January 28, 2015
U.S.-China Trade Issues
made significant progress toward market liberalization in
Background
the years immediately after its accession, it moved towards
a more restrictive trade regime beginning in 2006. The
The U.S.-China trade and economic relationship has
United States has brought 15 WTO dispute settlement cases
expanded significantly over the past three decades. China is
against China as of July 2014 on issues such as IPR, export
currently the United States’ third largest export market and
subsidies, discriminatory industrial policies, and restrictions
biggest source of imports, making it the second largest
on trading and distribution rights.
overall U.S. trading partner. In 2014, U.S. exports to, and
imports from, China were an estimated $125 billion and

$466 billion, respectively. According to the U.S. Bureau of
Recent U.S. WTO Cases Brought Against China
Economic Analysis, cumulative Chinese foreign direct
investment (FDI) in the United States by the end of 2013
September 2012
was $8.1 billion, while cumulative U.S. FDI in China was
The United States initiated a case against China for providing
$61.5 billion. China also is the largest foreign holder of
export subsidies to Chinese auto and auto parts manufacturers.
U.S. Treasury securities ($1.25 trillion as of November
The results are still pending.
2014), which helps keep U.S. interest rates low. However,
July 2012
tension between the two countries has risen in recent years
The United States brought a case against China for imposing anti-
over a number of issues.
dumping and countervailing duties on certain autos from the
Key U.S. Issues
United States that were inconsistent with WTO regulations. The
United States prevailed.
Intellectual Property Rights (IPR) and Cybersecurity.
March 2012
U.S. firms cite the lack of effective protection of IPR as one
The United States, Japan, and the European Union jointly brought
of the biggest impediments that they face in conducting
a case against China over its restrictive export policies on rare
business in China and sometimes view lax IPR enforcement
earths and other minerals, which were found to have violated
in the country as a way to give domestic firms an advantage
China’s WTO commitments.
over foreign competitors. In May 2013, an independent
Source: WTO.
commission estimated that the United States suffers an
annual loss of over $300 billion due to the international
theft of U.S. intellectual property and attributed up to 80%
Currency Policy. Since 1994, the Chinese government has
of the problem to China. In 2011, the U.S. Office of the
intervened in currency markets to limit or halt the
National Counterintelligence Executive described Chinese
appreciation of the Chinese renminbi (RMB) against the
actors as “the world’s most active and persistent
U.S. dollar, which many argue has allowed Chinese exports
perpetrators of economic espionage” and as aggressive
to the United States to be less expensive and U.S. exports to
collectors of sensitive U.S. business information and
China to be more expensive than under a floating exchange
technologies. In May 2014, the United States Department of
rate system, which, some U.S. policymakers contend, has
Justice indicted five members of the Chinese People’s
contributed to the large annual U.S. trade deficit with China
Liberation Army (PLA) for government-sponsored cyber
and the loss of U.S. manufacturing jobs in some industries.
espionage against U.S. companies and theft of proprietary
From July 2005 to December 2014, the RMB appreciated
information to aid state-owned enterprises (SOEs). China
by 36% against the dollar, which has led some analysts to
responded by suspending its participation in a bilateral
contend that the RMB may only be slightly undervalued,
working group on cybersecurity with the United States.
while other analysts argue that the RMB remains
significantly undervalued against the dollar.
Industrial Policies. Many U.S.-China trade tensions arise
from China’s incomplete transition to a market economy,
The Trade Deficit. At an estimated $341 billion in 2014,
including its government support and protection of SOEs.
the U.S. trade deficit with China is significantly larger than
Critics have charged that the Chinese government has been
its trade deficit with any other partner. Some U.S. analysts
employing policies such as subsidies, tax breaks, low-cost
argue that the large deficit is a result of China’s alleged
loans, market access barriers, lax enforcement of IPR,
unfair trade practices. Others maintain that it is a reflection
limits on FDI, and restrictions on exports of raw materials
of China’s role as a major center for global supply chains.
in order to aid and develop industries deemed critical to
A joint study released by the Organization for Economic
China’s economic growth.
Cooperation and Development (OECD) and WTO
estimated that the 2009 U.S. trade deficit with China would
WTO Compliance. China’s accession into the WTO
have been reduced by up to 25% if bilateral trade flows
advanced its market reforms and openness to trade.
were measured according to the value-added that occurred
However, U.S. trade officials contend that while China
in China prior to export, as China often serves as the final
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U.S.-China Trade Issues
point of assembly for many of its products and thus
Current Negotiations
contributes little to the final value of the exports.
