Updated September 12, 2019
U.S.-China Trade and Economic Relations: Overview
Background
Table 1. U.S.-China Trade in 2018
Over the past decades, Congress has sought to induce China
U.S.$
% Change
to reduce the role of the state in the economy and remove

(billions)
from 2017*
trade and investment barriers, particularly as U.S.-China
Total U.S. Exports to China
178.0
-4.5
trade and economic relations have continued to expand. In
Exports of Goods
120.8
-7.3
2018, China was—in terms of goods—the U.S. largest
Exports of Services
57.1
2.0
trading partner, third-largest export market, and largest
Total U.S. Imports from China
558.8
6.7
source of imports. China is also the second-largest foreign
Imports of Goods
540.4
6.8
holder of U.S. Treasury securities. Despite growing
commercial ties, however, in recent years the bilateral
Imports of Services
18.3
5.1
relationship has become increasingly complex and
Total Balance (Deficit)
-380.8
12.9
contentious over several economic and trade issues.
Balance on Goods (Deficit)
-419.6
11.7
Concerns over China’s policies governing intellectual
Balance on Services (Surplus)
38.8
0.6
property (IP), subsidies, technology, and innovation led the
Source: Bureau of Economic Analysis (June 20, 2019).
Trump Administration to launch an investigation into those
Note: * not adjusted for inflation.
policies and, subsequently, to impose tariffs on nearly all
U.S. imports from China.
U.S.-China Investment
U.S.-China Trade
Foreign Direct Investment. While U.S.-China trade ties
U.S. exports of goods and services to China totaled $178.0
have expanded significantly, the level of bilateral foreign
billion (7.1% of total U.S. exports) in 2018, while imports
direct investment (FDI) has remained relatively low. Net
from China amounted to $558.8 billion (17.9% of total U.S.
U.S. FDI flows to China in 2018 were $7.6 billion (down
imports). As a result, the overall bilateral deficit was $380.8
22.9% from 2017), while net Chinese FDI flows into the
billion, up $43.6 billion (12.9%) from 2017.
United States were negative (-$754 million, compared to
Trade in Goods.
$25.4 billion in 2016), as outflows exceeded inflows (e.g.,
U.S. goods exports to China totaled
asset divestitures). Additionally, the cumulative U.S. FDI in
$120.8 billion in 2018, a 7.3% ($9.4 billion) decrease from
China was $116.5 billion (up 8.3% from 2017), while that
the 2017 level (Table 1). The value of U.S. goods imports
of China in the United States was $60.2 billion (up 3.7%).
was $540.4 billion over the same period, up 6.8% ($34.4
China’s Holdings of U.S. Treasury Securities.
billion) from 2017. The decrease in U.S. exports and
As of
increase in U.S. imports resulted in an 11.7% increase in
June 2019, approximately three-fourths (or $1.11 trillion) of
China’s total U.S. public
the bilateral trade deficit to $419.6 billion. Exports to China
and private holdings are Treasury
accounted for 7.2% of all U.S. goods exports, while imports
securities. Chinese ownership of these securities has
from China accounted for 21.1% of all U.S. goods imports.
decreased since 2011. Nevertheless, they remain
significantly higher than in 2002, both in dollar terms (up
Top U.S. goods exports to China in 2018 were capital
over $1 trillion) and as a percent of total foreign holdings
goods, not including automotive ($52.9 billion or 43.8% of
(from 8.5% to 17.0%). In June 2019, Japan overtook China
U.S. goods exports to China), industrial supplies ($40
to become the largest foreign holder of Treasury securities.
billion or 33.1%), and automotive vehicles and parts ($10.4
billion or 8.6%). Leading U.S. goods imports from China
Current U.S. Issues
were consumer goods, not including food and automotive
Trade Deficit. President Trump has raised concerns about
($248.2 billion or 45.9% of U.S. goods imports from
U.S. bilateral trade imbalances, particularly with China (as
China), industrial supplies ($55.6 billion or 10.3%), and
it is by far the largest). Some policymakers view the U.S.
