China–United States Relations - Important Issues - US-China Economic Relations

US-China Economic Relations

The PRC and the US resumed trade relations in 1972 and 1973. Direct investment by the US in mainland China covers a wide range of manufacturing sectors, several large hotel projects, restaurant chains, and petrochemicals. US companies have entered agreements establishing more than 20,000 equity joint ventures, contractual joint ventures, and wholly foreign-owned enterprises in mainland China. More than 100 US-based multinationals have projects in mainland China, some with multiple investments. Cumulative US investment in mainland China is valued at $48 billion. The US trade deficit with mainland China exceeded $350 billion in 2006 and was the United States' largest bilateral trade deficit. Some of the factors that influence the U.S. trade deficit with mainland China include:

• The strength of the US economy: there has been a shift of low-end assembly industries to mainland China from newly industrialized countries in Asia. Mainland China has increasingly become the last link in a long chain of value-added production. Because US trade data attributes the full value of a product to the final assembler, mainland Chinese value added is overcounted.
• US demand for labor-intensive goods exceeds domestic output: the PRC has restrictive trade practices in mainland China, which include a wide array of barriers to foreign goods and services, often aimed at protecting state-owned enterprises. These practices include high tariffs, lack of transparency, requiring firms to obtain special permission to import goods, inconsistent application of laws and regulations, and leveraging technology from foreign firms in return for market access. Mainland China's accession to the World Trade Organization is meant to help address these barriers.
• The undervaluation of the Renminbi relative to the US dollar.

Beginning in 2009, the US and China agreed to hold regular high-level talks about economic issues and other mutual concerns by establishing the China-US strategic economic dialogue, which meets biannually. Five meetings have been held, the most recent in December 2008. Economic nationalism seems to be rising in both countries, a point the leaders of the two delegations noted in their opening presentations. The United States and China have also established the high-level US-China Senior Dialogue to discuss international political issues and work out resolutions.

In September 2009 a trade dispute emerged between China and the United States, which came after the US imposed tariffs of 35 percent on Chinese tire imports. The Chinese commerce minister accused the United States of a "grave act of trade protectionism," while a USTR spokesperson said the tariff "was taken precisely in accordance with the law and our international trade agreements." Additional issues were raised by both sides in subsequent months.

Pascal Lamy cautioned: "The statistical bias created by attributing commercial value to the last country of origin perverts the true economic dimension of the bilateral trade imbalances. This affects the political debate, and leads to misguided perceptions. Take the bilateral deficit between China and the US. A series of estimates based on true domestic content can cut the overall deficit – which was $252bn in November 2010 – by half, if not more."