capital firms from making investments in certain high-tech sectors, like quantum computing, artificial intelligence and advanced semiconductors, the people said, in a bid to stop the transfer of American dollars and expertise to China.It would also require firms making investments in a broader range of Chinese industries to report that activity, giving the government better visibility into financial exchanges between the United States and China.The White House declined to comment. But Biden officials have emphasized that outright restrictions on investment would narrowly target a few sectors that could aid the Chinese military or surveillance state as they seek to combat security threats but not disrupt legitimate business with China.“There is mounting evidence that U.S. capital is being used to advance Chinese military capabilities and that the U.S. lacks a sufficient means of combating this activity,” said Emily Benson, the director of project on trade and technology at the Center for Strategic and International Studies, a Washington think tank.The Biden administration has recently sought to calm relations with China, dispatching Treasury Secretary Janet L. Yellen and other top officials to talk with Chinese counterparts. In recent speeches, Biden officials have argued that targeted actions taken against China are aimed purely at protecting U.S. national security, not at damaging the Chinese economy.At the same time, the Biden administration has continued to push to “de-risk” critical supply chains by developing suppliers outside China, and it has steadily ramped up its restrictions on selling certain technologies to China, including semiconductors for advanced computing.The Chinese government has long restricted certain foreign investments by individuals and firms. Other governments, such as those of Taiwan and South Korea, also have restrictions on outgoing investments.But beyond screening Chinese investment into the United States for security risks, the U.S. government has left financial flows between the world’s two largest economies largely untouched. Just a few years ago, American policymakers were working to open up Chinese financial markets for U.S. firms.In the past few years, investments between the United States and China have fallen sharply as the countries severed other economic ties. But venture capital and private equity firms have continued to seek out lucrative opportunities for partnerships, as a way to gain access to China’s vibrant tech industry.The planned measure has already faced criticism from some congressional Republicans and others who say it has taken too long and does not go far enough to limit U.S. funding of Chinese technology. In July, a House committee on China sent letters to four U.S. venture capital firms expressing “serious concern” about their investments in Chinese companies in areas including artificial intelligence and semiconductors.Others have argued that the restriction would mainly put the U.S. economy at a disadvantage, because other countries continue to forge technology partnerships with China, and China has no shortage of capital.Nicholas R. Lardy, a nonresident senior fellow at the Peterson Institute for International Economics, said the United States was the source of less than 5 percent of China’s inbound direct investment in 2021 and 2022.“Unless other major investors in China adopt similar restrictions, I think this is a waste of time,” Mr. Lardy said. “Pushing this policy now simply plays into the hands of those in Beijing who believe that the U.S. seeks to contain China and are not interested in renewed dialogue or a ‘thaw.’”Biden officials have talked with allies in recent months to explain the measure and encourage other governments to adopt similar restrictions, including at the Group of 7 meetings in Japan in May. Since then, Ursula von der Leyen, the president of the European Commission, has urged the European Union to introduce its own measure.The administration is expected to give businesses and other organizations a chance to comment on the new rules before they are finalized in the months to come.Claire Chu, a senior China analyst at Janes, a defense intelligence company, said that communicating and enforcing the measure would be difficult, and that officials would need to engage closely with Silicon Valley and Wall Street.“For a long time, the U.S. national security community has been reticent to recognize the international financial system as a potential warfighting domain,” she said. “And the business community has pushed back against what it considers to be the politicization of private markets. And so this is not only an interagency effort, but an exercise in intersectoral coordination.” More

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    House Committee Targets U.C. Berkeley Program for China Ties

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    A House select committee is requesting more information about a university collaboration that it said could help China gain access to cutting-edge research.A congressional committee focused on national security threats from China said it had “grave concerns” about a research partnership between the University of California, Berkeley, and several Chinese entities, claiming that the collaboration’s advanced research could help the Chinese government gain an economic, technological or military advantage.In a letter sent last week to Berkeley’s president and chancellor, the House Select Committee on the Chinese Communist Party requested extensive information about the Tsinghua-Berkeley Shenzhen Institute, a collaboration set up in 2014 with China’s prestigious Tsinghua University and the Chinese city of Shenzhen.The letter pointed to the institute’s research into certain “dual-use technologies” that are employed by both civilian and military institutions, like advanced semiconductors and imaging technology used for mapping terrain or driving autonomous cars.The committee also questioned whether Berkeley had properly disclosed Chinese funding for the institute, and cited its collaborations with Chinese universities and companies that have been the subjects of sanctions by the United States in recent years, like the National University of Defense Technology, the telecom firm Huawei and the Chinese drone maker DJI.It also said that Berkeley faculty serving at the institute had received funding from the Defense Advanced Research Projects Agency and other U.S. funding for the development of military applications, raising concerns about Chinese access to those experts.In April, for example, a team from a Shenzhen-based lab that describes itself as being supported by the Tsinghua-Berkeley Shenzhen Institute said it had won a contest in China to optimize a type of advanced chip technology that the U.S. government is now trying to prevent Chinese companies from acquiring, the letter said.It is not clear what role the university had in that project, or if the partnership, or the institute’s other activities, would violate U.S. restrictions on China’s access to technology. In October, the United States set significant limits on the type of advanced semiconductor technology that could be shared with Chinese entities, saying that the activity posed a national security threat.