U.S.-China Trade Issues

U.S.-China Trade Issues

November 24, 2014
U.S.-China Trade Issues
Background
WTO Compliance. China’s accession into the WTO
advanced its market reforms and openness to trade.
The U.S.-China trade and economic relationship has
However, U.S. trade officials contend that while China
expanded significantly over the past three decades,
made significant progress toward market liberalization in
especially since China’s entrance into the World Trade
the years immediately after its accession, it moved towards
Organization (WTO) in 2001. China is currently the United
States’ third largest export market and biggest source of
a more restrictive trade regime beginning in 2006. The

United States has brought 15 WTO dispute settlement cases
imports, making it the second largest overall U.S. trading
against China as of July 2014 on issues such as IPR, export
partner. In 2013, U.S. exports to China amounted to $122
subsidies, discriminatory industrial policies, and restrictions
billion while U.S. imports from China were $440 billion.
on trading and distribution rights.
According to the U.S. Bureau of Economic Analysis,
cumulative Chinese foreign direct investment (FDI) in the
Figure 1. Recent U.S. WTO Cases Against China
United States by the end of 2013 was $8.1 billion, while
cumulative U.S. FDI in China was $61.5 billion. China also
September 2012
is the largest foreign holder of U.S. Treasury securities
The United States initiated a case against China for providing
($1.3 trillion as of September 2014), which helps keep U.S.
export subsidies to Chinese auto and auto parts
interest rates low. However, tension between the two
manufacturers. The results are stil pending.
countries has risen in recent years over a number of issues.

July 2012
Key U.S. Issues
The United States brought a case against China for imposing
anti-dumping and countervailing duties on certain autos from
Intellectual Property Rights (IPR) and Cybersecurity.
the United States that were inconsistent with WTO
U.S. firms cite the lack of effective protection of IPR as one
regulations. The United States prevailed.
of the biggest impediments that they face in conducting

business in China and sometimes view lax IPR enforcement
March 2012
in the country as a way to give domestic firms an advantage
The United States, Japan, and the European Union jointly
over foreign competitors. In May 2013, an independent
brought a case against China over its restrictive export
commission estimated that the United States suffers an
policies on rare earths and other minerals, which were found
annual loss of over $300 billion due to the international
to have violated China’s WTO commitments.
theft of U.S. intellectual property and attributed up to 80%

of the problem to China.
Source: World Trade Organization (WTO).
In 2011, the U.S. Office of the National Counterintelligence
Executive described Chinese actors as “the world’s most
Currency Policy. Since 1994, the Chinese government has
active and persistent perpetrators of economic espionage”
intervened in the currency market to limit or halt the
and as aggressive collectors of sensitive U.S. business
appreciation of the Chinese renminbi (RMB) against the
information and technologies. In May 2014, the United
U.S. dollar, which many argue has allowed Chinese exports
States Department of Justice indicted five members of the
to the United States to be less expensive and U.S. exports to
Chinese People’s Liberation Army (PLA) for government-
China to be more expensive than under a floating exchange
sponsored cyber espionage against U.S. companies and
rate system. Some U.S. policymakers contend that China’s
theft of proprietary information to aid state-owned
currency policy has contributed to the large annual U.S.
enterprises (SOEs). China responded by suspending its
trade deficit with China and the loss of U.S. manufacturing
participation in a bilateral working group on cybersecurity
jobs in some industries. Others note that since the RMB
with the United States. Some U.S. policymakers are
appreciated by almost 33% against the U.S. dollar from
concerned that the issue will negatively impact commercial
July 2005 to May 2014, the focus on China’s currency
ties between the two countries.
policy may depend on whether China backtracks on its
current currency appreciation in order to increase its
Industrial Policies. Many U.S.-China trade tensions arise
exports.
from China’s incomplete transition to a market economy,
Trade Deficit. At $319 billion in 2013, the U.S. trade
including its government support and protection of SOEs.
deficit with China is significantly larger than its trade
Critics have charged that the Chinese government has been
deficit with any other partner. Some U.S. analysts argue
employing policies such as subsidies, tax breaks, low-cost
that the large deficit is a result of China’s alleged unfair
loans, market access barriers, lax enforcement of IPR,
trade practices. Others maintain that it is a reflection of
limits on FDI, and restrictions on exports of raw materials
China’s role as a major center for global supply chains. A
in order to aid and develop industries deemed critical to
joint study released by the Organization for Economic
China’s economic growth.
Cooperation and Development (OECD) and WTO
www.crs.gov | 7-5700

