China's trade with the United States and the world.(CRS Report for Congress: Received through the CRS Web)

Summary

As imports from the People's Republic of China (PRC) have surged in recent years, posing a threat to some U.S. industries and manufacturing employment, Congress has begun to focus on not only access to the Chinese market and intellectual property rights (IPO) protection, but also the mounting U.S. trade deficit with China as well as allegations that China is selling its products on the international market at below cost (dumping), engaging in "currency manipulation," and exploiting its workers for economic gain. Members of the 109th Congress have introduced several bills that would impose trade sanctions on China for intervening in the currency market or for engaging in other acts of unfair trade, while the Bush Administration has imposed anti-dumping duties and safeguards against some PRC products and pressured China to further revalue its currency and remove non-tariff trade barriers.

China runs a trade surplus with the world's three major economic centers--the United States, the European Union, and Japan. Since 2000, the United States has incurred its largest bilateral trade deficit with China ($201 billion in 2005, a 25% rise over 2004). In 2003, China replaced Mexico as the second largest source of imports for the United States. China's share of U.S. imports was 14.6% in 2005, although this proportion still falls short of Japan's 18% of the early 1990s. The United States is China's largest overseas market and second largest source of foreign direct investment on a cumulative basis. U.S. exports to China have been growing rapidly as well, although from a low base. In 2004, China replaced Germany and the United Kingdom to become the fourth largest market for U.S. goods. China is purchasing heavily from its Asian trading partners--particularly precision machinery, electronic components, and raw materials for manufacturing. China is running trade deficits with Taiwan and South Korea and has become a major buyer of goods from Japan and Southeast Asia.

In the past decade, the most dramatic increases in U.S. imports from China have been not in labor-intensive sectors but in some advanced technology sectors, such as office and data processing machines, telecommunications and sound equipment, and electrical machinery and appliances. China's exports to the United States are taking market share from other Pacific Rim countries, particularly the East Asian newly industrialized countries (NICS), which have moved most of their low-end production facilities to China. However, in absolute terms, total exports from the East Asia region to the United States have continued to grow.

This report provides a quantitative framework for policy considerations dealing with U.S. trade with China. It provides basic data and analysis of China's international trade with the United States and other countries. Since Chinese data differ considerably from those of its trading partners (because of how entrepot trade through Hong Kong is counted), data from both PRC sources and those of its trading partners are presented. Charts showing import trends by sector for the United States highlight China's growing market shares in many industries and also show import shares for Japan, Canada, Mexico, the European Union, and the Association for Southeast Asian Nations (ASEAN). This report will be updated bi-annually.

 
Contents 
 
The Rationale for U.S. Policy and Initiatives 
    Trade Policy Developments 
 
Summary of Trade Data 
 
China's Trade Balance and Imports 
 
China and the Asia Pacific Region 
 
China's Trade with the United States, Europe, and Japan 
 
U.S. Merchandise Trade Balances with Major Trading Partners 
 
U.S. Trade with China by Sector 
    U.S. Exports to China 
    U.S. Imports from China 
 
U.S. Imports From China--Sector Charts and Data 
         Iron and Steel 
         Specialized Industrial Machinery 
         Office Machines and Computers 
         Telecommunications and Sound Equipment 
         Electrical Machinery and Parts 
         Road Motor Vehicles 
         Building and Lighting Products 
         Furniture 
         Travel Goods and Handbags 
         Apparel and Clothing 
         Footwear 
         Professional, Scientific, and Controlling Instruments 
         Photographic and Optical Equipment and Timepieces 
 
Foreign Direct Investment in China 
 
Appendix 
 
List of Figures 
 
Figure 1. China's Exports, Imports, and Balance of Merchandise Trade, 
    1983-2004 (PRC data) 
Figure 2. China's Net Imports of Crude Oil, Copper, and Soybeans as a 
    Percent of World Trade in the Commodity 
Figure 4. U.S. Exports, Imports, and Balance of Trade with China, 
    1983-2004 
Figure 5. Japan's Merchandise Imports, Exports, and Balance of Trade 
    with China, 1983-2004 
Figure 6. European Union Merchandise Imports, Exports, and Balance of 
    Trade with China, 1983-2004 
Figure 7. U.S. Merchandise Trade Balances with Selected Countries in 
    2005 
Figure 8. Top Six Imports from China by Industry, 1994-2005 
Figure 9 . U.S. Imports of Iron and Steel Products (SITC 67) 
    by Country and Group, 1990-2004 
Figure 10. U.S. Imports of Specialized Industrial Machinery (SITC 72) 
    by Country and Group, 1990-2004 
Figure 11. U.S. Imports of Office Machines and Automatic Data 
    Processing Machines (SITC 75) by Country and Group, 1990-2004 
Figure 12. Imports of Telecommunications and Sound Equipment (SITC 76) 
    by Country and Group, 1990-2004 
Figure 13. U.S. Imports of Electrical Machinery and Parts (SITC 77) 
    by Country and Group, 1990-2004 
Figure 14. U.S. Imports of Road Motor Vehicles (SITC 78) 
    by Country and Group, 1990-2004 
Figure 15. U.S. Imports of Building and Lighting Products (SITC 81) 
    by Country and Group, 1990-2004 
Figure 16. U.S. Imports of Furniture and Parts (SITC 82) 
    by Country and Group, 1990-2004 
Figure 17. Imports of Travel Goods, Handbags, and Similar Products 
    (SITC 83) by Country and Group, 1990-2004 
Figure 18. U.S. Imports of Apparel and Clothing Accessories (SITC 84) 
    by Country and Group, 1990-2004 
Figure 19. U.S. Imports of Footwear (SITC 85) 
    by Country and Group, 1990-2004 
Figure 20. U.S. Imports of Professional, Scientific, and Controlling 
    Instruments (SITC 87) by Country and Group, 1990-2004 
Figure 21. U.S. Imports of Photographic Equipment, Optical Goods, 
    Watches and Clocks (SITC 88) by Country and Group, 1990-2004 
 
