November 24, 2014
U.S.-China Trade Issues
The U.S.-China trade and economic relationship has
expanded significantly over the past three decades,
especially since China’s entrance into the World Trade
Organization (WTO) in 2001. China is currently the United
States’ third largest export market and biggest source of
imports, making it the second largest overall U.S. trading
partner. In 2013, U.S. exports to China amounted to $122
billion while U.S. imports from China were $440 billion.
According to the U.S. Bureau of Economic Analysis,
cumulative Chinese foreign direct investment (FDI) in the
United States by the end of 2013 was $8.1 billion, while
cumulative U.S. FDI in China was $61.5 billion. China also
is the largest foreign holder of U.S. Treasury securities
($1.3 trillion as of September 2014), which helps keep U.S.
interest rates low. However, tension between the two
countries has risen in recent years over a number of issues.
Key U.S. Issues
Intellectual Property Rights (IPR) and Cybersecurity.
U.S. firms cite the lack of effective protection of IPR as one
of the biggest impediments that they face in conducting
business in China and sometimes view lax IPR enforcement
in the country as a way to give domestic firms an advantage
over foreign competitors. In May 2013, an independent
commission estimated that the United States suffers an
annual loss of over $300 billion due to the international
theft of U.S. intellectual property and attributed up to 80%
of the problem to China.
In 2011, the U.S. Office of the National Counterintelligence
Executive described Chinese actors as “the world’s most
active and persistent perpetrators of economic espionage”
and as aggressive collectors of sensitive U.S. business
information and technologies. In May 2014, the United
States Department of Justice indicted five members of the
Chinese People’s Liberation Army (PLA) for governmentsponsored cyber espionage against U.S. companies and
theft of proprietary information to aid state-owned
enterprises (SOEs). China responded by suspending its
participation in a bilateral working group on cybersecurity
with the United States. Some U.S. policymakers are
concerned that the issue will negatively impact commercial
ties between the two countries.
Industrial Policies. Many U.S.-China trade tensions arise
from China’s incomplete transition to a market economy,
including its government support and protection of SOEs.
Critics have charged that the Chinese government has been
employing policies such as subsidies, tax breaks, low-cost
loans, market access barriers, lax enforcement of IPR,
limits on FDI, and restrictions on exports of raw materials
in order to aid and develop industries deemed critical to
China’s economic growth.
WTO Compliance. China’s accession into the WTO
advanced its market reforms and openness to trade.
However, U.S. trade officials contend that while China
made significant progress toward market liberalization in
the years immediately after its accession, it moved towards
a more restrictive trade regime beginning in 2006. The
United States has brought 15 WTO dispute settlement cases
against China as of July 2014 on issues such as IPR, export
subsidies, discriminatory industrial policies, and restrictions
on trading and distribution rights.
Figure 1. Recent U.S. WTO Cases Against China
The United States initiated a case against China for providing
export subsidies to Chinese auto and auto parts
manufacturers. The results are still pending.
The United States brought a case against China for imposing
anti-dumping and countervailing duties on certain autos from
the United States that were inconsistent with WTO
regulations. The United States prevailed.
The United States, Japan, and the European Union jointly
brought a case against China over its restrictive export
policies on rare earths and other minerals, which were found
to have violated China’s WTO commitments.
Source: World Trade Organization (WTO).
Currency Policy. Since 1994, the Chinese government has
intervened in the currency market to limit or halt the
appreciation of the Chinese renminbi (RMB) against the
U.S. dollar, which many argue has allowed Chinese exports
to the United States to be less expensive and U.S. exports to
China to be more expensive than under a floating exchange
rate system. Some U.S. policymakers contend that China’s
currency policy has contributed to the large annual U.S.
trade deficit with China and the loss of U.S. manufacturing
jobs in some industries. Others note that since the RMB
appreciated by almost 33% against the U.S. dollar from
July 2005 to May 2014, the focus on China’s currency
policy may depend on whether China backtracks on its
current currency appreciation in order to increase its
Trade Deficit. At $319 billion in 2013, the U.S. trade
deficit with China is significantly larger than its trade
deficit with any other partner. Some U.S. analysts argue
that the large deficit is a result of China’s alleged unfair
trade practices. Others maintain that it is a reflection of
China’s role as a major center for global supply chains. A
joint study released by the Organization for Economic
Cooperation and Development (OECD) and WTO
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U.S.-China Trade Issues
estimated that the 2009 U.S. trade deficit with China would
have been reduced by up to 25% if bilateral trade flows
were measured according to the value-added that occurred
in China prior to being exported, as China often serves as
the final point of assembly for many of its products and
thus contributes little to the final value of the exports.