U.S.-China Trade Issues
estimated that the 2009 U.S. trade deficit with China would
commercial opportunities between the two. The next round
have been reduced by up to 25% if bilateral trade flows
of the JCCT will be on December 16-18, 2014, in Chicago.
were measured according to the value-added that occurred
Current Negotiations
in China prior to being exported, as China often serves as
the final point of assembly for many of its products and
Bilateral Investment Treaty (BIT). China and the United
thus contributes little to the final value of the exports.
States are currently negotiating a BIT that could expand
bilateral investment ties. It aims to establish mutual
Figure 2. U.S.-China Trade Deficit ($ billions)
nondiscriminatory treatment of investments and reduce both
market access barriers and ownership restrictions for U.S.
firms in China, among other provisions. China has agreed
to use the “negative list” approach in reducing ownership
restrictions via the BIT, where all industries except those
explicitly listed would be open to investments. At the 2014
S&ED, both parties committed to solidifying major articles
of the BIT by the end of 2014, as well as initiating
negotiations on the “negative list” by early 2015.
WTO Government Procurement Agreement (GPA). The
GPA is a plurilateral agreement established by the WTO in
1996 to provide market access for nondefense government
procurement projects to its signatories. China’s accession to
the GPA would provide U.S. firms access to an estimated
$200 billion market and has been a priority for the United
States, which is already a GPA member. It would also allow
Source: United States Census Bureau, Trade in Goods with China.
Chinese firms to bid on U.S. contracts based on GPA
Foreign Direct Investment (FDI). U.S.-China FDI flows
thresholds. China has submitted several offers to join the
are relatively small given the high level of bilateral trade.
GPA since 2007, but GPA members have rejected the offers
because they allowed only limited access to the Chinese
Although Chinese FDI in the United States has grown
public procurement market, among other concerns.
recently as a result of large-scale acquisitions in industries
such as food, energy and real estate, cumulative Chinese
Trans-Pacific Partnership (TPP). The TPP is a free trade
FDI in the United States remains modest in comparison to
agreement (FTA) currently being negotiated among the
countries such as Japan ($342.3 billion by end of 2013).
United States and 11 countries in the Asia-Pacific region.
Some policymakers have raised concerns that certain
China is not part of the current negotiations, but has
Chinese acquisitions of U.S. domestic firms may cause a
expressed interest in joining the agreement. Its participation
loss of sensitive technologies and outsourcing of jobs. U.S.
would depend in large part on its ability to meet the TPP
firms in China have also faced challenges, including equity
objectives of reaching a comprehensive and high-standard
caps, lack of regulatory transparency, and restrictions on
FTA, including on issues such as investment, IPR, and
SOEs. Inclusion in the TPP may be an opportunity to
investments in industries that China considers strategic,
accelerate China’s market reforms and improve its business
including telecommunications and financial services. To
climate for U.S. firms.
encourage more domestic development of technological
innovations, Chinese officials have reportedly pressured
The WTO Information Technology Agreement (ITA).
U.S. firms to transfer technology to Chinese partners or set
During President Obama’s visit to China in November
up research and development facilities in China in exchange
2014, the United States and China announced that they had
for access to China’s markets—an issue exacerbated by
reached an understanding on products that would be
China’s weak IPR protection.
covered under a new ITA pact, a plurilateral agreement that

is currently being negotiated among 70 WTO members.
Ongoing Bilateral Dialogues
The agreement would seek to expand on the 1996 ITA
agreement by adding more than 200 tariff lines that would
U.S.-China Strategic and Economic Dialogue (S&ED).
be subject to zero tariffs. Up until recently, China had been
The cabinet-led S&ED—first launched in 2006 as the
accused by U.S. officials of holding up the ITA agreement
Strategic Economic Dialogue—was established in 2009 to
by seeking to exclude a broad range of products from tariff
enable senior Chinese and U.S. officials to address long-
elimination, such as semiconductors, in order to protect
term strategic and economic challenges. At the July 2014
certain Chinese industries, a position that contributed to a
S&ED, China pledged to continue to increase the flexibility
suspension in the ITA negotiations in November 2013.
of the RMB exchange rate, boost domestic consumption,
China’s new position is expected to help facilitate final
lessen government involvement in market operations, and
adoption of the ITA agreement in the WTO.
reduce trade and investment barriers for U.S. firms.
For more information, see CRS Report R33536, China-U.S.
Trade Issues, by Wayne M. Morrison.
Joint Commission on Commerce and Trade (JCCT).
Established in 1983 and held annually in December, the

JCCT is a high-level forum for addressing bilateral trade
Wayne M. Morrison, wmorrison@crs.loc.gov, 7-7767
issues between China and the United States and promoting
IF00046
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