“Berkeley’s P.R.C.-backed collaboration with Tsinghua University raises many red flags,” the letter said, referring to the People’s Republic of China. It was signed by Representative Mike Gallagher, a Wisconsin Republican who chairs the committee, and Representative Virginia Foxx, a Republican of North Carolina who is the committee chair on education and the work force.In a statement to The New York Times, U.C. Berkeley said it takes concerns about national security “very seriously” and was committed to comprehensive compliance with laws governing international academic engagement. “The campus is reviewing past agreements and actions involving or connected to Tsinghua-Berkeley Shenzhen Institute” and would “fully and transparently cooperate with any federal inquiries,” it said.The university also said it had responded to inquiries from the Department of Education with detailed information about gifts and contracts related to the institute, that it was committed to full compliance with laws governing such arrangements, and that it “follows the lead of Congress and federal regulators when evaluating proposed research relationships with foreign entities.”Universities have also emphasized that foreign governments might have little to gain from infiltrating such partnerships, since academic researchers are focused on fundamental research that, while potentially valuable, is promptly published in academic journals for all to see.“As a matter of principle, Berkeley conducts research that is openly published for the entire global scientific community,” the university said in its statement.The letter, and other accusations from members of Congress about U.S. universities with partners in China, underscores how a rapid evolution in U.S.-China relations is putting new pressure on academic partnerships that were set up to share information and break down barriers between the countries.The Chinese government has sought to improve the country’s technological capacity through legitimate commercial partnerships, but also espionage, cybertheft and coercion. Those efforts — along with a program to meld military and civilian innovation — has led to a backlash in the United States against ties with Chinese academic institutions and private companies that might have seemed relatively innocuous a decade ago.The select committee, which was set up earlier this year, describes its mission as building consensus on the threat posed by the Chinese Communist Party and developing a plan to defend the United States. The bipartisan committee, which is led by Republicans, can provide legislative recommendations but cannot legislate on its own. It has been busily naming and shaming major companies and others over ties to China in congressional hearings, investigations and letters.Tensions between the United States and China are high, and some lawmakers have called for decoupling the two economies. But severing academic ties is a tricky prospect. American universities are geared toward open and collaborative research and count many Chinese scholars among their work force. China’s significant technology industry and huge population of science and technology doctorates make it a natural magnet for many research collaborations.Still, the rapid expansion of export controls in the United States is putting more restrictions on the type of information and data related to advanced technologies that can be legally shared with individuals and organizations in China. Under the new rules, even carrying a laptop to China with certain chip designs on it, or giving a Chinese national a tour of an advanced U.S. chip lab, can violate the law.The House committee has requested that the university provide extensive documents and information by July 27 about the partnership, including its funding, structure and technological work, its alumni’s current and past affiliations, and its compliance with U.S. export controls. More

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    Chips Make It Tough for the U.S. to Quit China

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    Chipmakers are finding it increasingly hard to operate in China but say doing business in the country is still key to their survival.In May, Micron Technologies, the Idaho chipmaker, suffered a serious blow as part of the U.S.-China technology war. The Chinese government barred companies that handle crucial information from buying Micron’s chips, saying the company had failed a cybersecurity review.Micron said the change could destroy roughly an eighth of its global revenue. Yet in June, the chipmaker announced that it would increase its investments in China — adding $600 million to expand a chip packaging facility in the Chinese city of Xian.“This investment project demonstrates Micron’s unwavering commitment to its China business and team,” an announcement posted on the company’s Chinese social media account said.Global semiconductor companies are finding themselves in an extremely tricky position as they try to straddle a growing rift between the United States and China. The semiconductor industry has become ground zero for the technology rivalry between Washington and Beijing, with new restrictions and punitive measures imposed by both sides.U.S. officials say American products have fed into Chinese military and surveillance programs that run counter to the national security interest of the United States. They have imposed increasingly tough restrictions on the kind of chips and chip-making equipment that can be sent to China, and are offering new incentives, including grants and tax credits, for chipmakers who choose to build new operations in the United States.But factories can take years to construct, and corporate ties between the countries remain strong. China is a major market for chips, since it is home to many factories that make chip-rich products, including smartphones, dishwashers, cars and computers, that are both exported around the world and purchased by consumers in China.Overall, China accounts for roughly a third of global semiconductor sales. But for some chipmakers, the country accounts for 60 percent or 70 percent of their revenue. Even when chips are manufactured in the United States, they are often sent to China for assembly and testing.