U.S.-China Trade Relations




Updated September 27, 2023
U.S.-China Trade Relations
The People’s Republic of China (PRC or China) is the
in the same time period, U.S. trade with its top partners,
second-largest global economy and an important global
grew at these rates: EU (18.5%), Canada (18.9%), and
market for the United States. At the same time, U.S. firms
Mexico (18.1%). Top U.S. goods exports to China include
face significant trade barriers, unfair practices, and a lack of
semiconductor chips and equipment, agricultural products,
reciprocity in key areas. China’s state-driven economic,
aircraft, gas turbines, and advanced medical devices. Top
trade, investment, and technology practices and the
U.S. imports from China include consumer electronics,
challenges they pose to U.S. economic and technology
appliances, furniture, clothing, footwear, toys, and
leadership are of concern to many in Congress. China
intermediate goods (e.g., auto components and active
continues to require the transfer of critical U.S. capabilities
pharmaceutical ingredients). Current levels of U.S. services
to China to operate in strategic areas. Many in Congress
exports to China remain low relative to total U.S. global
have expressed concern that China’s practices distort
service exports. China in 2022 accounted for 4.5% ($41.5
markets and undermine fair competition in China and
billion) of all U.S. services exports and 3.8% ($26.6 billion)
globally as PRC firms expand in areas that China restricts
of all U.S. services imports. Top U.S. services exports to
domestically. China’s system blurs state and corporate
China were travel, intellectual property (IP) licensing, and
interests, enabling the government to deploy trade tools
transportation. Top U.S. imports from China were transport
(e.g., antidumping, antitrust, standards, and procurement),
and business services. In 2020, sales of services in China by
economic coercion, and espionage to advantage its firms
majority U.S.-owned affiliates were $371 billion, while
and advance China’s industrial policies. The expanding role
total U.S. sales by majority PRC-owned firms were $76.2
of the PRC state in commercial activity—including an
billion. A 2021 Bank of America study found that about
intensification of industrial policies and enactment of
16% of U.S. Fortune 500 firms depend on China for at least
interrelated national economic security policies and data
5% of their revenue. For some of these firms, China
restrictions since 2020—appear to have increased the risks
accounts for over 20% of their revenue. (*Data used in this
of U.S. commercial ties with China even as some U.S. firms
section from the U.S. Bureau of Economic Analysis, BEA.
increase their exposure in China.
The European Union (EU) is considered as one trading
Figure 1. U.S.-China Goods Trade (2007-2022)
partner.)
Investment
Two-way foreign direct investment (FDI) flows have
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, in 2022 the U.S. direct investment
position in China was $126.1 billion, a 9% increase over
2021. China’s FDI stock in the United States was $28.7
billion, on an ultimate beneficiary ownership basis, a 7%
decrease from 2021. In 2022, China accounted for about
0.5% of total FDI stock in the United States, while China

Source: CRS with data from the U.S. Census Bureau.
accounted for about 1.9% of total U.S. FDI stock abroad.
As of July 2023, U.S. investors held $256 trillion in PRC
Trade*
securities while PRC holdings of U.S. securities were $1.4
In 2022, U.S. exports of goods and services to China were
trillion, according to the U.S. Treasury Department; private
$197.3 billion, up 3% from 2021, and imports of goods and
estimates of U.S. holdings of PRC securities are over $1
services from China were $563.6 billion, up 7% from 2021.
trillion. As of July 2023, China and Hong Kong held $821.8
In 2022, China’s global exports grew by 6.6% over 2021;
billion and $205.6 billion, respectively, in U.S. Treasury
its exports to the United States grew by 0.8% over 2021.
securities, making them together the second-largest foreign
The U.S. trade deficit with China increased to $366.4
holder of U.S. Treasury securities after Japan. (Data does
billion from $334.1 billion in 2021. U.S. exports of goods
not include purchases through offshore financial centers.)
and services to China were 6.5% of total U.S. exports, and
China’s Efforts to Set U.S. Terms of Trade
U.S. imports from China were 14.2% of total U.S. imports.
