Updated November 19, 2019
U.S.-China Trade and Economic Relations: Overview
As U.S.-China economic ties have grown, so too have U.S.
Figure 1. U.S.-China Trade in 2018
concerns about the business environment in China and
China’s trade practices. Top U.S. concerns include the
Chinese state’s increasingly direct and powerful role in the
economy and China’s policies requiring U.S. firms to
disclose increasingly sensitive information as a
precondition to operate in China.
Beijing’s slowness to acknowledge and address priority
U.S. concerns while Chinese firms expand their activities in
the United States and globally has highlighted uneven
levels of market openness, divergent approaches to global
rules, and significant differences in the operating conditions
and tenets of the U.S. and Chinese economic systems.
These differences relate to the role of government in the

economy, policies around freedom of information and
Figure 2. U.S.-China Trade in 2018 and 2019
expression, protections of privacy and intellectual property
(IP), and approaches to the rule of law. Developments
feeding U.S. concerns include an uptick in reports of
Chinese corporate espionage, Beijing’s tightening of
information controls (and pressure on U.S. firms to abide
by these controls), China’s use of tit-for-tat retaliation,
industrial policies, and policies incentivizing the transfer of
civilian knowhow to the military (including knowhow
obtained from U.S. firms).
To address these issues, the Trump Administration has
undertaken policy actions that include invoking Section 301
of the Trade Act of 1974 (19U.S.C. §2411) to target
Chinese industrial policies and IP abuses, strengthening

U.S. investment review and export control authorities, and
Sources: CRS: data from U.S. Bureau of Economic Analysis (BEA).
stepping up efforts to stem Chinese economic espionage.
Figure 3. U.S.-China FDI Flows in 2018
The Administration has sanctioned specific Chinese firms
for violations of U.S. sanctions, theft of U.S. IP, ties to the
Chinese military in dual-use sectors, and provision of
surveillance technology to Chinese authorities in the
western Chinese region of Xinjiang. While policymakers
have debated the use of tariffs as a policy tool, a consensus
appears to be emerging about the imperative of sustained
policy attention to address growing U.S. commercial
concerns about China even if the United States reaches a
settlement with China in the Section 301 dispute.

