The U. S. industry with China has grown tremendously over the past few decades and is for either country. Today, China is one of the largest export markets for U. S. goods and services, and the United States is China’s largest export market. This industry has led to lower costs for U. S. consumers and higher profits for U. S. businesses, but it has also come with costs.
The optimism that accompanied China’s accession to the World Trade Organization (WTO) two decades ago has faded as Beijing continues to engage in state-led development, showering subsidies on specific industries at the expense of American and foreign corporations. . Although American consumers have benefited due to the influx of reasonable goods from China, millions of Americans have lost their jobs due to import competition. Meanwhile, investments through Chinese corporations raise national security concerns. The United States has long accused China of pressuring American corporations to hand over their technology, or even stealing it outright. The reaction to China is now at the center of the US political debate, with President Joe Biden following his predecessor Donald Trump in adopting a competitive economic approach.
For thirty years after the status quo of the People’s Republic of China in 1949, there was virtually no industry between the two countries; Washington has severed ties with the communist government in Beijing.
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China embarked on a decades-long process of economic reform in the late 1970s, under the leadership of Deng Xiaoping. His government quietly controlled the economy and allowed private industry to expand. In 1979, the U. S. and China normalized relations as Chinese policymakers. it sought to breathe life into industry and investment, and in 1986, Beijing decided to rejoin the General Agreement on Tariffs and Trade, the predecessor of the WTO. After lengthy negotiations with the United States and other WTO members, China joined the organization in December 2001. As a condition of admission, Beijing has pledged to implement a far-reaching economic reform package, adding deep tariff discounts to imported goods, intellectual asset (IP) protection, and transparency around its legislation and regulations.
At the time, U. S. President Bill Clinton and his advisers argued that integrating China into the global trade formula would not only gain advantages for the United States, but also promote economic and ultimately democratic reforms in China. However, the move was opposed across the United States. unions and many congressional Democrats, who argued that China’s weak environmental and employee protections would inspire similar practices elsewhere and spark a “race to the bottom. “
Even before China joined the WTO, the industry between the two countries was growing. But the WTO club guaranteed “normal and continuous industrial relations,” offering U. S. and foreign corporations greater certainty about their ability to produce in China and export to the U. S. : The price of U. S. imports of goods from China has risen from about $100 billion in 2001 to more than $400 billion in 2023. This increase in imports is partly due to China’s critical position in global supply chains; Chinese factories bring together products for export to the U. S. with factors from around the world.
U. S. consumers have benefited from declining prices, and U. S. corporations have benefited greatly from access to the Chinese market. In a 2019 study, economists Xavier Jaravel and Erick Sager found that increased industry with China increases the average American family’s annual purchasing power by $1,500. between 2000 and 2007. China is now the third largest export market for the United States, Canada and Mexico. A 2023 report by the U. S. -China Business Council, an industry group, found that exports to China contribute to more than a million U. S. jobs, or about 0. 5% of the civilian workforce.
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U. S. corporations make billions of dollars a year from their sales in China, money they can then invest in their U. S. operations. Chinese corporations have invested tens of billions of dollars in the United States, though those investments have declined in recent years. due to increased scrutiny from the U. S. government.
For China, the industry’s benefits to the U. S. and the rest of the world have been enormous. Since 2001, China’s inflation-adjusted economy has more than fivefold and is now the second largest in the world, the United States. In some measures, this is the most important. ) Hundreds of millions of people have escaped extreme poverty as a result of this growth.
While industrial relations have brought benefits, they have also posed a multitude of upheavals for the United States and other countries.
Job losses in the productive sector. Research by economists David Autor, David Dorn and Gordon Hanson found that prices for expanding industry with China, known as the China shock, were more pronounced than those for expanding industry with other countries, such as Japan. with increasing imports, the huge expanse of China’s low-wage workforce, and the diversity of sectors affected. Their studies show that political polarization has also been higher in the parts of the country most affected by the festival with China, which some analysts say has helped spur the rise of Donald Trump and populist political forces. In 2024, economists, adding that Brad W. Setser, a senior fellow at the CFR, have called China’s new export glut, especially electric vehicles, solar panels, and other technologies “green. “— the “second Chinese shock. “
National security. U. S. policymakers are increasingly involved in Chinese efforts to disseminate dissenting data and collect sensitive data on Americans. Suspected of espionage, Washington has expressed concern that Chinese-generation U. S. corporations may simply endanger U. S. national security. Officials also worry that China’s acquisition of sensitive U. S. generation could simply bolster the Chinese military. They have continually accused Beijing of stealing intellectual assets and requiring U. S. corporations to price their technologies as a condition of doing business in China, known as forced generation transfer.
