WASHINGTON — The Bush administration said Thursday it had settled a major trade dispute with an agreement in which the Chinese government has pledged to end several trade-distorting tax subsidies.

The deal represents a breakthrough in tense economic relations between the countries by resolving one of four cases the United States has brought before the World Trade Organization attacking Chinese trade practices.

U.S. Trade Representative Susan Schwab said China had agreed to eliminate WTO-illegal tax breaks that supported Chinese exports to the United States and other countries. China also agreed to scrap tax breaks that had penalized the United States and other foreign countries in trying to sell their goods in China.

Schwab said the economic boost for U.S. companies would be "very substantial" because the tax breaks have been so pervasive. While she did not provide any concrete estimates on the value of the subsidies, she said a whole range of U.S. industries from steel to wood products to information technology would benefit.

"This outcome represents a victory for U.S. manufacturers and their workers," she told reporters. "The agreement also demonstrates that two great tra

However, administration critics said President Bush will have to produce much bigger results to have an impact on America's record trade deficit with China, which hit $233 billion last year and will be even larger this year.

They singled out a range of areas where they contend that unfair Chinese practices are driving the deficit higher and have contributed to the loss of 3 million U.S. manufacturing jobs since 2000.

"China's currency doesn't float freely, certain U.S. industries with competitive advantages can't operate freely in China's economy, and some of the products it exports are faulty and dangerous," said Sen. Charles Schumer, D-N.Y. "It seems that China has taken a small step on the long road toward playing more fairly in global trade, but only time will tell."

The agreement was well-timed for the administration, coming less than two weeks before Treasury Secretary Henry Paulson and other Cabinet-level officials go to China for the third round of high-level economic talks. Paulson launched the talks, called the Strategic Economic Dialogue, a year ago, but so far they have produced little results.