Updated February 16, 2021
U.S.-China Trade Relations
As U.S.-China economic ties have grown, so have U.S.
China is the second-largest foreign holder of U.S. Treasury
concerns about China’s economic, trade, investment, and
securities (at $1.05 trillion as of October 2020).
technology practices. The role of the state in China’s
economy and business ecosystem, China’s state control of
Figure 2. U.S.-China Investment (2018-June 2020)
information and communications systems (onshore and
increasingly offshore), and blurred lines between China’s
government authorities and business operations underpin
many concerns. China is an important market for many U.S.
firms, but its push overseas in the sectors it restricts
domestically highlights asymmetries in levels of market
opening, divergent approaches to trade rules, and core
differences in the operating conditions and tenets of the
economic and legal systems in the United States and China.
Beijing’s unwillingness to acknowledge and address U.S.
concerns over the past 15 years has caused tensions to
escalate. Congressional concerns appear to be converging
CRS with data from BEA and the Rhodium Group (RhG).
across economic, human rights, and national security issues.
Long-standing concerns about market barriers, unfair trade
VC is venture capital. FDI is foreign direct investment.
practices, and a lack of reciprocity are evolving into broader
records net flows and may not capture al FDI via other countries or
considerations about how China’s behaviors may challenge
territories, or acquisitions by U.S. affiliates of foreign firms. RhG
U.S. economic competitiveness and national security.
records gross flows regardless of a firm’s location or money sources. Some Areas of Congressional Concern
Bilateral Trade and Investment
China’s use of industrial policies, subsidies, and regulatory
In 2020 China was the largest U.S. goods trading partner
authorities (e.g., antitrust, procurement, and standards) to
(with total trade at $659.5 billion), the third-largest U.S.
advance economic, technological, and military development
export market (at $120.3 billion), and the largest source of
goals are of concern to many in Congress. Policies such as
U.S. imports (at $539.2 billion). U.S. goods imports from
Made in China 2025
aim to create competitive advantages
China fell by $103.8 billion between 2018 and 2020;
for China in strategic industries, in part by first obtaining
bilateral services trade fell by 35% between January and
technology and expertise from U.S. firms to gain core
September 2020 over that same period in 2018 (Figure 1).
competencies. These policies appear to incentivize
technology transfer, licensing, and joint venture
Figure 1. U.S.-China Trade (2018-2020)
requirements; state-directed technology and intellectual
property (IP) theft; and government-funded acquisitions of
U.S. companies. Also of concern is potentially widespread
Chinese economic, academic, and cyber-enabled
espionage—including reports of cyberattacks on U.S.
universities and companies engaged in COVID-19 vaccine
research—and China’s military-civil fusion program, which
seeks to leverage Made in China 2025
military applications. There is growing attention to how
U.S. commercial ties may support China’s behaviors of
concern, including in Hong Kong and Xinjiang (see below).
Major U.S. Government Actions
CRS with data from the U.S. Census Bureau and the U.S.
Between 2018 and 2021, Congress and the Trump
Bureau of Economic Analysis.
Administration took actions to address these concerns. The
Biden Administration has said it is reviewing these actions.
Foreign direct investment (FDI) flows in both directions
In 2018, the U.S. Trade Representative
have slowed since 2017 while ties not captured in FDI data
(USTR) under Section 301 of the Trade Act of 1974 (19
(e.g., technology collaboration and venture capital) appear
U.S.C. §2411) concluded that China engages in forced
to be continuing (Figure 2).
Financial ties are expanding.
technology transfer, cyber-enabled theft of U.S. IP and
The Rhodium Group estimates that, as of December 2020,
trade secrets, discriminatory and nonmarket licensing
U.S. investors hold $100 billion of Chinese debt and $1.1
practices, and state-funded strategic acquisitions of U.S.
trillion in Chinese equities while Chinese investors hold
assets. The U.S. government subsequently imposed tariffs
$1.4 trillion in U.S. debt and $720 billion in U.S. equities.
on imports from China worth approximately $250 billion.
The Chinese government countered with tariffs on $110
U.S.-China Trade Relations
billion worth of U.S. products. Most tariffs remain in effect.
sanctions violations, IP theft, and espionage, it tightened
The United States and China signed a phase one agreement
technology exports to China’s ICT firm Huawei and its
in January 2020 in which China committed to strengthen IP
affiliates by adding them to the BIS Entity List, requiring a
enforcement and increase access in agriculture and financial
license for the sale or transfer of U.S. technology, but
services, but left most U.S. concerns unresolved. The deal
issued waivers. BIS amended rules to curtail Huawei’s
included provisions for China to buy $468 billion over two
ability to contract semiconductor chips from overseas
years of U.S. products and services. China’s purchases in
facilities that use U.S. technology such as Taiwan
the first year (2020) fell below its commitments and in
Semiconductor Manufacturing Company (TSMC). The U.S.
many sectors were well below 2017 trade levels. (See
government restricted the use of universal funds to buy
The U.S. government in 2018 also imposed
Huawei equipment and advocated to dissuade other
aluminum and steel tariffs to address overcapacity in China.
governments from using Huawei products in 5G networks.
