Graeme Sloan/Sipa USA via AP Images
Treasury Secretary Janet Yellen testifies during a Senate Appropriations subcommittee hearing on President Biden’s 2025 budget for the Department of the Treasury, at the U.S. Capitol in Washington, June 4, 2024.
President Biden has done great work in reversing the long-standing follies of corporate-driven “free trade,” which has caused so much political and economic damage, in favor of well-targeted industrial policies and strategic containment of China. But within the Cabinet, Treasury Secretary Janet Yellen has been the most reluctant supporter of Biden’s historic reversal.
At the level of general policy pronouncements, where Biden has pursued an all-of-government approach and enlisted allied governments to embrace a common stance on Chinese mercantilism, Yellen has belatedly gone along, at least rhetorically. For instance, when Biden on May 14 ordered tariffs imposed or increased under Section 301 of the Trade Act on a broad range of Chinese exports, Yellen, who had not been enthusiastic about this action, loyally issued a statement supporting it, adding in an interview on the PBS News Hour, “I don’t believe that American consumers will see any meaningful increase in the prices that they face.” This was a reversal of her long-standing view of tariffs as taxes on consumers. (She has also attacked Trump’s proposed across-the-board tariffs on the grounds that they would “make life unaffordable,” a not-inconsistent statement considering that Trump’s musing to replace the entire income tax with tariffs would send prices soaring.)
But when it comes to the fine print of public policy, much of which is highly consequential, Treasury has insidiously undermined Biden’s agenda. Some of this undermining reflects Yellen’s own convictions. Treasury is also far too cozy with segments of U.S. industry that want to keep doing business as usual with China. Well below the radar, the career staff at Treasury is far more devoted to a naïve globalism that views trade with mercantilist China as free trade.
Exhibit A is the so-called de minimis exclusion from tariffs and inspections on shipments valued at under $800. Despite Biden’s May announcement of tariff increases, for all intents and purposes, the tariff on small shipments is zero. Exports that sneak in under the de minimis exclusion are also effectively exempt from U.S. rules on health and safety and from bans on forced labor.
The export of small packages, using the de minimis exclusion, has soared from 685 million packages in all of fiscal year 2022 to a billion in FY2023 and well over that projected for FY2024. Entire Chinese companies, such as Temu and Shein, have built their whole business models around the de minimis loophole, and are widely suspected of using forced labor and of sharing customer data with the Chinese Communist Party. As a result, eight U.S. textile plants closed between September of 2023 and January 2024, with more since then, as the Prospect has reported.
A bipartisan coalition in Congress has called on the Biden administration to close the de minimis loophole, led by Democrat Sherrod Brown of Ohio and Republican Rick Scott of Florida. Inside the administration, Homeland Security Secretary Alejandro Mayorkas has ordered greater scrutiny of small packages consistent with existing law. But Yellen’s Treasury, the lead agency on taxes and tariffs, has not supported a tightening.
Closing the loophole takes legislation. Congress would likely support that action if Biden made it a priority. However, textile trade group officials have added that Treasury has the authority today to limit the loophole if it is facilitating illegal products or the shipments are no longer of minimal value. Treasury gave the Prospect a statement in January stating that they were “looking closely” at the de minimis exception and would “continue working on ways to exercise our existing authority to make sure the de minimis exemption doesn’t provide a means to evasion.”
Nothing has been done since then. Treasury has yet to respond to a query about this.
Exhibit B is Treasury’s interpretation of how to calculate U.S. content to produce subsidies for buyers of electric vehicles under the Inflation Reduction Act. Treasury has jurisdiction because the subsidies take the form of tax credits.
The IRA allows a $7,500 tax credit, which is the equivalent of cash, for the purchase of an EV. Half of the credit is for vehicles made in America, and half is for the battery. But under final regulations published by the Treasury on May 3, only 50 percent of the battery materials need to be sourced or processed in the U.S. or by a friendly trading partner. The other 50 percent can come from China and the buyer can still take the full credit. So U.S. tax subsidies are going to benefit Chinese battery producers.
Under Treasury’s regulations, if you lease a car rather than purchasing it, you can get the full tax credit, whether or not the car and battery meet the IRA domestic content standards. Technically, the credit goes to the dealer, but can be passed along to the customer.
Yellen and the Treasury career staff have also repeatedly tangled with U.S. Trade Representative Katherine Tai, who is seeking to carry out Biden’s agenda of placing American workers and industries ahead of outmoded conceptions of globalism.
The Republican right has made a big deal of the power of the administrative state, which it holds responsible for resisting efforts at policy change when Republicans are in power. As the instincts and habits of the Treasury demonstrate, the administrative state is often no prize for progressive government either.
