Updated March 2, 2022
U.S.-China Trade Relations
The People’s Republic of China (PRC or China) is the
other consumer goods (e.g., furniture, clothing, footwear,
second-largest global economy and an important global
and toys). China also supplies key intermediate goods (e.g.,
market for the United States. At the same time, U.S. firms
auto components and active pharmaceutical ingredients).
face significant trade barriers, unfair practices, and a lack of
reciprocity in key areas. China’s state-driven economic,
Current levels of U.S. services exports to China remain low
trade, investment, and technology practices and the
relative to total U.S. global service exports. China in 2020
challenges they pose to U.S. economic and technology
accounted for 6% ($40.4 billion) of all U.S. services exports
leadership are of concern to many in Congress. China
and 3% ($15.6 billion) of all U.S. services imports. Top
continues to require the transfer of critical U.S. capabilities
U.S. exports to China were travel, intellectual property (IP)
to China to operate in strategic areas. Many of China’s
licensing, and transportation. Top U.S. imports from China
practices distort markets and undermine fair competition in
were transport and business services. Services trade in the
China and globally as PRC firms expand in areas that China
January to September period fell by 32% in 2020 and by
restricts domestically. China’s system blurs state and
26% in 2021 over the same period in 2019. In 2018, sales of
corporate interests, enabling the government to deploy trade
services in China by majority U.S.-owned affiliates were
tools (e.g., antidumping, antitrust, standards, and
$59.6 billion, while sales of services in the United States by
procurement), economic coercion, and espionage to
majority China-owned firms were $20.6 billion. A Bank of
advantage its firms and advance China’s industrial and
America study in 2021 found that about 16% of U.S.
other policies. The state’s expanding role in commercial
Fortune 500 firms depend on China for at least 5% of their
activity—including an intensification of industrial policies
revenue, while China accounts for over 20% of revenue for
and enactment of a set of interrelated national economic
some of these firms.
security policies and data restrictions since 2020—appear to
have increased the risks of U.S. commercial ties with China
Investment
even as some U.S. firms are increasing their exposure.
Two-way foreign direct investment (FDI) flows have
slowed since 2016, while investment and commercial ties
Figure 1. U.S.-China Goods Trade (2007-2021)
not included in FDI data—technology licensing, research,
venture capital (VC), and financial investments—have
expanded. According to the U.S. Bureau of Economic
Analysis (BEA), net U.S. FDI flows to China in 2020 were
$9.3 billion, and net FDI flows from China to the United
States were $4.3 billion. The stock of U.S. FDI in China
was $123.9 billion, while China’s FDI stock in the United
States was $54.9 billion, on an ultimate beneficiary
ownership basis (UBO). In 2020, China accounted for
approximately 1% of total FDI stock in the United States,
while China accounted for approximately 2% of total U.S.
FDI stock abroad. As of December 2020, U.S. investors