List of Tables 
 
Table 1. China's Imports by Major Commodity, 1999-2005 
Table 2. Top Twenty U.S. Exports to China, 1997-2005 
Table 3. Top Twenty U.S. Imports from China, 1997-2005 
Table 4. U.S. Balance of Trade with China by Sector, 2003-2005 
Table 5. U.S. Imports of Iron and Steel Products (SITC 67) from 
    Selected Countries and Country Groups, 1991, 2000-2005 
Table 6. U.S. Imports of Specialized Industrial Machinery (SITC 72) 
    from Selected Countries and Country Groups, 1990, 2001-2005 
Table 7. U.S. Imports of Office Machines and Automatic Data Processing 
    Machines (SITC 75) from Selected Countries and Country Groups, 
    1990, 2001-2005 
Table 8. U.S. Imports of Telecommunications and Sound Equipment 
    (SITC 76) from Selected Countries and Country Groups, 
    1990, 2001-2005 
Table 9. U.S. Imports of Electrical Machinery and Parts (SITC 77) from 
    Selected Countries and Country Groups, 1990, 2001-2005 
Table 10. U.S. Imports of Road Motor Vehicles (SITC 78) from 
    Selected Countries and Country Groups, 1990, 2001-2005 
Table 11. U.S. Imports of Prefabricated Buildings, Sanitary, Plumbing, 
    Heating and Lighting Fixtures and Fittings (SITC 81) from Selected 
    Countries and Country Groups, 1990, 2001-2005 
Table 12. U.S. Imports of Furniture and Parts (SITC 82) from Selected 
    Countries and Country Groups, 1990, 2001-2005 
Table 13. U.S. Imports of Travel Goods, Handbags, (SITC 83) from 
    Selected Countries and Country Groups, 1990, 2001-2005 
Table 14. U.S. Imports of Apparel and Clothing Accessories (SITC 84) 
    from Selected Countries and Country Groups, 1990, 2001-2005 
Table 15. U.S. Imports of Footwear (SITC 85) from Selected Countries 
    and Country Groups, 1990, 2001-2005 
Table 16. U.S. Imports of Professional, Scientific and Controlling 
    Instruments and Apparatus (SITC 87) from Selected Countries and 
    Country Groups, 1990, 2001-2005 
Table 17. U.S. Imports of Photographic Apparatus, Equipment and 
    Supplies and Optical Goods; Watches and Clocks (SITC 88) from 
    Selected Countries and Country Groups, 1990, 2001-2005 
Table 18. China's Utilized Foreign Direct Investment Inflows, Top 
    Foreign Investors, 2000-2004 
Table A1. China's Merchandise Trade with the World, 1984-2005 
Table A2. U.S. Merchandise Trade with China and China's Merchandise 
    Trade with the United States, 1984-2005 
Table A3. Japan's Merchandise Trade with China and China's Merchandise 
    Trade with Japan, 1984-2005 
Table A4. European Merchandise Trade with China and China's Merchandise 
    Trade with the European Union, 1984-2005 
Table A5. Major Country Merchandise Exports to China, Imports from 
    China, and Trade Balances with China, 2004 and 2005 
Table A6. U.S. Merchandise Trade Balances with Selected Asian 
    Developing Nations, 1984-2005 

U.S. trade with the People's Republic of China (PRC) has raised several policy concerns. The trade is highly unbalanced in China's favor with a U.S. deficit of $201 billion in 2005. Many associate this deficit with the concomitant loss of American jobs in industries competing with rapidly rising imports from China. Some policymakers as well as leaders of industry and labor blame China for unfair trade practices, including deliberately undervaluing its currency, which they claim create an uneven playing field for U.S. companies when competing against imports from the PRC. U.S.-China trade issues are often driven by larger policy objectives. U.S. trade with China is but one aspect of the overall U.S. policy of engagement with the PRC, a policy that serves broader U.S. interests. Trade also underpins Beijing's development strategy and contributes to domestic support for the PRC government.

