January 28, 2015
U.S.-China Trade Issues
The U.S.-China trade and economic relationship has
expanded significantly over the past three decades. 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 2014, U.S. exports to, and
imports from, China were an estimated $125 billion and
$466 billion, respectively. 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 ($1.25 trillion as of November
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 government-sponsored 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.
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.
Recent U.S. WTO Cases Brought 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 antidumping 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.
Currency Policy. Since 1994, the Chinese government has
intervened in currency markets 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, which, some U.S. policymakers contend, has
contributed to the large annual U.S. trade deficit with China
and the loss of U.S. manufacturing jobs in some industries.
From July 2005 to December 2014, the RMB appreciated
by 36% against the dollar, which has led some analysts to
contend that the RMB may only be slightly undervalued,
while other analysts argue that the RMB remains
significantly undervalued against the dollar.
The Trade Deficit. At an estimated $341 billion in 2014,
the U.S. trade deficit with China is significantly larger than
its trade deficit with any other partner. Some U.S. analysts
argue that the large deficit is a result of China’s alleged
unfair trade practices. Others maintain that it is a reflection
of China’s role as a major center for global supply chains.
A joint study released by the Organization for Economic
Cooperation and Development (OECD) and WTO
estimated that the 2009 U.S. trade deficit with China would
have been reduced by up to 25% if bilateral trade flows
were measured according to the value-added that occurred
in China prior to export, as China often serves as the final
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U.S.-China Trade Issues
point of assembly for many of its products and thus
contributes little to the final value of the exports.
Figure 1. U.S.-China Trade Deficit ($ billions)
Source: U.S. 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 JCCT last
me on December 16-18, 2014. China pledged to implement
reforms for agricultural market access, IPR protection,
innovation policies, and competition law enforcement.
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 also
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 (which does
not appear to have been achieved), 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 to date GPA members have rejected
the offers because they allowed only limited access to the
Chinese public procurement market, among other concerns.
China submitted a new offer in December 2014.
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 could 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 they had
reached an understanding on products to be covered under a
new ITA pact, a plurilateral agreement 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.
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. At the time, it was
hoped that China’s new position would help facilitate a
final adoption of the ITA agreement, although that has not
yet occurred. Also see CRS Report RL33536, China-U.S.
Trade Issues, by Wayne M. Morrison.
Wayne M. Morrison, email@example.com, 7-7767
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