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Congressional Research Service, "China-U.S. Trade Issues," December 27, 2010

This CRS report was written by Wayne M. Morrison, specialist in Asian trade and finance.
December 27, 2010

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U.S.-China economic ties have expanded substantially over the past three decades. Total U.S.-China trade rose from $2 billion in 1979 to an estimated $459 billion in 2010. China is currently the second-largest U.S. 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 surged, rising from $10 billion in 1990 to an estimated $273 billion in 2010.

The rapid pace of economic integration between China and the United States, while benefiting both sides overall, has made the trade relationship increasingly complex. On the one hand, China’s large population and booming economy have made it a large and growing market for U.S. exporters. Over the past decade, China has been the fastest-growing market for U.S. exports. U.S. imports of low-cost goods from China greatly benefit U.S. consumers by increasing their purchasing power. 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 stood at $907 billion in October 2010) help keep U.S. interest rates relatively low. On the other hand, many analysts argue that growing economic ties with China has exposed U.S. manufacturing firms to greater and what is often perceived to be, “unfair” competition from low-cost Chinese firms. They argue that this has induced many U.S. production facilities to re-locate to China, resulting in the loss of thousands of U.S. manufacturing jobs. Some policymakers have also raised concerns that China’s large holdings of U.S. government debt (which stood at $907 billion as of October 2010) may give China leverage over the United States.

China’s incomplete transition to a free market economy and its use of distortive economic policies have contributed to growing trade friction with the United States over a number of issues, including China’s refusal to allow its currency to  appreciate to market levels, 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 and discriminatory government procurement policies to subsidize and protect domestic Chinese firms at the expense of foreign companies. The United States initiated three WTO trade dispute resolution against China in 2010, dealing with such issues as China’s use of subsidies to promote its wind power industries, its use of trade remedy laws to protect domestic industries, and restrictions on electronic payment services. Some members have argued that, given the slow rate of U.S. economic growth and the high rate of unemployment, China’s distortive trade policies can no longer be tolerated and have called for tougher action to be taken against China to induce it to eliminate policies that hurt U.S. economic interests. These trade frictions may intensify in the future as China attempts to implement policies to increase the output of more advanced products.

Numerous bills were introduced in the 111th Congress to address various Chinese economic and trade policies. For example, one bill, which passed the House (but was not taken up by the Senate), would have made certain fundamentally undervalued currencies (such as China’s) actionable under U.S. countervailing duty laws (which address government export subsidies). U.S.-China commercial issues may continue to be a major focus in the 112th Congress. This report provides an overview of U.S.-China trade relations. It describes the trends in commercial ties, indentifies major trade disputes, and surveys legislation that would affect economic relations. This report will be updated as events warrant.

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