U.S.-China Trade Issues Page: 1 of 2
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;* Congressional Research Service
Informing the legislative debate since 1914
August 2, 2018
U.S.-China Trade Issues
The U.S.-China trade and economic relationship has
expanded significantly over the past three decades. In 2017,
China was the United States' largest U.S. merchandise
trading partner (at $636 billion), third-largest export market
($130 billion), and largest source of imports ($506 billion).
China is also the largest foreign holder of U.S. Treasury
securities (at nearly $1.2 trillion as of May 2018). However,
tensions between the two countries have grown sharply in
recent years over a number of economic and trade issues.
Key U.S. Issues
The Trade Deficit. President Trump has complained about
the U.S. bilateral trade imbalances. The U.S. merchandise
trade deficit with China in 2017 was $375 billion (projected
to rise to $413 billion in 2018), and was by far the largest
U.S. bilateral trade imbalance (Figure 1). Some U.S.
policymakers view large U.S. trade deficits as an indicator
of an "unfair" trade relationship. Others, however, view
conventional bilateral trade deficit data as misleading, given
the growth of global supply chains used by multinational
firms. Products may be invented or developed in one
country and manufactured or assembled elsewhere using
imported components from multiple foreign sources and
then exported. Conventional U.S. trade data may not fully
reflect the value added in each country, and thus are often a
relatively poor indicator of the beneficiaries of its global
trade. Also, most economists argue that the overall size of
the trade balance is what really matters to the economy (not
bilateral balances), and that this is largely a function of
macroeconomic forces, such as domestic savings and
investment, not trade barriers.
Figure I. Major U.S. Bilateral Merchandise Trade
Imbalances: 2017 ($billions)
Japan Germany Vietnam
Source: USITC Dataweb.
Intellectual Property Rights (IPR) and Cyber-Theft.
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 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 U.S. Justice Department
indicted five members of the Chinese People's Liberation
Army for government-sponsored cyber-espionage against
U.S. companies and theft of proprietary information to aid
state-owned enterprises. During Chinese President Xi
Jinping's state visit to the United States in September 2015,
the two sides reached an agreement on cyber security,
pledging that neither country's government would conduct
or knowingly support cyber-enabled theft of intellectual
property for commercial purposes and to establish a joint
dialogue on cybercrime and related issues (which has
continued under the Trump Administration). Several U.S.
business groups have raised concerns over several recently-
enacted Chinese laws relating to national security (such as a
2017 cyber-security law) which, many contend, could
restrict market access to U.S. high-technology firms
(including digital trade) or condition it to technology
China is considered to be a major source of U.S. economic
losses due to IPR violations. For example, the U.S.
Department of Homeland Security reported that in FY2017,
China and Hong Kong combined accounted for 78% of the
counterfeit goods seized by the in FY2017. The USTR
estimated the annual cost to the U.S. economy of certain
Chinese IPR policies and practices total at least $50 billion.
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, tariff
rebates, low-cost loans, trade and investment barriers, lax
IPR enforcement and cyber-theft of trade secrets, pressure
put on foreign firms to transfer technology, and restrictions
on exports of raw materials in order to aid and develop
industries deemed critical to China's economic growth. A
2018 American Chamber of Commerce in China business
climate survey found that 75% of its members felt less
welcomed in China than before. Several recent proposals by
the Chinese government, such as its "Made in China 2025,"
appear to indicate a sharply expanded role by the
government in the economy.
WTO Compliance Issues. 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 23 WTO dispute settlement cases
against China (through July 2018) on issues such as IPR
protection, subsidies, and discriminatory industrial policies.
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Morrison, Wayne M. U.S.-China Trade Issues, report, August 2, 2018; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc1228556/m1/1/: accessed March 18, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.