Wayne M. Morrison
Specialist in Asian Trade and Finance
U.S.-China economic ties have expanded substantially over the past three decades. Total U.S.- China trade rose from $5 billion in 1981 to $536 billion in 2012, and is projected to reach $558 billion in 2013. China is currently the United States’ second-largest trading partner, its thirdlargest export market, and its biggest source of imports. China is estimated to be a $300 billion market for U.S. firms (based on U.S. exports to China and sales by U.S.-invested firms in China). Many U.S. firms view participation in China’s market as critical to staying globally competitive. General Motors (GM), for example, which has invested heavily in China, sold more cars in China than in the United States from 2010 to 2012. In addition, U.S. imports of low-cost goods from China greatly benefit U.S. consumers, and U.S. firms that use China as the final point of assembly for their products, or use Chinese-made inputs for production in the United States, are able to lower costs. China is the largest foreign holder of U.S. Treasury securities ($1.3 trillion as of October 2013). China’s purchases of U.S. government debt help keep U.S. interest rates low.
Despite growing commercial ties, the bilateral economic relationship has become increasingly complex and often fraught with tension. From the U.S. perspective, many trade tensions stem from China’s incomplete transition to a free market economy. While China has significantly liberalized its economic and trade regimes over the past three decades, it continues to maintain (or has recently imposed) a number of state-directed policies that appear to distort trade and investment flows. Major areas of concern expressed by U.S. policy makers and stakeholders include China’s relatively poor record of intellectual property rights (IPR) enforcement and alleged widespread cyber espionage against U.S. firms by Chinese government entities; its mixed record on implementing its World Trade Organization (WTO) obligations; its extensive use of industrial policies (such as financial support of state-owned firms, trade and investment barriers, and pressure on foreign-invested firms in China to transfer technology in exchange for market access) in order to promote the development of industries favored by the government and protect them from foreign competition; and its policies to maintain an undervalued currency. Many U.S. policy makers argue that such policies harm U.S. economic interests and have contributed to U.S. job losses. For example, one study estimated that Chinese IPR infringement cost the U.S. economy up to $240 billion annually. There are a number of views in the United States over how to more effectively address commercial disputes with China:
- Take a more aggressive stand against China, such as increasing the number of dispute settlement cases brought against China in the WTO, or threatening to impose trade sanctions against China unless it addresses policies (such as IPR theft) that hurt U.S. economic interests.
- Intensify negotiations through existing high-level bilateral dialogues, such as the U.S.-China Strategic & Economic Dialogue (S&ED), which was established to discuss long-term challenges in the relationship. In addition, seek to complete ongoing U.S. negotiations with China to reach a high-standard bilateral investment treaty (BIT), as well as to finalize negotiations in the WTO toward achieving China’s accession to the Government Procurement Agreement (GPA).
- Invite China to join the Trans-Pacific Partnership (TPP) negotiations and/or seek to negotiate a bilateral a free trade agreement (FTA) with China.
Continue to encourage China to implement comprehensive economic reforms, such as diminishing the role of the state in the economy and implementing policies to boost domestic consumption.
Date of Report: December 16, 2013
Number of Pages: 55
Order Number: RL33536
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China-U.S. Trade Issues - RL33536