“We can’t just flip a switch and say all of sudden you have to take everything out of China,” said Emily S. Weinstein, a research fellow at Georgetown’s Center for Security and Emerging Technology.The industry’s reliance on China highlights how a close — but extremely contentious — economic relationship between Washington and Beijing is posing challenges for both sides.Those tensions were reflected during Treasury Secretary Janet L. Yellen’s visit to Beijing this week, where she tried to walk a fine line by faulting some of China’s practices while insisting the United States was not looking to sever ties with the country.Ms. Yellen criticized punitive measures China has recently taken against foreign firms, including limiting the export of some minerals used in chip making, and suggested that such actions were why the Biden administration was trying to make U.S. manufacturers less reliant on China. But she also affirmed the U.S.-China relationship as strategic and important.“I have made clear that the United States does not seek a wholesale separation of our economies,” Ms. Yellen said during a roundtable with U.S. companies operating in China. “We seek to diversify, not to decouple. A decoupling of the world’s two largest economies would be destabilizing for the global economy, and it would be virtually impossible to undertake.”The Biden administration is poised to begin investing heavily in American semiconductor manufacturing to lure factories out of China. Later this year, the Commerce Department is expected to begin handing out funds to help companies build U.S. chip facilities. That money will come with strings: Firms that take funding must refrain from expanding high-tech manufacturing facilities in China.The administration is also weighing further curbs on the chips that can be sent to China, as part of a push to expand and finalize sweeping restrictions it issued last October.These measures could include potential limits on sales to China of advanced chips used for artificial intelligence, new restrictions for Chinese companies’ access to U.S. cloud computing services, and restrictions on U.S. venture capital investments in the Chinese chip sector, according to people familiar with the plans.The administration has also been considering halting the licenses it has extended to some U.S. chipmakers that have allowed them to continue selling products to Huawei, the Chinese telecom firm.Japan and the Netherlands, which are home to companies that make advanced chip manufacturing equipment, have also put new restrictions on their sales to China, in part because of urging from the United States.China has issued restrictions of its own, including new export controls on minerals used in chip manufacturing.Amid tighter regulations and new incentive programs from the United States and Europe, global chip companies are increasingly looking outside China as they choose the locations for their next major investments. But these facilities will likely take years to construct, meaning any changes to the global semiconductor market will unfold gradually.John Neuffer, the president of the Semiconductor Industry Association, which represents the chip industry, said in a statement that the ongoing escalation of controls posed a significant risk to the global competitiveness of the U.S. industry.“China is the world’s largest market for semiconductors, and our companies simply need to do business there to continue to grow, innovate and stay ahead of global competitors,” he said. “We urge solutions that protect national security, avoid inadvertent and lasting damage to the chip industry, and avert future escalations.” More

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    U.S. and China, by the Numbers

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    From movie theaters to military spending, here’s how one of the world’s most important economic relationships stacks up.China and the United States are locked in an increasingly intense rivalry when it comes to national security and economic competition, with American leaders frequently identifying China as their greatest long-term challenger.Yet the world’s two largest economies, which together represent 40 percent of the global output, remain integral partners in many ways. They sell and buy important products from each other, finance each other’s businesses, provide a home to millions of each other’s people, and create apps and movies for audiences in both countries.As Treasury Secretary Janet L. Yellen meets with top Chinese officials in Beijing this week, her challenge will be to navigate this multifaceted relationship, which ranges from conflict to cooperation. Here are some figures that illustrate the links between the two nations.Economic and military powerThe U.S. economy continues to outstrip China’s by dollar value: In 2022, Chinese gross domestic product was $18 trillion, compared with $25.5 trillion for the United States.But China’s population is more than four times America’s. And the economic picture looks different when adjusted for local prices: Based on purchasing power parity, China’s share of world G.D.P. is 18.9 percent, according to the International Monetary Fund, surpassing the United States at 15.4 percent.China has provided more than a trillion dollars for global infrastructure through its Belt and Road Initiative, which analysts see as an effort to project power around the world.The rapid growth and modernization of China’s military have sparked concerns in the United States. China has more naval vessels than the United States and more military personnel, with 2.5 million in 2019.But American armed forces are far better equipped, and the United States still spends more on defense than the next 10 countries combined — $877 billion in 2022, compared with $292 billion in reported spending by China.Trade relationsDespite the rising tensions, trade between the countries remains extremely strong. China is America’s third-largest trading partner, after Canada and Mexico.U.S. imports of goods and services from China hit a record $563.6 billion last year. But the share of U.S. imports that come from China has been falling, a sign of how some businesses are breaking off ties with China.China is also a major export market, with half of all soybeans that the United States sends abroad going to China. The U.S.