Figure 2. U.S.-China Trade Deficit ($ billions)
Source: United States Census Bureau, Trade in Goods with China.
Foreign Direct Investment (FDI). U.S.-China FDI flows
are relatively small given the high level of bilateral trade.
Although Chinese FDI in the United States has grown
recently as a result of large-scale acquisitions in industries
such as food, energy and real estate, cumulative Chinese
FDI in the United States remains modest in comparison to
countries such as Japan ($342.3 billion by end of 2013).
Some policymakers have raised concerns that certain
Chinese acquisitions of U.S. domestic firms may cause a
loss of sensitive technologies and outsourcing of jobs. U.S.
firms in China have also faced challenges, including equity
caps, lack of regulatory transparency, and restrictions on
investments in industries that China considers strategic,
including telecommunications and financial services. To
encourage more domestic development of technological
innovations, Chinese officials have reportedly pressured
U.S. firms to transfer technology to Chinese partners or set
up research and development facilities in China in exchange
for access to China’s markets—an issue exacerbated by
China’s weak IPR protection.
Ongoing Bilateral Dialogues
U.S.-China Strategic and Economic Dialogue (S&ED).
The cabinet-led S&ED—first launched in 2006 as the
Strategic Economic Dialogue—was established in 2009 to
enable senior Chinese and U.S. officials to address longterm strategic and economic challenges. At the July 2014
S&ED, China pledged to continue to increase the flexibility
of the RMB exchange rate, boost domestic consumption,
lessen government involvement in market operations, and
reduce trade and investment barriers for U.S. firms.
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
issues between China and the United States and promoting
commercial opportunities between the two. The next round
of the JCCT will be on December 16-18, 2014, in Chicago.
Bilateral Investment Treaty (BIT). China and the United
States are currently negotiating a BIT that could expand
bilateral investment ties. It aims to establish mutual
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
Chinese firms to bid on U.S. contracts based on GPA
thresholds. China has submitted several offers to join the
GPA since 2007, but GPA members have rejected the offers
because they allowed only limited access to the Chinese
public procurement market, among other concerns.
Trans-Pacific Partnership (TPP). The TPP is a free trade
agreement (FTA) currently being negotiated among the
United States and 11 countries in the Asia-Pacific region.
China is not part of the current negotiations, but has
expressed interest in joining the agreement. Its participation
would depend in large part on its ability to meet the TPP
objectives of reaching a comprehensive and high-standard
FTA, including on issues such as investment, IPR, and
SOEs. Inclusion in the TPP may be an opportunity to
accelerate China’s market reforms and improve its business
climate for U.S. firms.
The WTO Information Technology Agreement (ITA).
During President Obama’s visit to China in November
2014, the United States and China announced that they had
reached an understanding on products that would be
covered under a new ITA pact, a plurilateral agreement that
is currently being negotiated among 70 WTO members.
The agreement would seek to expand on the 1996 ITA
agreement by adding more than 200 tariff lines that would
be subject to zero tariffs. Up until recently, China had been
accused by U.S. officials of holding up the ITA agreement
by seeking to exclude a broad range of products from tariff
elimination, such as semiconductors, in order to protect
certain Chinese industries, a position that contributed to a
suspension in the ITA negotiations in November 2013.
China’s new position is expected to help facilitate final
adoption of the ITA agreement in the WTO.
For more information, see CRS Report R33536, China-U.S.
Trade Issues, by Wayne M. Morrison.
Wayne M. Morrison, firstname.lastname@example.org, 7-7767
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