Bilateral Investment Treaty (BIT). China and the United
Figure 1. U.S.-China Trade Deficit ($ billions)
States are currently negotiating a BIT that could expand
bilateral investment ties. It aims to establish mutual
600
nondiscriminatory treatment of investments and reduce both
400
market access barriers and ownership restrictions for U.S.
firms in China, among other provisions. China has also
200
agreed to use the “negative list” approach in reducing
0
ownership restrictions via the BIT, where all industries
-200
except those explicitly listed would be open to investments.
At the 2014 S&ED, both parties committed to solidifying
-400
major articles of the BIT by the end of 2014 (which does
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not appear to have been achieved), as well as initiating
20
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negotiations on the “negative list” by early 2015.
Exports
Imports
Trade Balance
WTO Government Procurement Agreement (GPA). The
Source: U.S. Census Bureau, Trade in Goods with China.
GPA is a plurilateral agreement established by the WTO in
1996 to provide market access for nondefense government
Foreign Direct Investment (FDI). U.S.-China FDI flows
procurement projects to its signatories. China’s accession to
are relatively small given the high level of bilateral trade.
the GPA would provide U.S. firms access to an estimated
Although Chinese FDI in the United States has grown
$200 billion market and has been a priority for the United
recently as a result of large-scale acquisitions in industries
States, which is already a GPA member. It would also allow
such as food, energy and real estate, cumulative Chinese
Chinese firms to bid on U.S. contracts based on GPA
FDI in the United States remains modest in comparison to
thresholds. China has submitted several offers to join the
countries such as Japan ($342.3 billion by end of 2013).
GPA since 2007, but to date GPA members have rejected
Some policymakers have raised concerns that certain
the offers because they allowed only limited access to the
Chinese acquisitions of U.S. domestic firms may cause a
Chinese public procurement market, among other concerns.
loss of sensitive technologies and outsourcing of jobs. U.S.
China submitted a new offer in December 2014.
firms in China have also faced challenges, including equity
caps, lack of regulatory transparency, and restrictions on
Trans-Pacific Partnership (TPP). The TPP is a free trade
investments in industries that China considers strategic,
agreement (FTA) currently being negotiated among the
including telecommunications and financial services. To
United States and 11 countries in the Asia-Pacific region.
encourage more domestic development of technological
China is not part of the current negotiations, but has
innovations, Chinese officials have reportedly pressured
expressed interest in joining the agreement. Its participation
U.S. firms to transfer technology to Chinese partners or set
would depend in large part on its ability to meet the TPP
up research and development facilities in China in exchange
objectives of reaching a comprehensive and high-standard
for access to China’s markets—an issue exacerbated by
FTA, including on issues such as investment, IPR, and
China’s weak IPR protection.
SOEs. Inclusion in the TPP could accelerate China’s market
reforms and improve its business climate for U.S. firms.
Ongoing Bilateral Dialogues
The WTO Information Technology Agreement (ITA).
U.S.-China Strategic and Economic Dialogue (S&ED).
During President Obama’s visit to China in November
The cabinet-led S&ED—first launched in 2006 as the
2014, the United States and China announced they had
Strategic Economic Dialogue—was established in 2009 to
reached an understanding on products to be covered under a
enable senior Chinese and U.S. officials to address long-
new ITA pact, a plurilateral agreement currently being
term strategic and economic challenges. At the July 2014
negotiated among 70 WTO members. The agreement would
S&ED, China pledged to continue to increase the flexibility
seek to expand on the 1996 ITA agreement by adding more
of the RMB exchange rate, boost domestic consumption,
than 200 tariff lines that would be subject to zero tariffs.
lessen government involvement in market operations, and
Until recently, China had been accused by U.S. officials of
reduce trade and investment barriers for U.S. firms.
holding up the ITA agreement by seeking to exclude a
broad range of products from tariff elimination, such as
Joint Commission on Commerce and Trade (JCCT).
semiconductors, in order to protect certain Chinese
Established in 1983 and held annually in December, the
industries, a position that contributed to a suspension in the
JCCT is a high-level forum for addressing bilateral trade
ITA negotiations in November 2013. At the time, it was
issues between China and the United States and promoting
hoped that China’s new position would help facilitate a
commercial opportunities between the two. The JCCT last
final adoption of the ITA agreement, although that has not
me on December 16-18, 2014. China pledged to implement
yet occurred. Also see CRS Report RL33536, China-U.S.
reforms for agricultural market access, IPR protection,
Trade Issues, by Wayne M. Morrison.
innovation policies, and competition law enforcement.
Wayne M. Morrison, wmorrison@crs.loc.gov, 7-7767

IF10030
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