-China Business Council estimated that U.S. exports to China supported nearly 1.1 million jobs in the United States in 2021.China dominates supply chains for both critical and everyday goods. It is the world’s largest producer of steel, solar panels, electronics, coal, plastics, buttons and car batteries, and it has quadrupled its car exports in just two years, becoming the world’s largest auto exporter through its growing clout in electric vehicles.The United States has steadily expanded sanctions against Chinese companies and organizations because of national security and human rights concerns, placing 721 Chinese companies, organizations and people on an “entity list” that restricts their ability to buy products from the United States, according to the Commerce Department.Financial and corporate tiesChina is one of America’s largest lenders and holds nearly $1 trillion of U.S. debt.Members of the S&P 500 index, which tracks the largest public companies in the United States, generate 7.6 percent of their revenue in mainland China, the biggest source of international sales by far, according to FactSet. The revenue that large U.S. firms derive from China is more than their revenue from the next three countries — Japan, Britain and Germany — combined.But the outlook for American companies doing business in China has turned grimmer. In the American Chamber of Commerce in China’s most recent survey of U.S. companies in China, 56 percent described their business as unprofitable in 2022, with some blaming China’s strict Covid-19 lockdown measures.Also in the survey, 46 percent of American companies thought that U.S.-China relations would deteriorate in 2023, while only 13 percent thought they would improve.Personal and cultural connectionsThe United States is home to nearly 2.4 million Chinese immigrants, making it the top destination for Chinese immigrants worldwide. Chinese immigrants in the United States are more than twice as likely as U.S.-born adults to have a graduate or professional degree.In the 2021-22 school year, 296,000 students from China attended U.S. institutions of higher learning, nearly a third of all international students in the United States.Roughly three in four Chinese Americans experienced racial discrimination in the previous 12 months, and 9 percent were physically intimidated or assaulted, according to a survey by Columbia University and the Committee of 100, a Chinese American leadership organization.Long considered a low-end manufacturer, China has become more of a source for innovation and cultural creation. TikTok, the popular social media app whose parent company is China’s ByteDance, says it has more than 150 million users in the United States.Last year, 20 American movies opened in China, and their box office total was roughly $673 million, according to Comscore. China had more than 80,000 movie screens by late 2021, compared with roughly 39,000 in the United States.Pandemic restrictions have made it much harder to travel between the countries. Air carriers are running only 24 flights a week between the United States and China, compared with about 350 before the pandemic.Sapna Maheshwari and Nicole Sperling contributed reporting. More

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    Congress Spotlights Forced Labor Concerns With Chinese Shopping Sites Shein and Temu

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    A congressional investigation into Temu and Shein offered new insight into services that are delivering a deluge of cheap and little-regulated products.Lawmakers are flagging what they say are likely significant violations of U.S. law by Temu, a popular Chinese shopping platform, accusing it of providing an unchecked channel that allows goods made with forced labor to flow into the United States.In a report released Thursday, the House Select Committee on the Chinese Communist Party said Temu, a rapidly growing site that sells electronics, makeup, toys and clothing, had failed “to maintain even the facade of a meaningful compliance program” for its supply chains and was likely shipping products made with forced labor into the United States on a “regular basis.”The report stems from a continuing investigation into forced labor in supply chains that touch on China. Lawmakers said the report was based on responses submitted to the committee by Temu, as well as the fast fashion retailer Shein, Nike and Adidas.The report offered a particularly scathing assessment of Temu, saying there is an “extremely high risk that Temu’s supply chains are contaminated with forced labor.” The site advertises itself under the tagline “Shop like a billionaire” and is now the second most downloaded app in the Apple store.The report also criticized Shein’s use of an importing method that allows companies to bring products into the United States duty-free and with less scrutiny from customs, as long as packages are sent directly to consumers and valued at under $800. Some lawmakers have been pushing to close off this shipping channel, which is called de minimis, for companies sourcing goods from China.Lawmakers said that they were troubled by what the bipartisan committee’s investigation had uncovered so far, and that Congress should review import loopholes and strengthen forced labor laws.“Temu is doing next to nothing to keep its supply chains free from slave labor,” said Representative Mike Gallagher, a Wisconsin Republican who heads the committee. “At the same time, Temu and Shein are building empires around the de minimis loophole in our import rules: dodging import taxes and evading scrutiny on the millions of goods they sell to Americans.”