Figure 3. Phase One Trade (January-December 2020)
The U.S. government negotiated with
TSMC to build a $12 billion 5nm chip foundry in Arizona.
Congress included provisions in the National Defense
Authorization Act for FY2021 to boost U.S. capabilities.
Debates about possible new controls on U.S. equipment,
tools, and IP that enable China’s advancement persist.
Human Rights (Xinjiang and Hong Kong).
Administration labeled China’s actions in Xinjiang as
crimes against humanity and genocide; added 54 entities to
the BIS Entity List; imposed sanctions on certain officials
and entities; and issued an order that blocks imports from
China tied to forced labor and an advisory that warns firms
CRS with U.S. export data from the U.S. Census Bureau.
with trade exposure to Xinjiang. It also ended Hong Kong’s
$67.8 bil ion services commitment (2020) not included.
separate trade treatment and sanctioned certain officials
after China enacted a national security law for Hong Kong.
In 2019, for the first time in 25 years, the U.S.
government labeled China a currency manipulator under the
The Holding Foreign Companies
1988 Trade Act, but lifted the designation in January 2020,
Accountable Act (P.L. 116-222) requires reporting on
citing currency provisions in the “phase one” trade deal.
Chinese firms’ state ties and a delisting of firms failing to
meet U.S. auditing requirements. A November 2020 E.O.
In 2018 Congress passed the Better
prohibits U.S. investment in Chinese military-tied firms and
Utilization of Investments Leading to Development Act of
requires delisting of these firms from U.S exchanges.
2018 (P.L. 115-254) and reauthorized the U.S.-Export-
Import Bank to offer alternatives to Chinese global projects.
Issues for Congress
The Trump Administration also launched the Infrastructure
Technology Assistance Network, the Transaction Advisory
China emerged as an economic bright spot, but 2020 also
Fund, and the Blue Dot Network with Japan, and Australia.
exposed risks in supply chains that depend on China. The
A May 2020 Executive Order (E.O.) calls for removal of
Chinese government used medical trade, vaccine
Chinese and Russian equipment from the U.S. power grid.
deployment, and ad hoc trade barriers for political aims,
prompting efforts among U.S. allies and partners to explore
Foreign Investment and Export Controls.
trade and technology cooperation. As next steps, Congress
Congress enacted laws (P.L. 115-232) to boost U.S.
might examine the effects of China’s policies on U.S.
authorities. Some in Congress are concerned, however, that
interests and whether countermeasures are needed:
the U.S. Department of Commerce’s Bureau of Industry
and Security (BIS) has been slow to establish controls on
U.S. exports and trade growth.
foundational and emerging technologies, and that that gaps
controls purchases and financing for top U.S. exports
in U.S. authorities over greenfield and venture capital
(aircraft, agriculture, and semiconductor chips and
investments persist. The Trump Administration increased
equipment). China has not recertified the Boeing 737MAX,
licensing requirements for dual use exports; established the
and U.S. firms are partnered with China’s state champion to
Committee for the Assessment of Foreign Participation in
build a competitor aircraft. China has been diversifying
the U.S. Telecommunications Services Sector, and blocked
agriculture and energy supply. It seeks to reduce its U.S.
China Mobile and China Telecom in the U.S. market. A
dependence by developing semiconductor capabilities.
proposed ban on China’s TikTok and WeChat apps is
U.S. joint action with partners on China concerns.
China’s investment deal with the European Union (EU) in
IP and Technology Theft.
The Trump Administration
late 2020 maintains many restrictions and may steer the EU
increased scrutiny of academic ties to China, enforced
away from a use of its unilateral tools or joint action toward
standing provisions that require universities and researchers
an ongoing and incremental negotiating process with China.
to disclose foreign funding, and stepped up law
U.S. trade authority and leadership.
China in 2020
enforcement efforts to disrupt China’s economic espionage,
signaled plans to leverage supply chain chokepoints and
including closing the Chinese consulate in Houston.
deploy its legal, IP, antitrust, and standards tools to advance
Huawei and 5G.
The Trump Administration issued an E.O.
its industrial policies globally. It enacted export control,
allowing a ban on information communications technology
foreign investment review, and extraterritoriality blocking
(ICT) transactions that pose undue risks. Concerned about
measures, as possible counterweights to U.S. actions.
U.S.-China Trade Relations
Karen M. Sutter
, Specialist in Asian Trade and Finance
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