This report presents data and analysis of China's trade that shed light on various policy issues, provides an overview of recent U.S. legislative initiatives, and examines the goals and constraints of U.S. trade policy toward the PRC. Some of the specific questions addressed are how the U.S. trade balance with China compares with those of the European Union and Japan, whether imports from China are merely replacing imports from other Pacific Rim nations, and how imports from China by industry compare with imports from other countries.

The Rationale for U.S. Policy and Initiatives

Allowing trade with China to develop is part of the overall U.S. strategy of engagement with the PRC. The rationale behind engagement is that working with China through economic, diplomatic, informational, and military interchanges helps the United States to achieve important national security goals such as preventing a nuclear war, defeating global terrorism, defusing regional conflicts, and championing aspirations for human dignity.(1) These goals are aimed at achieving U.S. national interests of security and prosperity for all Americans and projecting U.S. values abroad.

U.S. trade policy toward China is based upon the assumption that trade between the two countries has both economic and political benefits: (1) in general, trade with China benefits both sides and allows for a more efficient allocation of available resources; (2) the rapidly developing Chinese economy affords a rare opportunity for U.S. businesses to embed themselves on the ground floor of a huge expanding market; (3) China's membership in the World Trade Organization (WTO) compels the PRC to comply with international trading rules and spurs the development of market forces in the country; and (4) foreign trade and investment create a dependency on exports, imports, and foreign investment and other interaction with the outside world in China, which in turn strengthen relations with the Western world, create centers of power outside the Chinese Communist Party, and foster economic and social pressures for democracy; (5) a country as significant as China--accounting for a quarter of the world's population, armed with nuclear weapons, and a member of the U.N. Security Council--cannot be ignored or isolated. According to some experts, globalization and economic interests may be exerting a moderating influence on Beijing's policies toward protecting China's national security interests. However, the Chinese Communist Party's determination to maintain political legitimacy through economic growth also creates tensions with other countries and with emerging non-Party political actors.

The possible problems or challenges raised by the U.S. strategy of economic engagement with China include adjusting to economic competition in sectors where China has a comparative advantage, PRC unfair trade advantages, and the rise of an economically powerful China that is becoming more assertive in global affairs: (1) Imports from China may be entering in such increased quantities that they are a substantial cause of serious injury, or threat thereof, to competing U.S. industries; (2) (2) Imports from China may be dumped, subsidized, or unfairly aided by government entities in China, which still wield considerable influence in the economy; (3) (3) According to some economists and many policymakers, the U.S. trade deficit with the PRC stems in large part from Beijing's policy of maintaining an undervalued currency; (4) China has a poor record of adopting or enforcing internationally recognized standards for working conditions and environmental regulation which, in addition to violating human rights and harming the environment, may provide PRC businesses with unfair competitive advantages; and (5) U.S. economic engagement with China arguably contributes to the legitimacy of the socialist government and the strengthening of China's military by facilitating general economic development.

U.S. trade law and WTO regulations can deal with injury from imports and unfair trade practices. Trade disputes with China would normally be first discussed bilaterally before taking the case to the WTO for dispute resolution. China's alleged violation of international labor and environmental standards as well as its own laws and government regulations, has fewer institutional remedies for the United States. Policy options include working to improve China's compliance through bilateral consultations and technical assistance, international organizations (such as the International Labor Organization), non-governmental organizations, and multilateral treaties (such as the U.N. Framework Convention on Climate Change and Kyoto Protocol), (4) and the threat of trade sanctions.

Trade Policy Developments

In the past two years, the United States and China have taken some actions in response to U.S. complaints about China's "unfair trade practices." (5)

* On January 13, 2006, the Bush Administration announced that it would apply the so-called military catch-all rule to items on the Commodity Control List which could require licenses for the export of items to China that could be used to strengthen China's military power.

* On November 8, 2005, the USTR announced that the United States and China had, after three months of intense negotiations, reached a broad agreement on textile trade. The Agreement lasts through the life of the China WTO Textile Safeguard (through 2008), covers more than 30 individual products, and contains quotas that begin at low levels. (6)

* On July 21, 2005, the Chinese government announced that the value of its currency would be revalued to 8.11 yuan per dollar and its future value would be "referenced" to a basket of currencies. The currency can fluctuate against the dollar by 0.3% per day. However, China's central bank continues to intervene in the currency market in order to maintain a stable exchange rate.

* In May 2005, the Bush Administration imposed "safeguard" quotas on 16 categories of Chinese apparel in response to a surge in such imports following the lifting of textiles and apparel quotas worldwide in January 2005.

* In December 2004, the U.S. government imposed anti-dumping duties on imported Chinese bedroom furniture. This case, the largest anti-dumping action against China, reportedly has both supporters and opponents in the U.S. furniture industry. (7)

* In September 2004, the U.S. government …