“The initial findings of this report are concerning and reinforce the need for full transparency by companies potentially profiting from C.C.P. forced labor,” said Representative Raja Krishnamoorthi, an Illinois Democrat and a co-author of the report, referring to the Chinese Communist Party.Temu, which began operating in the United States in September, told the committee that it now brought millions of shipments into the United States annually through a network of more than 80,000 suppliers that sell directly from Chinese factories to U.S. consumers. The site sells clothing, temporary tattoos, modeling clay, electronics and other items directly to consumers for low prices, like $3 for a baby romper, $6 for sandals and $8 for a vacuum.The report also contained new data showing that Temu and Shein make heavy use of the de minimis rule, together accounting for almost 600,000 such packages shipped to the United States daily.The shipping method allows retailers to sell their goods to consumers at cheaper prices, since they are not subject to duties, taxes or government fees that apply to traditional retailers that typically ship overseas goods in bulk.A Shein pop-up store last year at the Shops at Willow Bend in Plano, Texas.Cooper Neill for The New York TimesDe minimis shipping also requires far less information to be disclosed about the products and the companies involved in the transaction, making it harder for U.S. customs officials to detect packages with narcotics, counterfeits and goods made with forced labor. The number of de minimis packages entering the United States more than tripled between 2016 and 2021, when it reached 720 million.At an annualized rate, the shipments reported by Shein and Temu would represent more than 30 percent of the de minimis shipments that came into the United States last year, and nearly half of those packages from China, the report said.Both Shein and Temu have steadily taken market share from U.S. brick-and-mortar retailers and won over younger consumers by investing in sophisticated e-commerce technology and offering hundreds more new products than competitors. Among teenagers, Shein was the third most popular e-commerce site behind Amazon and Nike, according to a Piper Sandler report this spring.As their popularity has grown, so has congressional scrutiny of the firms, given their ties to China. Shein was originally based in China but has moved its headquarters to Singapore. Temu, which is based in Boston, is a subsidiary of PDD Holdings, which moved its headquarters to Ireland from China this year.Lawmakers have been questioning their relationship with the Chinese government, as well as the companies’ ability to vet their supply chains to ensure they don’t contain materials or products from Xinjiang. Last year, the U.S. imposed a ban on products from Xinjiang, citing the region’s use of forced labor in factories and mines.The Chinese government has carried out a crackdown in Xinjiang on Uyghurs and other ethnic minorities, including the organized use of forced labor to pick cotton; work in mines; and manufacture electronics, polysilicon and car parts. Because of this, the U.S. government now presumes all materials from the region to be made with forced labor unless proved otherwise.A young Uyghur women working in a garment factory in Xinjiang in 2019.Gilles Sabrié for The New York TimesShein said in a statement that it had zero tolerance for forced labor and had a robust compliance system, including a code of conduct, independent audits, robust tracing technology and third-party testing. It provided detailed information to the House committee and will continue to answer its questions, the company said.“We have no contract manufacturers in the Xinjiang region,” it said. “As a global company, our policy is to comply with the customs and import laws of the countries in which we operate.” Temu did not respond to a request for comment.Laboratory tests commissioned by Bloomberg News in November found that some Shein clothing had been made with cotton from Xinjiang. Shein didn’t dispute those findings, but said in a statement to Bloomberg that it took steps in all global markets to comply with local laws and had engaged another lab, Oritain, to test its materials.The congressional report also criticized Temu’s failure to set up a compliance or auditing system that could independently verify that its sellers were not sourcing products from Xinjiang.Temu told the committee that it had a reporting system that consumers and sellers could use to file complaints, and that it asked its sellers to sign a code of conduct specifying a “zero-tolerance policy” for the use of forced, indentured or penal labor. Temu’s code of conduct also says the company reserves the right to inspect factories and warehouses to ensure compliance.But the code does not mention Xinjiang or the U.S. ban, and Temu told the House committee that it did not prohibit vendors from selling products made in Xinjiang, the report said.Temu also argued that its use of direct shipping meant that the U.S. consumer, not Temu, would bear the ultimate responsibility for adhering to the ban on Xinjiang goods.“Temu is not the importer of record with respect to goods shipped to the United States,” the report quoted it as saying.Customs lawyers said that it was not entirely clear which party would be liable for complying with the U.S. ban, but that any company facilitating the importation of goods from Xinjiang could face civil or criminal penalties.The committee report also pictured a key chain that was listed on Temu’s website this month and labeled “pendant with Xinjiang cotton.” The key chain itself is shaped like a bud of cotton, and the report said that the Xinjiang label “may refer to the materials, the supplier, the pattern or the origin of the product.”Temu’s “policy to not prohibit the sale of products that explicitly advertise their Xinjiang origins, even in the face of mounting congressional and public scrutiny on related topics, raises serious questions,” the report said.The New York Times was not able to verify whether the product is made using Xinjiang cotton, which is barred under U.S. law. The Times found an identical product listed for sale on a Chinese wholesale site that was described as manufactured in Henan Province, outside Xinjiang.A Times review of information shared by Temu vendors on Chinese social media sites also suggested that Temu did not require sellers to provide detailed information about where their products were made or which companies manufactured them.Vendors sharing tips online about Temu’s product review process gave several reasons that Temu commonly rejected new listings: for example, if the price was too high, if the samples were inconsistent with the photos or if the goods lacked consumer warning labels. But none mentioned concerns about links to Xinjiang or the U.S. import ban.Jordyn Holman More

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    Yellen Says Bid to Decouple From China Would Be ‘Disastrous’

