Updated December 22, 2022
U.S.-China Trade Relations
The People’s Republic of China (PRC or China) is the
semiconductor chips and equipment, agricultural products,
second-largest global economy and an important global
aircraft, gas turbines, and advanced medical devices. Top
market for the United States. At the same time, U.S. firms
U.S. imports from China include consumer electronics,
face significant trade barriers, unfair practices, and a lack of
appliances, and other consumer goods (e.g., furniture,
reciprocity in key areas. China’s state-driven economic,
clothing, footwear, and toys). China also supplies key
trade, investment, and technology practices and the
intermediate goods to the United States (e.g., auto
challenges they pose to U.S. economic and technology
components and active pharmaceutical ingredients).
leadership are of concern to many in Congress. China
Current levels of U.S. services exports to China remain low
continues to require the transfer of critical U.S. capabilities
relative to total U.S. global service exports. China in 2021
to China to operate in strategic areas. Many in Congress
accounted for 5% ($39.5 billion) of all U.S. services exports
have expressed concern that China’s practices distort
and 4% ($21.5 billion) of all U.S. services imports. Top
markets and undermine fair competition in China and
U.S. exports to China were travel, intellectual property (IP)
globally as PRC firms expand in areas that China restricts
licensing, and transportation. Top U.S. imports from China
domestically. China’s system blurs state and corporate
were transport and business services. Total 2021 bilateral
interests, enabling the government to deploy trade tools
trade in services was down 23% over 2019. In 2020, sales
(e.g., antidumping, antitrust, standards, and procurement),
of services in China by majority U.S.-owned affiliates were
economic coercion, and espionage to advantage its firms
and advance China’s
$371 billion, while total U.S. sales in by majority PRC-
industrial and other policies. The
state’s expanding role in commercial activity—
owned firms were $76.2 billion. A 2021 Bank of America
including an
study found that about 16% of U.S. Fortune 500 firms
intensification of industrial policies and enactment of a set
depend on China for at least 5% of their revenue. For some
of interrelated national economic security policies and data
of these firms, China accounts for over 20% of revenue.
restrictions since 2020—appear to have increased the risks
of U.S. commercial ties with China even as some U.S. firms
Investment
increase their exposure in China.
Two-way foreign direct investment (FDI) flows have
Figure 1. U.S.-China Goods Trade (2007-2021)
slowed since 2016, while investment and commercial ties
not included in FDI data—technology licensing, research,
venture capital, and financial investments—have expanded.
According to the BEA, net U.S. FDI flows to China in 2021
were $2.8 billion, and net FDI flows from China to the
United States were $813 million on a historical-cost basis.
The stock of U.S. FDI in China was $118.2 billion, while
China’s FDI stock in the United States was $53.7 billion, on
an ultimate beneficiary ownership basis. In 2021, China
accounted for about 1% of total FDI stock in the United
States, while China accounted for about 2% of total U.S.
FDI stock abroad. As of December 2020, U.S. investors
held $1.15 trillion in PRC stocks and bonds while PRC

investors held $1.4 trillion in U.S. debt and $720 billion in
Source: CRS with data from the U.S. Census Bureau.
U.S. equities, according to U.S. government and private
Trade
estimates. As of October 2022, China and Hong Kong held
U.S.-China trade ties are significant, but arguably
$909.6 billion and $185.6 billion, respectively, in U.S.
unbalanced, with China exporting to the United States more
Treasury securities, making them together the largest
than almost three times the value of goods that the United
foreign holder of U.S. Treasury securities. (This data does
States exports to China. In 2021, China was the fourth-
not include purchases of securities made through offshore
largest U.S. goods trading partner (with total trade at $657.9
financial centers.)
billion), the fourth-largest U.S. export market (at $152.5
China’s Efforts to Set U.S. Terms of Trade
billion), and the largest source of U.S. imports (at $505.3
The PRC government controls or influences the purchase,
billion), when the European Union (EU) is considered as
financing, and price of top U.S. exports to China—aircraft,
one trading partner (Figure 1). Total 2021 U.S.-China trade
semiconductors, medical equipment, agriculture, and
increased by 18% over 2020; U.S. trade with other top
energy. It has sought for some time to enhance its control of
partners grew at these rates: EU (18%), Canada (26%), and
this trade while reducing its reliance on U.S. imports
Mexico (23%). In the first three quarters of 2022, U.S.
through trade diversification and industrial policies that use
goods imports from China increased by 17% and U.S.
U.S. commercial ties to develop China’s capabilities. Some
goods exports to China increased by 4% over the same
U.S. firms benefit in the short term from China’s need to
period in 2021, according to U.S. Bureau of Economic
fill gaps, but China’s policies appear to set targets to
Analysis (BEA). Top U.S. goods exports to China include
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U.S.-China Trade Relations
displace these firms once PRC competitors gain
technology transfer, cyber-enabled theft of U.S. IP and
competencies. The PRC government is funding PRC firms,
trade secrets, discriminatory and nonmarket licensing
and acquiring foreign firms, in strategic sectors through a
practices, and state-funded strategic acquisitions of U.S.
state venture capital model that pools state and foreign
assets. USTR subsequently imposed tariffs on an estimated
monies in PRC government-tied funds and sub-funds.
$370 billion worth of U.S. imports from China. The PRC
In response to China’s terms, U.S. aerospace firms have
government countered with tariffs on $110 billion worth of
invested in joint ventures (JVs) with PRC state firms to
U.S. products. Most tariffs remain in effect. In a U.S.-China
develop China’s
“
single-aisle aircraft (C-919), which aims to
Phase One” trade agreement signed in January 2020,
compete with Boeing and Airbus using U.S. advanced
China made some IP and investment commitments and
technologies. A PRC government fund finances the
increased U.S. access in agriculture and financial services,
purchase of U.S. technology, equipment, and software that
but the deal did not address most U.S. concerns. Many
support the development of China’s semiconductor industry
aspects of China’s industrial policies appear to break its
and its dual-use advanced computing capabilities. In
commitments in the agreement not to require or pressure
agriculture, China’s state firms have purchased foreign
technology transfer. China’s imports from 2020 and 2021
biotechnology companies (e.g., Syngenta), enhancing
fell below its commitment to buy at least $502 billion of
China’s position in overseas trade and production. In
U.S. goods and services over two years (an estimated 43%
electric vehicles, China has required firms to localize
gap in goods and services) (Figure 2). In 2021, China’s
supply chains for batteries, components, and systems. In
global exports grew by 30% over 2020; its exports to the
medical devices and pharmaceuticals, a national
United States grew by 28% over 2020. China is pressing the
procurement program appears to require firms to cut prices,
USTR to lift U.S. tariffs—which cover MIC 2025
creating cost pressures that arguably encourage production
products—while sustaining its practices of U.S. concern.
in China. In critical materials, China leverages its control of
The USTR may consider new actions against China under
extraction and processing to promote manufacturing in
Section 301 in areas such as subsidies.
China, while acquiring assets abroad. In energy, China has
Figure 2. Phase One Trade (Jan. 2020 to Dec. 2021)
pressed for strategic cooperation in the Gulf of Mexico as a
quid pro quo for its purchase of U.S. liquefied natural gas.
In capital 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 of China’s policies and practices.

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

IF11284


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https://crsreports.congress.gov | IF11284 · VERSION 16 · UPDATED

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