Subsidies and public companies. To achieve its economic goals, the Chinese government has provided subsidies to a variety of sectors, including renewable energy, with the goal of creating “national champion” companies. Some experts say such subsidies are wasteful, but they could be harmful to other countries. whose companies cannot compete with such a degree of public support. The United States maintains that many Chinese state-owned companies are actually branches of the government and, unlike their personal competitors, do not make decisions based on market forces.
Currency manipulation. Many economists argue that China has kept the price of its currency, the renminbi, artificially low in the decade since it joined the WTO by accumulating reserves in U. S. dollars. A weaker renminbi makes Chinese goods more affordable and U. S. goods more expensive in China, contributing to the U. S. industry’s deficit with China.
Violations of labour and human rights. The U. S. has long criticized China over human rights issues, and U. S. hard-working teams have consistently complained about poor functioning situations in China. These considerations have resurfaced on the industry calendar in recent years with reports of forced labor in Xinjiang, where China is cracking down on millions of Uyghurs. Beijing’s 2020 national security law, which fundamentally altered Hong Kong’s freedoms, is a source of tension; Experts say the law may simply deter foreign corporations from doing business in the city, jeopardizing its position as a global monetary center.
At the heart of the industrial clash are the competing economic formulas of the two countries. As journalist Paul Blustein explains in his e-book Schism: China, America, and the Fracturing of the Global Trading System, Chinese officials were the first to enthusiastically implement the WTO’s demands, creating a profound transformation of the economy and the legal formula. But even though China has liberalized its economy somehow, giving rise to a thriving personal sector, it has never fully embraced the invisible hand of the market. The state, ruled through the Chinese Communist Party, oversees the economy through centralized control of state-owned enterprises, control of monetary institutions, and a strict economic planning commission. Chinese leaders say their formula is imperative to the lives of the Chinese people and is in line with the economy. methods used across Western countries at similar stages of development.
The CFR’s Jennifer Hillman says Beijing has perfected the style of sourcing Western technology; It uses it to turn national corporations into giants and then launches them into the global market; Foreign corporations can no longer compete. Hillman cites 5G networks as an example of an industrial control in which China dominates. “It’s trying to live in this world where China has more and more markets and you can’t,” he says. The U. S. has been the vocal vocal critic of China’s industrial practices, but other countries, including European Union (EU) members and Japan, have expressed a percentage of those concerns.
The U. S. has tried to resolve its industrial concerns with China through a combination of negotiations, WTO disputes, increased investment surveillance, tariffs and its own trade policy. However, experts, according to Edward Alden, a senior researcher at the CFR, say the U. S. lacks effective policies to manage economic shocks.
As part of China’s accession to the WTO, U. S. negotiators demanded a transitional safeguard that could only be used to restrict imports from China, but was virtually unused until it expired 12 years later. Blustein writes that George W. Bush’s administration was roughly involved in cascading calls from U. S. companies for greater coverage and needed Beijing’s help for other foreign policy goals, adding the global war on terror. The Bush administration imposed price lists on a variety of Chinese products that were subsidized or “dumped” (i. e. , sold at an abnormally low price). It has also introduced high-level dialogues with China on industrial issues.
Those talks continued under President Barack Obama, whose administration cracked down on Beijing. Obama has used the special safeguard to impose price lists on imported tires, and his administration has won a series of WTO disputes against China, while blocking new appointments to WTO committees. Appellate Body. Controls on Chinese investments have also increased, as Obama took the rare step of blocking two Chinese acquisitions on the advice of the Committee on Foreign Investment in the United States (CFIUS), an interagency framework that examines investments on national security grounds. His administration also concluded negotiations on the Trans-Pacific Partnership (TPP), a mega-regional industrial agreement touted as a way to confront China on industrial matters.
President Donald Trump has taken an even more assertive approach, imposing price lists for billions of dollars’ worth of Chinese goods. Trump also withdrew from the TPP and negotiated a so-called Phase 1 deal with China, which many experts criticized as building key areas. U. S. considerations in exchange for a commitment from Beijing to buy another $200 billion in U. S. goods, anything it has been unable to do. Rise to the task. Trump also called China a currency manipulator for the first time in decades and maintained the Obama administration’s block on new appointments to the WTO’s Appellate Body, crippling the WTO’s dispute settlement system. Generation: Passed a law expanding the role of CFIUS and tightening controls on high-tech exports.