held $1.15 trillion in Chinese stocks and bonds while
Chinese investors held $1.4 trillion in U.S. debt and $720
Source: CRS with data from the U.S. Census Bureau.
billion in U.S. equities, according to U.S. government and
private estimates. As of November 2021, China and Hong
Trade
Kong held $1.08 trillion and $235 billion, respectively, in
U.S.-China trade ties are significant, but arguably
U.S. Treasury securities, making China the second-largest
unbalanced, with China exporting to the United States
foreign holder after Japan. (This data does not include the
almost three times the value of goods that the United States
purchase of securities through offshore financial centers.)
exports to China. In 2021, China was the fourth-largest U.S.
goods trading partner (with total trade at $ 657.4 billion),
China’s Efforts to Set U.S. Terms of Trade
the fourth-largest U.S. export market (at $151.1 billion),
The Chinese government controls or influences the
and the largest source of U.S. imports (at $506.4 billion),
purchase, financing, and price of top U.S. exports to
when the European Union (EU) is considered as one trading
China—aircraft, semiconductors, medical equipment,
partner. (Figure 1.) Total 2021 bilateral trade increased by
agriculture, and energy—and has sought for some time to
17.6% over 2020; U.S. trade with other partners grew at
enhance its control of this trade while reducing its reliance
higher rates: EU (18%), Canada (26%), and Mexico (23%).
on U.S. imports through trade diversification and industrial
Top U.S. goods exports to China include semiconductor
policies that use U.S. commercial ties to develop China’s
chips and equipment, agricultural products, aircraft, gas
capabilities. Some U.S. firms benefit in the short term from
turbines, and advanced medical devices. Top U.S. imports
China’s need to fill gaps, but China’s policies appear to set
from China include consumer electronics, appliances, and
targets to displace these firms once Chinese competitors
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U.S.-China Trade Relations
gain competencies. The government is funding Chinese
assets. USTR subsequently imposed tariffs on an estimated
firms, and acquiring foreign firms, in strategic sectors
$250 billion worth of U.S. imports from China. The PRC
through a state VC model that pools state and foreign
government countered with tariffs on $110 billion worth of
monies in PRC government-tied funds and sub-funds.
U.S. products. Most tariffs remain in effect. In a U.S.-China
“Phase One” trade agreement signed in January 2020,
In response to China’s terms, U.S. aerospace firms have
China made some IP and investment commitments and
invested in joint ventures (JVs) with Chinese state firms to
increased U.S. access in agriculture and financial services,
develop China’s single-aisle aircraft (C-919), which aims to
but the deal did not address most U.S. concerns. Many
compete with Boeing and Airbus using U.S. advanced
aspects of China’s industrial policies appear to break its
technologies. A PRC government fund finances the
commitments in the agreement not to require or pressure
purchase of U.S. technology, equipment, and software that
technology transfer. China’s imports between 2020 and
support the development of China’s semiconductor industry
2021 fell below its commitment to buy at least $502 billion
and its dual-use advanced computing capabilities. In
of U.S. goods and services over two years (a 40.5% gap in
agriculture, China’s state firms have purchased foreign
goods, and an estimated 43% gap in goods and services.)
biotechnology companies (e.g., Syngenta), enhancing its
(Figure 2.) In 2021, China’s global exports grew by 30%
position in overseas trade and production. In electric
over 2020; its exports to the United States grew by 27.5%
vehicles, China has required firms to localize supply chains
over 2020. These increases were in part likely due to PRC
for batteries, components, and systems. In medical devices
incentives to hasten the return of empty containers to China
and pharmaceuticals, a national procurement program
to boost its exports, which may have impeded reloading in
appears to require firms to cut prices, creating cost
the United States and other markets. China is pressing the
pressures that arguably encourage production in China. In
USTR to lift U.S. tariffs—which cover MIC 2025
critical materials, China leverages its control of extraction
products—while sustaining its practices of concern. The
and processing to promote manufacturing in China, while
USTR has reportedly considered new actions against China
acquiring assets abroad. In energy, China has pressed for
under Section 301 to address new issues, such as subsidies.
strategic cooperation in the Gulf of Mexico as a quid pro
quo for its purchase of U.S. liquefied natural gas. In capital
Figure 2.Phase One Trade (Jan. 2020 to Dec. 2021)
markets, China is allowing a few U.S. financial firms to
increase equity stakes and operate wholly-owned funds.
This U.S. role strengthens China’s capital markets, helps
offset China’s debt market risks, and attracts passive U.S.
capital under China’s authorities to support strategic sectors
in which China restricts active foreign competition.
China’s Emerging Trade Positions
The PRC government may be using trade coercion and
protectionism under an assumption that markets will remain
open to China regardless. China depends on open markets
to sustain its growth; allow its firms to expand; and access

technology, capital, and critical resources. China’s export-
Source: CRS with data from the U.S. Census Bureau.
oriented sectors are among its most productive and earn
Notes: Excludes $135.6 bil ion in services. Goods includes aircraft.
foreign exchange, arguably contributing more to China’s
economy than a straight-line exports-to-GDP ratio suggests.
Issues for Congress
With PRC exports that benefit from China’s industrial
Beijing’s continued pursuit of statist practices and relative
policies, such as Made in China 2025 (MIC 2025), now
inaction on longstanding U.S. concerns have arguably
coming online, China has adopted a trade posture that seeks
caused issues to intensify. Some in Congress are concerned
to open global markets and set standards in digital trade and
about asymmetries in economic ties, U.S. participation in
emerging technologies, while restricting foreign firms in
China’s industrial policies, U.S. ties to PRC firms violating
these sectors in China. China’s current government plans
human rights, and China’s practices that may force or
prioritize its ability to set global trade rules; extend the
unfairly incentivize the transfer of U.S. technology and data
global reach of its legal, IP, digital, and antitrust authorities;
to China. These issues appear to be evolving into concerns
and counter U.S. policy actions with its countermeasures.
about how China’s terms for commercial ties may challenge
China has enacted export control, foreign investment, and
U.S. competitiveness, national security, and leadership.
extraterritoriality blocking measures, while joining the
Congress might consider whether and how to strengthen
Regional Comprehensive Economic Partnership (RCEP)
U.S. and global trade rules; require reciprocity; work with
and seeking to join the Comprehensive and Progressive
allies on China trade concerns; and deepen commercial,
Agreement for Trans-Pacific Partnership (CPTPP).
technology, and research ties with like-minded countries.
Section 301 and the Phase One Agreement
Congress might address core systemic issues, such as the
role of the state in China’s corporate activity; consider new
In 2018, the U.S. Trade Representative (USTR), as part of
terms for China trade, investment, technology, and research
an investigation under Section 301 of the Trade Act of 1974
ties; and determine whether and what actions are needed to
(19 U.S.C. §2411), concluded that China engages in forced
address China’s trade coercion and countermeasures.
technology transfer, cyber-enabled theft of U.S. IP and
trade secrets, discriminatory and nonmarket licensing
Karen M. Sutter, Specialist in Asian Trade and Finance
practices, and state-funded strategic acquisitions of U.S.
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U.S.-China Trade Relations

IF11284


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https://crsreports.congress.gov | IF11284 · VERSION 14 · UPDATED

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