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Congressional Research Service, "China-U.S. Trade Issues," September 17, 2009

This CRS report was written by Wayne M. Morrison, specialist in Asian trade and finance.
September 17, 2009

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U.S.-China economic ties have expanded substantially over the past three decades. Total U.S.-China trade rose 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 imports. In 2008, about 12% of total U.S. global trade was with China, although trade flows have declined in 2009 as a result of the global economic slowdown. According to U.S. data, U.S. firms have invested around $46 billion in China through 2008, some of which is aimed at the Chinese domestic market, while other investment has gone into export-oriented manufacturing facilities.

With a huge population, a rapidly expanding economy, and over $2 trillion in foreign exchange reserves, China is a potentially huge market for U.S. exporters and investors. 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; these totaled $801 billion as of July 2009. 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, in an effort to help its sagging export industries, is implementing new trade barriers and boosting industrial subsidies, which, many charge, could harm some U.S. firms and workers. U.S. policymakers have urged China to lessen its reliance on exports for its economic growth and instead implement policies to promote domestic consumption.

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 trade laws (such as antidumping, countervailing, and safeguard provisions) to respond to unfair trade practices or to assist U.S. workers injured by imports from China; bringing more WTO dispute resolution cases against China (where the United States has prevailed in a number of cases); and continuing to pressure China to appreciate its currency and make other economic reforms. Others have warned against using “protectionist” measures to block imports of Chinese goods and have advocated using high-level bilateral talks, such as the U.S.-China Strategic and Economic Dialogue, to resolve major trade disputes.

On September 11, 2009, President Obama announced that he would impose additional tariffs on U.S. imports of certain car and light truck tires from China, due to market disruption caused by such imports. China responded by filing a WTO case against the United States and stating that it had initiated anti-dumping and anti-subsidy cases against U.S. auto parts and poultry.

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