Under President Biden, Washington has taken the most serious steps ever taken to weaken China’s economic dominance. He signed a law that could lead to the banning of Chinese social media giant TikTok; withheld some $360 billion in price lists, as well as Trump-implemented sanctions on Chinese Americans related to human rights abuses in Xinjiang and Hong Kong; introduced unprecedented export controls that limit Beijing’s ability to unload state-of-the-art technologies; and banned some U. S. investments in sensitive generation that lawmakers worry will only be used to help China’s developing military. It also quadrupled price lists for Chinese-made electric vehicles, tripled price lists for metal and aluminum, and doubled price lists for semiconductors. At the same time, several U. S. governors have signed laws prohibiting the pension budget from investing in Chinese state-controlled stocks.
Biden’s willingness to continue the economic relationship with China has raised questions about the long-term of industrial relations. Neither U. S. price lists on Chinese goods (and retaliatory Chinese price lists on U. S. exports) nor U. S. export controls have shown any signs of abandonment. Some lawmakers have brought spending that would expand Biden’s investment restrictions to include more Chinese industries; Other spending would require the federal government’s investment plans to divest Chinese companies. The renewed pressure on TikTok marks a new primary escalation. Beijing calls the move “bullying” and TikTok is suing the U. S. government for its actions. The U. S. Supreme Court has filed a lawsuit arguing that forced promotion is not feasible and violates the First Amendment.
The rise of China, as well as a new appreciation of the fragility of global supply chains laid bare due to the COVID-19 pandemic, has contributed to the revival of trade policy in the United States. The CHIPS and Science Act and the Inflation Reduction Act, passed in 2022, spends billions of dollars on clinical trials and domestic production of high-end smart technologies, such as semiconductors. Experts say simultaneous efforts to hamper competing Chinese industries, especially export controls, may simply suffocate China’s semiconductor industry. Biden administration officials say those restrictions are part of a “small cut, top fence” strategy to preserve national security, not broader economic “decoupling. “During a visit to China in August 2023, U. S. Commerce Secretary Gina Raimondo said the U. S. believes that “A strong Chinese economy is a smart thing. ”
At the same time, some experts question whether the WTO formula is sufficient to address U. S. grievances and whether China’s economic style is fundamentally incompatible with global industry regulations. The concept of subsidies, for example, presupposes a transparent line of demarcation between state-owned and staffed industry, which is unclear in China. In a 2022 report, the Office of the U. S. Trade Representative (USTR) said it is now “widely accepted in the United States that WTO regulations do not and cannot cover many of China’s most destructive policies and practices. “This vision has encouraged decisions by Democratic and Republican leaders to seek the neutralization of the WTO.
The CFR’s Hillman argues that allowing China to join the WTO was not a mistake, but that the U. S. made a mistake by not expediting the equipment at its disposal to deter China’s unfair industrial practices. While the WTO remains a valuable forum for the U. S. , Washington would likely have to look elsewhere, Hillman said. Some experts recommended a pact between like-minded countries that would work in conjunction with the WTO. Politicians advocated for more extreme options; Sen. Josh Hawley (R-MO), for example, called for the general abolition of the WTO.
Henry Gao, a professor at Singapore Management University and an expert on Chinese law and foreign industrial attempts, says the use of unilateral price lists damages the symbol of the United States as a proponent of lax industrial intent and cedes ethical authority to China. Hillman and Gao agree that U. S. leaders made a mistake in assuming that the WTO club would fundamentally replace China. “I would take a step back and ask: Was the WTO designed to convert countries’ economic systems?” said Gao. My answer to that question is no. Gao says the Chinese style is not sustainable and that is why the United States must be patient and work within the WTO, negotiating new regulations if necessary. “If you’re trying to compete with China by adapting to China, what’s the point, even if you finish?Victorious?” Gao said.
This timeline traces the history between the United States and China.
The CFR’s Edward Alden compares semiconductor restrictions to Cold War-era export controls in this article.
In the Council’s special report, CFR members Jennifer Hillman and Inu Manak argue that U. S. adjustments to foreign subsidy regulations would give the U. S. a solid tool to address its considerations about parties with China.
In a series of articles, economists David Autor, David Dorn, and Gordon Hanson discuss the effects of increased industry with China on American workers.
Henry Gao of Singapore Management University examines the evolution of China’s view of the World Trade Organization in this November 2021 article.
Will Merrow created the charts for this background document.