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    The Treasury secretary, speaking to a House committee, said trade and investment were crucial in U.S.-Chinese relations.Treasury Secretary Janet L. Yellen said on Tuesday that it would be a mistake for the United States to try to “decouple” from China and called for deepening economic ties between the world’s two largest economies.The comments came as the Biden administration has been seeking to improve relations with China, which faced a setback this year when a Chinese surveillance balloon was found flying across the United States. Secretary of State Antony J. Blinken is planning to travel to Beijing next week, and Ms. Yellen hopes to make a trip there soon.Speaking at a House Financial Services Committee hearing on Tuesday, Ms. Yellen made clear that she believes the economic relationship with China is critical.“I think we gain and China gains from trade and investment that is as open as possible, and it would be disastrous for us to attempt to decouple from China,” Ms. Yellen said.The United States maintains tariffs that the Trump administration imposed on billions of dollars’ worth of Chinese imports, and the Biden administration is developing new restrictions on how U.S. companies can invest in China. But Ms. Yellen said that the United States intended only to “de-risk” the relationship and that it had no intention of inflicting economic harm on China.“I certainly do not think it is in our interest to stifle the economic progress of the Chinese people,” Ms. Yellen said. “China has succeeded in lifting hundreds of millions of people out of poverty, and I think that’s something that we should applaud.”Although she struck an accommodating tone, Ms. Yellen also laid out concerns likely to arise in meetings with her Chinese counterparts.Because of national security concerns, she said, the administration is considering restrictions on American private equity firms’ investments in Chinese firms that have connections with China’s military. She also said the Treasury Department was examining additional sanctions on China in response to human rights abuses against Uyghurs in Xinjiang.In recent months, the United States has been ratcheting up pressure on China to provide debt relief to Zambia and other developing countries. Ms. Yellen lamented that despite some signs of a willingness to cooperate and help poor countries avoid defaults, China had not done enough. She emphasized a growing need for international financial institutions like the World Bank and the International Monetary Fund to help the most vulnerable economies.“These institutions reflect American values,” Ms. Yellen said. “It serves as an important counterweight to nontransparent, unsustainable lending from others like China.”Asked about Ms. Yellen’s comments on Tuesday, Wang Wenbin, a spokesman for China’s Foreign Ministry, rejected the idea that the I.M.F. or the World Bank is meant to further American interests.“The I.M.F. is not the I.M.F. of the United States, nor is the World Bank for that matter,” he said. More

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    How the G7 Oil Price Cap Has Helped Choke Revenue to Russia

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    Group of 7 leaders are prepared to celebrate the results of a novel effort to stabilize global oil markets and punish Moscow.In early June, at the behest of the Biden administration, German leaders assembled top economic officials from the Group of 7 nations for a video conference with the goal of striking a major financial blow to Russia.The Americans had been trying, in a series of one-off conversations last year, to sound out their counterparts in Europe, Canada and Japan on an unusual and untested idea. Administration officials wanted to try to cap the price that Moscow could command for every barrel of oil it sold on the world market. Treasury Secretary Janet L. Yellen had floated the plan a few weeks earlier at a meeting of finance ministers in Bonn, Germany.The reception had been mixed, in part because other countries were not sure how serious the administration was about proceeding. But the call in early June left no doubt: American officials said they were committed to the oil price cap idea and urged everyone else to get on board. At the end of the month, the Group of 7 leaders signed on to the concept.As the Group of 7 prepares to meet again in this week in Hiroshima, Japan, official and market data suggest the untried idea has helped achieve its twin initial goals since the price cap took effect in December. The cap appears to be forcing Russia to sell its oil for less than other major producers, when crude prices are down significantly from their levels immediately after Russia’s invasion of Ukraine.Data from Russia and international agencies suggest Moscow’s revenues have dropped, forcing budget choices that administration officials say could be starting to hamper its war effort. Drivers in America and elsewhere are paying far less at the gasoline pump than some analysts feared.Russia’s oil revenues in March were down 43 percent from a year earlier, the International Energy Agency reported last month, even though its total export sales volume had grown. This week, the agency reported that Russian revenues had rebounded slightly but were still down 27 percent from a year ago. The government’s tax receipts from the oil and gas sectors were down by nearly two-thirds from a year ago.Russian officials have been forced to change how they tax oil production in an apparent bid to make up for some of the lost revenues. They also appear to be spending government money to try to start building their own network of ships, insurance companies and other essentials of the oil trade, an effort that European and American officials say is a clear sign of success.“The Russian price cap is working, and working extremely well,” Wally Adeyemo, the deputy Treasury secretary, said in an interview. “The money that they’re spending on building up this ecosystem to support their energy trade is money they can’t spend on building missiles or buying tanks. And what we’re going to continue to do is force Russia to have these types of hard choices.”Some analysts doubt the plan is working nearly as well as administration officials claim, at least when it comes to revenues. They say the most frequently cited data on the prices that Russia receives for its exported oil is unreliable. And they say other data, like customs reports from India, suggests Russian officials may be employing elaborate deception measures to evade the cap and sell crude at prices well above its limit.