automotive vehicles and parts ($23.1 billion or 4.28%).
trade deficit as an indicator of an unfair trade relationship
Trade in Services. In 2018, U.S. services exports to
resulting from Chinese trade barriers and history of
China totaled $57.1 billion (up 2.0% or $1.1 billion), while
currency manipulation. Others view conventional data on
U.S. imports of services from China grew 5.1% ($887
the bilateral trade deficit as misleading, given the growth of
million) to $18.3 billion. The bilateral trade surplus in
global supply chains and China’s role as a point of
services stood at $38.8 billion.
assembly. Supporters of this view note that products may be
Travel represented the largest category of U.S. services
invented or developed in one country and manufactured or
exports to China, accounting for 56.1% ($32.1 billion) of
assembled elsewhere—using imported components from
exports to China. Other significant categories were charges
multiple sources—and then exported. Conventional U.S.
for the use of intellectual property rights (14.8% of all
trade data may not fully reflect the value added in each
services exports to China or $8.5 billion) and transport
country, and thus are often a relatively poor indicator of
(9.3% or $5.3 billion). Leading U.S. services imports from
who benefits from trade. Many economists also argue that
China were transport (27.4% of all services imports from
the overall size of the U.S. trade deficit is largely a function
China or $5.0 billion) and travel (24.7% or $4.5 billion).
of low U.S. domestic savings relative to its investment
needs, rather than the result of foreign trade barriers.
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U.S.-China Trade and Economic Relations: Overview
Industrial Policies. The Trump Administration and some
in turn, raised tariffs (at rates ranging from 5% to 25%) on
Members charge that the Chinese government employs
$110 billion worth of U.S. products.
policies, including subsidies, tax breaks, low-cost loans,
Table 2. U.S. Section 301 Tariff Actions
trade and investment barriers, as well as discriminatory IP
Tariff
Stated
and technology practices to support and protect domestic
Date
Rates
Imports
China’s Reaction
firms, especially state-owned enterprises. Plans such as
(ad valorem)
Impacted
“Made in China 2025” appear to signal an expanded role of
07/06/2018
25%
$34
25% tariff hike on $34 bil ion of
the government in the domestic economy, which many fear
(proposed
(proposed to
bil ion
U.S. goods (effective 07/06/2018)
10/15/2019) rise to 30%)
could distort global markets and negatively affect U.S.
08/23/2018
firms. Some officials are also concerned that the growing
25%
$16
25% tariff hike on $16 bil ion of
(proposed
(proposed to
predominance of Chinese firms in certain global supply
bil ion
U.S. goods (effective 08/23/2018)
10/15/2019) rise to 30%)
chains, such as information and communications
09/24/2018,
10%,
5%-10% tariff hikes on $60 bil ion
technology (ICT), could pose national security risks.
then
worth of U.S. imports (effective
then 25%
$200
Intellectual Property Rights (IPR).
06/15/2019
09/24/2018); then tariffs on some
Some estimates
bil ion
(proposed
(proposed to
items raised to up to 25%
suggest that Chinese IPR violations are a major source of
10/15/2019) rise to 30%)
(effective 06/01/2019)
U.S. economic losses. U.S. firms cite lax IPR enforcement
Al owed currency to weaken
as one of the primary challenges to doing business in China,
09/01/2019
against U.S. dollar; suspended new
purchases of U.S. agricultural
and some view the enforcement shortfalls as a deliberate
on first
tranche
goods; announced 5%-10% tariffs
effort by the Chinese government to give domestic firms an
on $75 bil ion of imports from
(proposed
15%
$300
advantage over foreign competitors. In 2018, the U.S.
