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China-U.S. Trade Issues

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Publication Date: March 2009

Publisher(s): Library of Congress. Congressional Research Service

Series: RL33536

Topic: Trade (Common markets, free trade associations, and monetary unions)

Coverage: China

Abstract:

U.S.-China economic ties have expanded substantially over the past several years. Total U.S.-China trade, which totaled only $5 billion in 1980, rose to $285 billion in 2005. China is now the third largest U.S. trading partner, its second largest source of imports, and its fourth largest export market. With a huge population and a rapidly expanding economy, China is becoming a large market for U.S. exporters. Yet, U.S.-China commercial ties have been strained by a number of issues, including a surging U.S. trade deficit with China (which totaled $202 billion in 2005), China's refusal to float its currency, and failure to fully comply with its World Trade Organization (WTO) commitments, especially its failure to provide protection for U.S. intellectual property rights (IPR).

The continued rise in the U.S.-China trade imbalance, complaints from several U.S. manufacturing firms over the competitive challenges posed by cheap Chinese imports, and concerns that U.S. manufacturing jobs are being lost due to unfair Chinese trade practices have led several Members to call on the Bush Administration to take a more aggressive stance against certain Chinese trade policies deemed to be unfair. For example, some Members argue that China manipulates its currency vis-avis the dollar to make its exports cheaper, and imports more expensive, than they would be under a floating system. The threat of congressional legislation led China in July 2005 to appreciate its currency by 2.1% and to switch to an exchange rate system based on a basket of currencies (including the dollar). However, many U.S. policymakers charge that these reforms have not gone far and have warned of potential congressional action if China fails to make further reforms.

China joined the WTO in 2001, and U.S. officials continue to closely monitor China's compliance with its WTO commitments. A major concern to U.S. policymakers regarding China's WTO commitments has been its failure to implement an effective strategy to combat widespread IPR piracy in China. Although China has enacted a number of strict IPR laws and regulations, U.S. firms charge that enforcement is lax and ineffective and costs U.S. firms billions of dollars in lost sales annually. On October 26, 2005, the United States initiated a special process under WTO rules to obtain detailed information on China's IPR enforcement efforts. If China fails to comply with this request, the United States might choose to bring a dispute resolution case against it in the WTO. In addition, on March 30, 2006, the United States initiated a WTO case against China over its discriminatory tax treatment of imported auto parts.

This report replaces IB91121, U.S.-China Trade Issues, by Wayne M. Morrison, and will be updated as events warrant.