“I’m concerned the Biden administration’s desperation to claim victory with the price cap is preventing them from actually acknowledging what isn’t working and taking the steps that might actually help them win,” said Steve Cicala, an energy economist at Tufts University who has written about potential evasion under the cap.The price cap was invented as an escape hatch to the financial penalties that the United States, Europe and others announced on Russian oil exports in the immediate aftermath of the invasion. Those penalties included bans preventing wealthy democracies from buying Russian oil on the world market. But early in the war, they essentially backfired. They drove up the cost of all oil globally, regardless of where it was produced. The higher prices delivered record exports revenues to Moscow, while driving American gasoline prices above $5 a gallon and contributing to President Biden’s sagging approval rating.A new round of European sanctions was set to hit Russian oil hard in December. Economists on Wall Street and in the Biden administration warned those penalties could knock oil off the market, sending prices soaring again. So administration officials decided to try to leverage the West’s dominance of the oil shipping trade — including how it is transported and financed — and force a hard bargain on Russia.Oil tankers near the port city of Nakhodka, Russia. Many analysts were concerned that a price cap might prompt Russia to restrict how much oil it pumped and sold. But the country has mostly kept producing at about the same levels it did when the war began.Tatiana Meel/ReutersUnder the plan, Russia could keep selling oil, but if it wanted access to the West’s shipping infrastructure, it had to sell at a sharp discount. In December, European leaders agreed to set the cap at $60 a barrel. They followed with other caps for different types of petroleum products, like diesel.Many analysts were skeptical it could work. A cap that was too punitive had the potential to encourage Russia to severely restrict how much oil it pumps and sells. Such a move could drive crude prices skyward. Alternatively, a cap that was too permissive might have failed to affect Russian oil sales and revenues at all.Neither scenario has happened. Russia announced a modest production cut this spring but has mostly kept producing at about the same levels it did when the war began.Fatih Birol, the executive director of the International Energy Agency, has called the price cap an important “safety valve” and a crucial policy that has forced Russia to sell oil for far less than international benchmark prices. Russian oil now trades for $25 to $35 a barrel less than other oil on the global market, Treasury Department officials estimate.“Russia played the energy card, and it didn’t win,” Mr. Birol wrote in a February report. “Given that energy is the backbone of Russia’s economy, it’s not surprising that its difficulties in this area are leading to wider problems. Its budget deficit is skyrocketing as military spending and subsidies to its population largely exceed its export income.”Biden administration officials say that there is no evidence of widespread evasion by Russia, and that Mr. Cicala’s analysis of Indian customs reports does not account for the rising cost of transporting Russian oil to India, which is embedded in the customs data. A White House official told reporters traveling with Mr. Biden in Hiroshima on Thursday that the Group of 7 leaders would adopt new measures meant to counter price-cap evasion in their meeting this weekend.There is no dispute that the world has avoided what was privately the largest concern for Biden officials last summer: another round of skyrocketing oil prices.American drivers were paying about $3.54 a gallon on average for gasoline on Monday. That was down nearly $1 from a year ago, and it is nowhere near the $7 a gallon some administration officials feared if the cap had failed to prevent a second oil shock from the Russian invasion. Gas prices are a mild source of relief for Mr. Biden as high inflation continues to hamper his approval among voters.After rising sharply in the months surrounding the Russian invasion, global oil prices have fallen back to late-2021 levels. The plunge is partly driven by economic cooling around the world, and it has persisted even as large producers like Saudi Arabia have curtailed production.Falling global prices have contributed to Russia’s falling revenues, but they are not the whole story. Reported sales prices for exported Russian oil, known as Urals, have dropped by twice as much as the global price for Brent crude.The Group of 7 leaders meeting in Japan this week will probably not spend much time on the cap, instead turning to other collective efforts to constrict Russia’s economy and revenues. And the biggest winners from the cap decision will not be at the summit.“The direct beneficiaries are mostly emerging market and lower-income countries that import oil from Russia,” Treasury officials noted in a recent report.The officials were referring to a handful of countries outside the Group of 7 — particularly India and China — that have used the cap as leverage to pay a discount for Russian oil. Neither India nor China joined the formal cap effort, but it is their oil consumers who are seeing the lowest prices from it. More

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    For Biden, Debt Limit Crisis Complicates Trip to Asia

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    Volatility has become the new norm in Washington as the president heads to Japan, where he will reassure world leaders that the debt ceiling showdown will not upend the global economy.President Biden left for Japan on Wednesday for a meeting of the leaders of seven major industrial democracies who get together each year to try to keep the world economy stable.But as it turns out, the major potential threat to global economic stability this year is the United States.When Mr. Biden lands in Hiroshima for the annual Group of 7 summit meeting on Thursday, the United States will be two weeks from a possible default that would jolt not only its own economy but those of the other countries at the table. It will fall to Mr. Biden to reassure his counterparts that he will find a way to avoid that, but they understand it is not solely in his control.The showdown with Republicans over raising the federal debt ceiling has already upended the president’s international diplomacy by forcing a last-minute cancellation of two stops he had planned to make after Japan: Papua New Guinea and Australia. Rather than being the unchallenged commander of the most powerful superpower striding across the world stage, Mr. Biden will be an embattled leader forced to rush home to avert a catastrophe of America’s own making.He was at least bolstered before leaving Washington by signs of progress as both sides emerged from a White House meeting on Tuesday expressing optimism that an agreement was possible. In the preparations leading up to the G7 meeting, officials from the other participating countries have not struck U.S. officials as all that alarmed about the possibility of default, perhaps because they trust Mr. Biden, know that the moment of truth is still a couple weeks away and assume that Washington will get its act together in time.Mr. Biden is set to depart on Wednesday for the G7 meeting in Hiroshima, Japan.How Hwee Young/EPA, via ShutterstockBut that simply underscores how much volatility has become the new norm in Washington. After generations of counting on the United States as the most important stabilizing force in world affairs, allies in recent years have increasingly come to expect a certain level of dysfunction instead. Extended government shutdowns, banking crises, debt ceiling fights and even political violence would once have been unthinkable but have prompted foreign leaders to factor American unpredictability into their calculations.