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Thursday, June 7, 2012

China-U.S. Trade Issues

Wayne M. Morrison
Specialist in Asian Trade and Finance

U.S.-China economic ties have expanded substantially over the past three decades. Total U.S.- China trade rose from $5 billion in 1981 to $503 billion in 2011. China is currently the United States’ second-largest trading partner, its third-largest export market, and its biggest source of imports. Because U.S. imports from China have risen much more rapidly than U.S. exports to China, the U.S. merchandise trade deficit has grown from $10 billion in 1990 to $296 billion in 2011. The rapid pace of economic integration between China and the United States, while benefiting both sides overall, has made the trade relationship increasingly complex. China’s large population and booming economy have made it a large and growing market for U.S. exporters and investors. According to one estimate, China is currently a $200 billion market for U.S. firms. U.S. imports of low-cost goods from China greatly benefit U.S. consumers, and U.S. firms that use China as the final point of assembly for their products, or use Chinese-made inputs for production in the United States, are able to lower costs and become more globally competitive. China’s purchases of U.S. Treasury securities (which total nearly $1.2 trillion) help keep U.S. interest rates relatively low. On the other hand, many analysts argue that growing commercial ties with China have exposed many U.S. firms to greater competition from low-cost Chinese firms, which they contend has negatively affected wages and employment in a number of U.S. industries.

However, China’s incomplete transition to a free market economy and its use of distortive economic policies have increasingly strained commercial relations with the United States. Major concerns raised by U.S. policymakers and stakeholders include China’s efforts to maintain an undervalued currency, its mixed record on implementing its World Trade Organization (WTO) obligations, its relatively poor record on protecting intellectual property rights (IPR), and its extensive use of industrial policies (such as financial support of state-owned firms, discriminatory government regulations, pressure on foreign-invested firms in China to transfer technology, and export restrictions on raw materials). Many analysts argue that such policies are harmful to U.S. economic interests and have contributed to U.S job losses. For example, one U.S. government study estimated that IPR infringement in China cost U.S. IPR-intensive firms $48 billion in 2009.

Some Members of Congress advocate a more aggressive U.S. trade policy towards China, such as increasing the number of dispute settlement cases brought against China in the WTO, where the United States has prevailed on a number of issues. During his State of the Union Address in January 2012, President Obama announced plans to create a new Trade Enforcement Unit “charged with investigating unfair trade practices in countries like China.” Some analysts caution that taking a more aggressive stance against China over its trade policies could induce it to retaliate against U.S. exports to, and investment in, China. They further contend that major economic disputes should be dealt with through established high-level bilateral dialogues, such as the Strategic & Economic Dialogue (S&ED) and the U.S.-China Joint Commission on Commerce and Trade (JCCT). They note, for example, that under talks held under these forums, China agreed to eliminate discriminatory government procurement practices linked to the development of “indigenous innovation.” Many trade observers contend that the United States should also continue to press China to rebalance its economic growth model by boosting domestic consumption and decreasing the country’s reliance on exporting for its economic growth.

This report provides an overview of U.S.-China trade ties and major issues.

Date of Report: May 21, 2012
Number of Pages: 51
Order Number: RL33536
Price: $29.95

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