Congressional Research Service, "China-U.S. Trade Issues," June 23, 2009

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Summary
U.S.-China economic ties have expanded substantially over the past three decades. Total U.S.-China trade has risen from $5 billion in 1980 to $409 billion in 2008. In 2008, China was the second largest U.S. trading partner, its third largest export market, and its biggest source of U.S. imports. About 12% of total U.S. global trade is now with China. According to U.S. data, U.S. firms have invested around $28 billion in China (through 2007), some of which is aimed at the Chinese domestic market, while other investment has gone into export-oriented manufacturing facilities.

With a huge population and a rapidly expanding economy, China is a potentially huge market for U.S. exporters. However, bilateral economic relations have become strained over a number of issues, including large and growing U.S. trade deficits with China ($266 billion in 2008), China’s failure to fully implement its World Trade Organization (WTO) commitments (especially in regards to protection of intellectual property rights), its refusal to adopt a floating currency system, its use of industrial policies (such as subsidies) and other practices deemed unfair and/or harmful to various U.S. economic sectors, and its failure in some cases to ensure that its exported products meet U.S. health and safety standards.

Further complicating the bilateral economic relationship is China’s large holdings of U.S. debt, such as Treasury securities. In September 2008, China overtook Japan to become the largest foreign holder of such securities. Some analysts welcome China’s purchases of U.S. debt securities, which help fund U.S. budget deficits, while others have expressed concerns that growing Chinese holdings of U.S. debt may increase its leverage over the United States.

The current global economic crisis could further challenge China-U.S. economic ties. Many analysts have expressed concern that the Chinese government may, in an effort to help its sagging export industries, implement new trade barriers, boost industrial subsidies, and/or depreciate its currency, which could harm some U.S. firms and workers. Many U.S. policymakers have urged China to lessen its reliance on exports for its economic growth and instead implement policies to promote domestic consumption. Central to this position is the belief that China should appreciate its currency and eventually adopt a floating exchange rate system, which would boost its imports.

Several Members of Congress have urged the Obama Administration to take a more assertive approach in dealing with Chinese economic practices, including increasing the use of U.S. antidumping, countervailing, and safeguard provisions, bringing more  dispute resolution cases against China in the WTO, and continuing pressure on China to appreciate its currency. Others have warned against using “protectionist” measures to block imports of Chinese goods and have advocated using high- level bilateral talks (such as the Strategic Economic Dialogue that began during the Bush Administration in 2006) to resolve major trade disputes.

This report examines major U.S.-China trade issues and related legislation, and will be updated as events warrant.

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