“I think our biggest threat is us,” said Jane Harman, a former Democratic representative from California who later served as the president of the Woodrow Wilson International Center for Scholars. “Our leadership in the world is being eroded by our internal dysfunction. The markets are still betting against our defaulting, and that’s a decent bet. But if we only manage to eke out a short-term extension and the price is onerous budget caps — including on defense — we will be hobbled when Ukraine needs us most and China is building beachheads everywhere.”The White House warned that a default would only embolden America’s adversaries, using the argument against Republicans, whom they blame for playing with fire.“There’s countries like Russia and China that would love nothing more than for us to default so they could point the finger and say, ‘You see, the United States is not a stable, reliable partner,’” said John F. Kirby, a spokesman for the National Security Council.But he sought to play down the effects of the dispute on the G7 meeting, saying that he doubted it would “dominate the discussion” and maintaining that other leaders “don’t need to worry about that part of it.” The president’s counterparts would understand his need to cut short his trip, he said.“They know that our ability to pay our debts is a key part of U.S. credibility and leadership around the world,” Mr. Kirby said. “And so they understand that the president also has to focus on making sure that we don’t default and on having these conversations with congressional leaders.”Even if they understand, though, they see consequences. Mr. Biden’s decision to head home early reinforces questions about American commitment to the Asia-Pacific region and leaves a vacuum that China may exploit, according to analysts. A presidential visit to places like Papua New Guinea, where no U.S. leader has gone before, speaks loudly about diplomatic priorities — as does the failure to follow through.This is not the first time an American president has scrubbed a foreign trip to deal with domestic concerns. President George H.W. Bush canceled a two-week trip to Asia in 1991 to show he was focused on a lagging economy at home, while President Bill Clinton scrapped a trip to Japan during a government shutdown in 1995. President Barack Obama delayed a trip to Indonesia and Australia in 2010 to focus on health care legislation, then skipped an Asia-Pacific summit meeting in 2013 during a government shutdown of his own.The perpetual culture of crisis in Washington, however, has grown only more intense since the arrival of President Donald J. Trump, who threatened to unravel bedrock alliances and embraced longstanding adversaries abroad while disrupting democratic norms and economic conventions at home.Speaker Kevin McCarthy said it was possible that a deal regarding the debt ceiling could materialize in days.Haiyun Jiang/The New York TimesThe debt ceiling showdown between Mr. Biden and Speaker Kevin McCarthy has underscored to the president’s peers that however much he may seek to restore normalcy, U.S. politics has not returned to the steady state of the past — not least because Mr. Trump seeks to reclaim office in next year’s election.World leaders took notice last week during Mr. Trump’s CNN town hall-style interview in which he refused to back Ukraine in its war against Russian invasion and casually endorsed the idea of a default, saying it would not be that damaging and indeed “could be maybe nothing.”That is not how most policymakers and analysts see it.Treasury Secretary Janet L. Yellen said at a meeting of G7 finance ministers and central bankers in Japan last week that a default “would spark a global downturn” and “risk undermining U.S. global economic leadership and raise questions about our ability to defend our national security interests.”Mr. Biden, a veteran of half a century in high office in Washington, has regularly remarked on the uncertainty surrounding America’s place in the world that he discovered when he took office after Mr. Trump’s disruptive four years. “America is back,” he said he would tell foreign counterparts, only to hear, “But for how long?”By contrast to his predecessor, Mr. Biden has conducted a far more conventional foreign policy familiar to world leaders, and foreign officials see him as a more traditional U.S. president. But they also understand that he is presiding over a country whose democracy has been tested and found to be fragile. And they see a fractious politics in Washington that values confrontation over compromise, even at the risk of something that would have once been unimaginable, like a default.“For sure, the U.S. debt ceiling issue will be a topic of conversation and concern at the G7 summit,” Matthew P. Goodman, a senior vice president for economics at the Center for Strategic and International Studies in Washington, said at a briefing about the meeting last week. “I’m sure the other leaders will ask, you know, how serious this risk is. And I assume President Biden will say he’s working on it and doing everything he can to avoid it.”By this point, U.S. partners have become oddly accustomed to the culture that dominates Washington. They have watched the brewing debt ceiling fight with little evident fear.“I don’t think many European governments are very concerned, presumably because these crises come round quite often but never end in disaster,” said Charles Grant, the director of the Centre for European Reform in London. “Cutting short the trip is a bad signal, but there is such good will to Biden in most capitals that they are prepared to cut him some slack.” More