August 7, 2019
U.S.-China Trade and Economic Relations: Overview
Background
exports to China. Other significant categories were charges
Over the past decades, Congress has sought to induce China
for the use of intellectual property rights (14.8% of all
to reduce the role of the state in the economy and remove
services exports to China or $8.5 billion) and transport
trade and investment barriers, particularly as U.S.-China
(9.3% or $5.3 billion). Leading U.S. services imports from
trade and economic relations have continued to expand. In
China were transport (27.4% of all services imports from
2018, China was—in terms of goods—the U.S. largest
China or $5.0 billion) and travel (24.7% or $4.5 billion).
trading partner, third-largest export market, and largest
Table 1. U.S.-China Trade in 2018
source of imports. China also has become the largest
U.S.$
% Change
foreign holder of U.S. Treasury securities. Despite growing

(billions)
from 2017*
commercial ties, however, in recent years the bilateral
Total U.S. Exports to China
178.0
-4.5
relationship has become increasingly complex and
contentious over a number of economic and trade issues.
Exports of Goods
120.8
-7.3
Concerns over China’s policies on intellectual property
Exports of Services
57.1
2.0
(IP), subsidies, technology, and innovation led the Trump
Administration to launch an investigation into those
Total U.S. Imports from China
558.8
6.7
policies and, subsequently, to impose tariffs on $250 billion
Imports of Goods
540.4
6.8
worth of Chinese imports. President Trump has threatened
to increase tariffs on nearly all remaining imports from
Imports of Services
18.3
5.1
China beginning September 1, 2019.
Total Balance (Deficit)
-380.8
12.9
U.S.-China Trade
Balance on Goods (Deficit)
-419.6
11.7
U.S. exports of goods and services to China totaled $178.0
Balance on Services (Surplus)
38.8
0.6
billion (7.1% of total U.S. exports) in 2018, while imports
from China amounted to $558.8 billion (17.9% of total U.S.
Source: Bureau of Economic Analysis (June 20, 2019).
Note: * not adjusted for inflation.
imports). As a result, the overall bilateral deficit was $380.8
billion, up $43.6 billion (12.9%) from 2017.
U.S.-China Investment
Trade in Goods. U.S. goods exports to China totaled
Foreign Direct Investment. While U.S.-China trade ties
$120.8 billion in 2018, a 7.3% ($9.4 billion) decrease from
have expanded significantly, the level of bilateral foreign
the 2017 level (Table 1). The value of U.S. goods imports
direct investment (FDI) has remained relatively low. Net
was $540.4 billion over the same period, up 6.8% ($34.4
U.S. FDI flows to China in 2018 were $7.6 billion (down
billion) from 2017. The decrease in U.S. exports and
22.9% from 2017), while net Chinese FDI flows into the
increase in U.S. imports resulted in an 11.7% increase in
United States were negative (-$754 million, compared to
the bilateral trade deficit to $419.6 billion. Exports to China
$25.4 billion in 2016), as outflows exceeded inflows (e.g.,
accounted for 7.2% of all U.S. goods exports, while imports
asset divestitures). Additionally, the cumulative U.S. FDI in
from China accounted for 21.1% of all U.S. goods imports.
China was $116.5 billion (up 8.3% from 2017), while that
Top U.S. goods exports to China in 2018 were capital
of China in the United States was $60.2 billion (up 3.7%).
goods, not including automotive ($52.9 billion or 43.8% of
China’s Holdings of U.S. Treasury Securities. As of
U.S. goods exports to China), industrial supplies ($40
May 2019, approximately three-fourths (or $1.1 trillion) of
billion or 33.1%), and automotive vehicles and parts ($10.4
China’s total U.S. public and private holdings are Treasury
billion or 8.6%). Leading U.S. goods imports from China
securities. Chinese ownership of these securities has
were consumer goods, not including food and automotive
decreased in recent years from its peak of $1.3 trillion in
($248.2 billion or 45.9% of U.S. goods imports from
2011. Nevertheless, they remain significantly higher than in
China), industrial supplies ($55.6 billion or 10.3%), and
2002, both in dollar terms (up over $1 trillion) and as a
automotive vehicles and parts ($23.1 billion or 4.28%).
percent of total foreign holdings (from 8.5% to 17.0%). In
Trade in Services. In 2018, U.S. services exports to
2009, China overtook Japan to become the largest foreign
China totaled $57.1 billion (up 2.0% or $1.1 billion), while
holder of Treasury securities.
U.S. imports of services from China grew 5.1% ($887
Current U.S. Issues
million) to $18.3 billion. The bilateral trade surplus in
Trade Deficit.
services stood at $38.8 billion (up 0.6% from 2017).
President Trump has raised concerns about
Exports to China accounted for 6.9% of all U.S. services
U.S. bilateral trade imbalances, particularly with China (as
exports, while imports from China accounted for 3.2% of
it is by far the largest). Some policymakers view large U.S.
all U.S. services imports.
trade deficits as an indicator of an unfair trade relationship
resulting from Chinese trade barriers (e.g., comparatively
Travel represented the largest category of U.S. services
high tariffs) and history of currency manipulation. Others
exports to China, accounting for 56.1% ($32.1 billion) of
view conventional data on the bilateral trade deficit as
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U.S.-China Trade and Economic Relations: Overview
misleading, given the growth of global supply chains used
Section 301 Investigation and Tariffs
by multinational firms. Supporters of this view note that
In March 2018, the U.S. Trade Representative (USTR)
products may be invented or developed in one country and
released the findings of an investigation into Chinese
manufactured or assembled elsewhere—using imported
policies related to technology transfer, intellectual property,
components from multiple foreign sources—and then
and innovation under Section 301 of the Trade Act of 1974.