Bilateral Trade
Source: CRS with data from BEA and the Rhodium Group (RhG).
The U.S.-China commercial relationship has expanded
Notes: VC=Venture capital. BEA records net flows and may
significantly over the past three decades. In 2018, China
undercount FDI by not capturing al FDI via other countries,
was, in terms of goods, the largest U.S. trading partner
territories, or tax havens, or acquisitions made by U.S. affiliates of
(with total trade at $660 billion), the third-largest U.S.
foreign firms. RhG records gross flows and attempts to identify FDI
export market (at $120 billion), and the largest source of
by Chinese firms regardless of where firms are based or sources of
U.S. imports (at $540 billion) (Figure 1). China is the
money for investment.
second-largest foreign holder of U.S. Treasury securities (at
U.S.-China Investment
$1.11 trillion as of June 2019). As the United States and
Foreign direct investment (FDI) flows in both directions
China have increased tariffs since 2018, year-to-date (YTD)
have slowed since 2017. RhG estimates China FDI into the
bilateral trade flows decreased in the first three quarters of
U.S. went from $45.5 billion in 2016 to $29.4 billion in
2019, with U.S. merchandise exports to China falling by
2017 and $4.8 billion in 2018, but announced deals show
16%, while U.S. imports from China fell by 13%, according
China’s sustained interest in U.S. biotech, health, and
to preliminary official U.S. data (Figure 2).
technology sectors through acquisitions and greenfield
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U.S.-China Trade and Economic Relations: Overview
investments and ties not captured in FDI data (e.g., VC,
232, Trade Expansion Act of 1962, PL 87-794). China
private equity, research and development, and open
responded by raising tariffs by 15% to 25% on $3 billion of
technology platforms).
U.S. exports and filing a World Trade Organization case.
Current U.S. Issues
Section 301. In March 2018, the U.S. Trade
Trade Deficit.
Representative (USTR) released the findings of an
President Trump has raised concerns about
investigation into Chinese policies related to technology
U.S. trade imbalances with China. Some view the bilateral
transfer, IP, and innovation under Section 301 of the Trade
trade deficit as an indicator of Chinese trade barriers—
Act of 1974. The investigation concluded that four practices
including currency manipulation and Chinese policies and
justified U.S. action: forced technology transfer
practices that discourage direct U.S. exports and incentivize
requirements, cyber-enabled theft of U.S. IP and trade
manufacturing in China. Others view conventional data on
secrets, discriminatory and nonmarket licensing practices,
the trade deficit as misleading because China’s role as a
and state-funded strategic acquisition of U.S. assets.
point of assembly in global supply chains means China
export data includes the value of imported inputs from other
The United States has imposed increased 25% tariffs on
markets. Many economists argue the overall U.S. trade
three tranches of imports from China worth approximately
deficit is largely a function of low U.S. domestic savings
$250 billion. China, in turn, raised tariffs (at rates ranging
relative to investment needs.
from 5% to 25%) on $110 billion worth of U.S. products.
Industrial Policies, Technology, and IP.
Citing lack of progress in talks, the President in August
To further its
2019 authorized increased 10% tariffs on nearly all
national development goals, China’s government employs
remaining imports from China, valued at $300 billion, to
interrelated industrial policies that seek the transfer of
take effect in two stages (September 1 and December 15,
foreign IP and knowhow to China in sectors in which the
2019). In response, China announced increased 5% and
United States has strong comparative advantages. These
10% tariffs on about $75 billion of U.S. products for the
policies, such as Made in China 2025, feature a heavy
same dates. The Administration responded by raising the
government role in directing and supporting Chinese
newly proposed tariffs to 15%.
business and include government-set targets, government-
guided funds, subsidies, tax breaks, low-cost loans, trade
Tensions eased somewhat in October as bilateral talks
and investment barriers, and discriminatory IP,
continued on agriculture, financial services, and some IP
procurement, and standards practices. U.S. companies are
issues. Chinese statements indicate Beijing is pressing the
also concerned about China’s cyber and data policies that
United States to lift existing tariffs as a precondition to an
require the disclosure of sensitive information. In 2018, the
agreement. U.S. business has voiced concerns that China is
U.S. National Counterintelligence and Security Center
not addressing core issues as it doubles down on industrial
warned that China’s “expansive efforts in place to acquire
policies. The President has stated that China will buy $50
U.S. technology to include sensitive trade secrets and
billion of U.S. agricultural goods is generating debate that
proprietary information,” if not addressed, “could erode
China might stretch purchases over several years. Beijing
America’s long-term competitive economic advantage.”
has stated that purchases will be market-based, suggesting it
National Security.
may lower actual purchase amounts. U.S. tariffs currently
Congress and the Administration have
affect a majority of U.S. imports from China.
responded to national security concerns about China’s
industrial policies and role in technology supply chains.
Financial Markets. Some Members are concerned about
Citing a “national emergency,” the President in May 2019
China’s access to U.S. capital markets. Responding to
issued Executive Order 13873, stating that U.S. purchases
warnings by the Securities Exchange Commission and the
of information and communications technology (ICT)
Public Company Accounting Oversight Board that they
goods and services from “foreign adversaries” pose a
cannot inspect the work of auditing firms in China that
national security risk and authorizing the federal
examine U.S. listed firms, S. 1731 and H.R. 3124 would
government to ban ICT transactions deemed to pose an
require Chinese firms that fail to meet U.S. auditing
“undue risk.” The U.S. Department of Commerce
requirements to delist from U.S. exchanges. H.R. 2903
responded by adding Chinese firm Huawei and 68 of its
would bar the U.S. government’s Thrift Savings Plan (TSP)
non-U.S. affiliates to the Bureau of Industry and Security’s
from investing “in any entity in peer or near-peer
Entity List, generally requiring an export license for the sale
competitor nations,” a category that would include China.
or transfer of U.S. technology but has issued waivers.
Additional Issues. Supporters contend that the
Legislation enacted in 2018 (P.L. 115-232) reforms U.S.
Administration’s China measures will better position U.S.
foreign investment review and export control authorities.
firms and advance U.S. economic interests. Others warn
Some Members have voiced concern about the
that bilateral frictions could reduce commercial flows,
Administration’s delay in establishing new controls on
disrupt supply chains, and threaten growth. Some policy
certain emerging and foundational technologies that are
makers call for further U.S. action, including addressing
required to implement key provisions of both the
China’s coercion of U.S. firms, use of new technologies and
investment review and export control reforms.
a corporate “social credit system” to control information,
Industrial Overcapacity. China is a top global steel and
and adoption of military-civil fusion policies that blur
aluminum producer. In 2009, it issued 13 industry support
traditional commercial and military distinctions in trade and
plans allowing its firms to expand steel and aluminum
investment.
capacity while much of the world dialed back. Assessing
persistent global overcapacity, the United States in March
Karen M. Sutter, Specialist in Asian Trade and Finance
2018 announced tariffs on all aluminum (10%) and steel
IF11284
(25%) imports citing national security concerns (Section
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U.S.-China Trade and Economic Relations: Overview


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https://crsreports.congress.gov | IF11284 · VERSION 6 · UPDATED

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