CRS Reports on China-U.S. Trade Issues

Trade Deficits, WTO, Currency, IPR, Etc. Cause U.S.-China Trade Strain

CRS states that although commercial ties were sharply affected by the global economic crisis in 2009, China remained the second-largest U.S. trading partner, its third-largest export market, and its biggest source of imports.

However, bilateral economic relations have become strained over a number of issues, including large U.S. annual trade deficits with China; China's mixed record on implementing its World Trade Organization commitments; its resistance to international calls to reform its pegged (and undervalued) currency system; its relatively poor record on enforcing intellectual property rights (IPR), and its extensive use of industrial policies and discriminatory government procurement policies (such as proposed "indigenous innovation" certification regulations) to promote domestic Chinese firms over foreign companies.

U.S. Firms Urge More Assertive Trade Policy

U.S. economic ties with China benefit many U.S. groups, such as consumers and certain business interests; however, other U.S. groups, primarily U.S. domestic firms and workers that compete with low-cost imported Chinese products, see growing economic ties as damaging to U.S. economic interests, largely because of "unfair" Chinese trading practices.

Such groups have urged the U.S. government to take a more assertive trade policy to force China to eliminate unfair economic policies in order to help achieve a level trading field for U.S. firms and workers.

China Concerned Over U.S. Debt Holdings

CRS reports that Chinese officials have expressed concerns over the "safety" of their U.S. debt holdings. Until very recently, U.S. domestic savings were very low relative to its investment needs, consumption was the dominant source of economic growth, and the U.S. had to borrow heavily from abroad, including from China, which helped fuel U.S. demand for imports. China, until recently, had a very high savings rate, a low rate of consumption, and was heavily dependent on its trade sector for economic growth.

Both countries contend that they are now seeking to implement policies to rebalance the sources of their economic growth. Some have expressed concerns that China's large holdings of U.S. debt could give it significant leverage over the U.S.

Unilateral Trade Action Could Harm Both, Talks Encouraged

Some analysts state that, although many trade problems exist, the overall economic relationship benefits both sides, and warn that unilateral trade action by either side would harm both economies. They support using high-level talks, such as the Strategic and Economic Dialogue (S&ED), to address long-term bilateral and global economic issues.

(See ITT’s Online Archives or 08/03/10 news, 10080325, for BP summary of USTR’s recent hearing announcement and request for comments to prepare its annual report to Congress on China’s compliance with its WTO commitments.

See ITT’s Online Archives or 07/30/10 news, 10073009, for BP summary of the House Ways and Means Committee’s recent announcement of a hearing on China’s exchange rate policy.

See ITT’s Online Archives or 06/11/10 news, 10061124, for BP summary of a June 2010 Senate Finance Committee hearing on “The U.S.-China Economic Relationship: A New Approach for a New China.”)

(Report dated 06/21/10)