exported. Conventional U.S. trade data may not fully reflect
The investigation concluded that four IPR-related policies
the value added in each country, and thus are often a
justified U.S. action: (1) China’s forced technology transfer
relatively poor indicator of who benefits from global trade.
requirements, (2) cyber-enabled theft of U.S. IP and trade
In addition, most economists argue that the overall size of
secrets, (3) discriminatory and non-market licensing
the U.S. trade deficit is largely a function of low U.S.
practices, and (4) state-funded strategic acquisition of U.S.
domestic savings relative to its investment needs, rather
assets. Subsequently, the Trump Administration imposed
than the result of foreign trade barriers.
increased 25% tariffs on three tranches of imports from
Industrial Policies. The Trump Administration and some
China worth approximately $250 billion (Table 2). China
Members charge that the Chinese government employs
in turn raised tariffs (at rates ranging from 5% to 25%) on
policies, including subsidies, tax breaks, low-cost loans,
$110 billion worth of U.S. products.
trade and investment barriers, discriminatory IP and
Table 2. U.S. Section 301 Tariff Actions
technology practices, and technology transfer mandates to
Tariff
Stated
support and protect domestic firms, especially state-owned
Date
Rates
Imports
China’s Reaction
enterprises (SOEs). Plans such as “Made in China 2025”
(ad valorem)
Impacted
appear to signal an expanded role by the government in the
07/06/2018
25%
$34 bil ion Equivalent retaliation
economy, which many fear could distort global markets and
08/23/2018
25%
$16 bil ion Equivalent retaliation
have a negative impact on U.S. firms. Moreover, some
09/24/2018,
10%,
5%-10% tariff hikes on $60
$200
bil ion worth of U.S. imports;
officials are concerned that the growing predominance of
then
then
bil ion
then some items raised to up
Chinese firms in certain global supply chains, such as
06/15/2019
25%
to 25%
information and communications technology (ICT)
09/01/2019
Al owed currency to weaken
products and services, could pose national security risks.
10%
$300
against U.S. dollar; vowed
(proposed)
bil ion
“necessary countermeasures"
Intellectual Property Rights (IPR). Some estimates
Source: CRS with data from USTR and China’s Ministry of Finance.
suggest that Chinese IPR violations are a major source of
U.S. economic losses. U.S. firms cite lax IPR enforcement
In the wake of the tariff escalation, both sides have been
as one of the biggest challenges to doing business in China,
engaged in trade talks. However, in May 2019, President
and some view the enforcement shortfalls as a deliberate
Trump expressed frustration with the slow pace of their
effort by the Chinese government to give domestic firms an
progress and accused China of attempting to backtrack on
advantage over foreign competitors. In 2018, the U.S.
commitments made in earlier negotiations. As a result, he
National Counterintelligence and Security Center (NCSC)
ordered the USTR to begin the process of levying increased
described China as having “expansive efforts in place to
25% tariffs on nearly all remaining imports from China.
acquire U.S. technology to include sensitive trade secrets
Recently, the President announced that the United States
and proprietary information.” It warned that if the threat is
would start by increasing tariffs by 10% on these additional
not addressed, “it could erode America’s long-term
imports beginning September 1, 2019.
competitive economic advantage.”
Challenges in Economic Relations
Advanced Technology. The Trump Administration has
Congress has demonstrated significant interest in
raised national security concerns over global supply chains
overseeing the Trump Administration’s efforts to reduce
of advanced technology products, such as ICT equipment,
U.S. bilateral trade deficits, enforce U.S. trade laws and
where China is a major global producer and supplier. In
agreements, and promote “free and fair trade,” particularly
2017, the President blocked a proposed acquisition related
in regard to China. Supporters of the Administration’s use
to semiconductors on national security grounds. In addition,
of Section 301 tariffs and other trade measures against
citing a “national emergency,” he issued an executive order
China contend that these actions will ultimately produce
in May 2019 stating that U.S. purchases of ICT goods and
positive results, such as a more level playing field for U.S.
services from “foreign adversaries” posed a national
firms doing business in China and greater market access for
security risk. He authorized the federal government to ban
U.S. exporters. Others, however, warn that a protracted and
certain ICT transactions deemed to pose an “undue risk.”
escalating trade dispute could lead to numerous new rounds
As a result, the U.S. Commerce Department added Chinese
of tit-for-tat retaliation, sharply reduce commercial flows,
telecommunications firm Huawei and 68 of its non-U.S.
disrupt international supply chains, and diminish global
affiliates to the Bureau of Industry and Security’s Entity
economic growth. In addition, China could further retaliate
List, which would generally require an export license for
by curbing operations of U.S. firms invested in China,
the sale or transfer of U.S. technology to such entities.
reducing its holdings of U.S. Treasury securities, and
Tariffs on Aluminum and Steel. In March 2018,
curtailing rare earth material exports to the United States.
President Trump issued a proclamation imposing tariffs on
Acknowledgment: Sections of this In Focus rely on work originally by Wayne
all aluminum (10%) and steel (25%) imports based on
M. Morrison, former CRS Specialist in Asian Trade and Finance.
“national security” justifications (Section 232 of the Trade
Act of 1962). In response, China raised tariffs by 15% to
Andres B. Schwarzenberg, Analyst in International Trade
25% on $3 billion worth of U.S. imports. It also is pursuing
and Finance
a dispute case at the World Trade Organization.
IF11284
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U.S.-China Trade and Economic Relations: Overview


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