Overview

U.S.-China economic ties have expanded substantially since China began reforming its economy and liberalizing its trade regime in the late 1970s. Total U.S.-China merchandise trade rose from $2 billion in 1979 (when China's economic reforms began) to an estimated $633 billion in 2017. China is currently the United States' largest merchandise trading partner, its third-largest export market, and its biggest source of imports. In 2015, sales by U.S. foreign affiliates in China totaled $482 billion. Many U.S. firms view participation in China's market as critical to their global competitiveness. General Motors (GM), for example, has invested heavily in China, selling more cars there than in the United States annually from 2010 to 2017. In addition, U.S. imports of lower-cost goods from China greatly benefit U.S. consumers. U.S. firms that use China as the final point of assembly for their products, or use Chinese-made inputs for production in the United States, are able to lower costs. China is also the largest foreign holder of U.S. Treasury securities (at $1.19 trillion as of October 2017). China's purchases of U.S. debt securities help keep U.S. interest rates low. Despite growing commercial ties, the economic relationship has become increasingly complex and fraught with tension. From a U.S. perspective, many trade tensions stem from China's incomplete transition to a free market economy. While China has significantly liberalized economic and trade regimes, it continues to maintain (or has recently imposed) a number of state-directed policies that appear to distort trade and investment flows. Major areas of concern to U.S. policymakers include China's alleged widespread cyber espionage against U.S. firms; relatively ineffective record of enforcing intellectual property rights (IPR); discriminatory innovation policies; mixed record implementing its World Trade Organization (WTO) obligations; extensive use of industrial policies (such as subsidies and trade and investment barriers) to promote and protect industries favored by the government; and interventionist policies to influence the value of its currency. Many U.S. policymakers argue that such policies adversely impact U.S. economic interests and have contributed to U.S. job losses in some sectors. The Trump Administration has pledged to take a more aggressive stance to reduce U.S. bilateral trade deficits, enforce U.S. trade laws and agreements, and promote free and fair trade, including in regards to China. In March 2017, President Trump issued an executive order mandating an Omnibus Report on Significant Trade Deficits (China accounts for the largest U.S. bilateral trade imbalance, estimated at $371 billion in 2017). In April 2017, he ordered Section 232 investigations into the national security implications of U.S. imports of steel and aluminum (China is the world's largest producer of these commodities). In May 2017, the United States and China announced outcomes of a special 100-day plan on trade, (an initiative that was agreed to by President Trump and Chinese President Xi at their April 2017 meeting), including market access commitments by China on U.S. beef, biotechnology products, credit rating services, electronic payment services, and bond underwriting and settlement. Also in May, the two sides held their first session of the newly-created U.S.-China Comprehensive Dialogue, but with no announced progress on commercial issues. In August 2017, the USTR announced the initiation of a Section 301 investigation of China's IPR policies and technology transfer requirements. In November 2017, President Trump traveled to China, where he announced the signing of $250 billion in commercial deals between U.S. and Chinese firms, and stated that he did not blame China for the large U.S. trade imbalance, but rather, previous U.S. administrations. This report provides background and analysis of U.S.-China commercial ties, including history, trends, issues, and

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