bil ion
United States (effective
second
09/01/2019 and 12/15/2019);
National Counterintelligence and Security Center (NCSC)
tranche on
announced restoration of 5%-25%
described China as having “expansive efforts in place to
12/15/2019)
tariffs on U.S. autos and auto parts
(effective 12/15/2019)
acquire U.S. technology to include sensitive trade secrets
and proprietary information.” It warned that if the threat is
Source: CRS with data from USTR and China’s Ministry of Finance.
not addressed, “it could erode America’s long-term
In August 2019, tensions escalated after bilateral trade talks
competitive economic advantage.”
stalled. President Trump ordered the USTR to begin
Advanced Technology. The Trump Administration has
levying increased 10% tariffs on nearly all remaining
raised national security concerns over global supply chains
imports from China, valued at $300 billion, to take effect in
of advanced technology products, such as ICT equipment,
two stages: on September 1 and December 15, 2019. In
in which China is a major global producer and supplier. In
response, China announced its intent to apply increased 5%
2017, the President blocked a proposed acquisition related
and 10% tariffs on about $75 billion of imports from the
to semiconductors on national security grounds. In addition,
United States on the same dates. The Trump Administration
citing a “national emergency,” he issued an executive order
subsequently threatened to retaliate further, indicating that
in May 2019 stating that U.S. purchases of ICT goods and
all U.S. tariffs would be increased by another 5%, raising
services from “foreign adversaries” posed a national
the existing tariffs to 30% on October 1 and the newly
security risk. He authorized the federal government to ban
proposed 10% tariffs to 15%. (On September 11, the tariff
certain ICT transactions deemed to pose an “undue risk.”
hike originally scheduled for October 1 was postponed to
As a result, the U.S. Commerce Department added Chinese
October 15.) China announced that it would not retaliate, at
telecommunications firm Huawei and 68 of its non-U.S.
least for now, against the additional 5% U.S. tariffs increase
affiliates to the Bureau of Industry and Security’s Entity
announcement. The latest round of so-called tit-for-tat
List, which would generally require an export license for
tariffs went into effect on September 1, 2019, and a 13th
the sale or transfer of U.S. technology to such entities.
round of negotiations is scheduled for early October 2019.
Tariffs on Aluminum and Steel.
Challenges in Economic Relations
In March 2018,
President Trump announced the imposition of tariffs on all
Congress has demonstrated significant interest in
aluminum (10%) and steel (25%) imports citing “national
overseeing the Trump Administration’s efforts to enforce
security” justifications (Section 232 of the Trade Act of
U.S. trade laws and agreements and promote “free and fair
1962). In response, China raised tariffs by 15% to 25% on
trade,” particularly in regard to China. Supporters of the
$3 billion worth of U.S. imports. It also is pursuing a
Administration’s use of Section 301 tariffs and other trade
dispute case at the World Trade Organization.
measures against China contend that these actions will
Section 301 Investigation and Tariffs
ultimately produce positive results, such as a more level
playing field for U.S. firms doing business in China and
In March 2018, the U.S. Trade Representative (USTR)
greater market access for U.S. exporters. Others, however,
released the findings of an investigation into Chinese
warn that a protracted and escalating trade dispute could
policies related to technology transfer, IP, and innovation
sharply reduce commercial flows, disrupt global supply
under Section 301 of the Trade Act of 1974. The
chains, and threaten global economic growth. In addition,
investigation concluded that four IPR-related practices
China could further retaliate by curbing operations of U.S.
justified U.S. action: (1) forced technology transfer
firms invested in China and curtailing rare earth material
requirements, (2) cyber-enabled theft of U.S. IP and trade
exports to the United States.
secrets, (3) discriminatory and non-market licensing
practices, and (4) state-funded strategic acquisition of U.S.
Andres B. Schwarzenberg, Analyst in International Trade
assets. Subsequently, the Trump Administration imposed
and Finance
increased 25% tariffs on three tranches of imports from
China worth approximately $250 billion (Table 2). China,
IF11284
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U.S.-China Trade and Economic Relations: Overview


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https://crsreports.congress.gov | IF11284 · VERSION 4 · UPDATED

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