U.S.-China goods trade is unbalanced, with China exporting
The PRC government controls or influences the purchase,
to the United States more than almost three times the value
financing, and price of top U.S. exports to China—aircraft,
of goods that the United States exports to China. In 2022,
semiconductors, medical equipment, agriculture, and
China was the fourth-largest U.S. goods trading partner
energy. It has sought for some time to enhance its control of
(with total trade at $690.3 billion), the fourth-largest U.S.
this trade while reducing its reliance on U.S. imports
export market (at $154.0 billion), and the second largest
through trade diversification and industrial policies that use
source of U.S. imports (at $536.3 billion) (Figure 1). Total
U.S. commercial ties to develop China’s capabilities. Some
2022 U.S.-China goods trade increased by 5.3% over 2021;
U.S. firms benefit in the short term from China’s need to
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U.S.-China Trade Relations
fill gaps, but China’s policies appear to set targets to
(19 U.S.C. §2411), concluded that China engages in forced
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 May 2022,
develop China’s single-aisle aircraft (C-919), which aims to
USTR initiated a review of the tariffs at the four-year mark.
compete with Boeing and Airbus using U.S. advanced
In a U.S.-China “Phase One” trade agreement signed in
technologies. A PRC government fund finances the
January 2020, China made some IP and investment
purchase of U.S. technology, equipment, and software that
commitments and increased U.S. access in agriculture and
support the development of China’s semiconductor industry
financial services, but the deal did not address most U.S.
and its dual-use advanced computing capabilities. In
concerns. Many aspects of China’s industrial policies
agriculture, China’s state firms have purchased foreign
appear to break its commitments in the agreement not to
biotechnology companies (e.g., Syngenta), enhancing
require or pressure technology transfer. China’s imports
China’s position in overseas trade and production. In
from 2020 and 2021 fell below its commitment to buy at
electric vehicles, China has required firms to localize
least $502 billion of U.S. goods and services over two years
supply chains for batteries, components, and systems. In
(an estimated 43% gap in goods and services) (Figure 2).
medical devices and pharmaceuticals, a PRC procurement
China is pressing the USTR to lift U.S. tariffs, which cover
program appears to require firms to cut prices, creating cost
MIC 2025 products, while sustaining its practices of U.S.
pressures that arguably encourage production in China. In
concern. The USTR may consider new actions against
critical minerals, China leverages its control of extraction
China under Section 301 in areas such as subsidies.
and processing to promote manufacturing in China, while
Figure 2. Phase One Trade (Jan. 2020 to Dec. 2021)
acquiring assets abroad. In energy, China has 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
Notes: Excludes $135.6 bil ion in services. Goods includes aircraft.
its firms to expand; and access technology, capital, and
Issues for Congress
critical resources. China’s export-oriented sectors are
Beijing’s continued pursuit of statist practices and relative
among its most productive and earn foreign exchange,
inaction on long-standing U.S. concerns have arguably
arguably contributing more to China’s economy than a
caused issues to intensify for many in Congress. Some in
straight-line exports-to-GDP ratio suggests. With PRC
Congress have expressed concern about asymmetries in
exports that benefit from China’s industrial policies, such as
economic ties, U.S. participation in China’s industrial
Made in China 2025 (MIC 2025), now coming to market.
policies, U.S. ties to PRC firms violating human rights, and
China has adopted a trade posture that seeks to open global
China’s practices that may force or unfairly incentivize the
markets and set standards in digital trade and emerging
transfer of U.S. technology and data to China. These issues
technologies, while restricting foreign firms in these sectors
appear to be evolving into broader concerns about how the
in China. China’s government plans prioritize its ability to
terms China sets for commercial ties may challenge U.S.
set global trade rules; extend the global reach of its legal,
competitiveness, national security, and leadership. Congress
IP, digital, and antitrust authorities; and counter U.S. policy
might consider whether and how to strengthen U.S. and
actions with its countermeasures. China has enacted export
global trade rules; require reciprocity with China with
control, foreign investment, and sanctions blocking
consequences for gaps; work with allies on China trade
measures. It joined the Regional Comprehensive Economic
concerns; and deepen commercial, technology, and research
Partnership and is seeking to join the Comprehensive and
ties with like-minded countries. Congress also might
Progressive Agreement for Trans-Pacific Partnership. China
address core systemic issues, such as the role of the state in
might seek foreign market openings in these arrangements
China’s corporate activity; consider new terms for China
while using restrictive licensing and other barriers to lessen
trade, investment, technology, and research ties; and
the effects of any concessions it is required to make to join.
determine whether and what actions are needed to address
Section 301 and the Phase One Agreement
China’s trade coercion and efforts to sidestep U.S. policies.
In 2018, the U.S. Trade Representative (USTR), as part of
an investigation under Section 301 of the Trade Act of 1974
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 18 · UPDATED