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Practice Areas

China Trade Presents Problems and Possibilities, Report Finds

Wednesday, July 25, 2018
Sandler, Travis & Rosenberg Trade Report

An organization known to be critical of Chinese trade policies said in a recent report that while U.S. policymakers should give due consideration to the enduring effects of the “China trade shock” they should also recognize the new opportunities and increased purchasing power it has provided for U.S. workers and consumers.

The report from the U.S.-China Economic and Security Review Commission updates a 2012 review on trends in goods trade between the two countries. Both reports examine the effects of China’s 2001 accession to the World Trade Organization, which the commission states has allowed China to leverage relatively cheap labor, large economies of scale, industrial policies, and the manufacturing capabilities of neighboring countries to become an export powerhouse in an increasing range of industries.

Among other things, the report finds that since 2011 the composition of U.S. goods exports to China has changed dramatically. From 2000 to 2011 most export growth came from non-manufactured products like soybeans and scrap metal, but from 2012 to 2017 it primarily occurred in a few manufacturing sectors, most notably aviation, semiconductor machinery, and medical devices, even though agricultural products continued to represent a large portion of total exports. The report also notes that the largest source of the bilateral trade deficit from 2000 to 2011 was increased U.S. imports of computer and electronic products and that from 2012 to 2017 the composition of U.S. imports from China remained concentrated in high-tech and industrial sectors, including computers and electronics and machinery.

The report also identifies several dynamics in U.S.-China trade that have implications for the U.S. economy and its future competitiveness.

- In the initial period of its export boom (2002–2011), a large portion of the value of Chinese exports to the U.S. and elsewhere was added outside of China, specifically in South Korea, Taiwan, and Japan. China’s leaders want to change this and are implementing a wide array of policy measures (e.g., the “Made in China 2025” initiative) to ensure Chinese companies become more competitive in high-tech industries, first at home and then in international markets.

- China is trying to become dominant in value-added, high-technology sectors and develop internationally competitive export champions while continuing to limit foreign access to its own market. These are areas where the U.S .excels, but if China is successful in its plans opportunities to export these products to China will decrease.

- Rising imports of manufactured goods from China had a negative impact on employment and wages in trade-exposed industries in the U.S. that was not fully offset by job creation in the industries that benefited from increased exports to China.

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