10 Years of US-China Trade Relations
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Welcome to the China in the World podcast, a series of discussions examining China's foreign policy and shifting engagement with the world. The China in the World podcast is brought to you by Carnegie China and hosted by me, Paul Hanley.

Welcome back to the China in the World podcast. This is the fifth and final episode of the China in the World podcast's 10-year anniversary series. In this series, I look back on the more than 200 episodes I've conducted as director of Carnegie China over the last 10 years to help put current international issues in context. In this episode, I look back on 10 years of U.S.-China trade relations.

U.S.-China trade ties have undergone significant changes since the launch of the China in the World podcast. In March 2012, the United States, the EU, and Japan filed a dispute with China at the World Trade Organization over its quota on exporting raw earth metals. That same year, China's trade surplus with the United States reached an all-time high of $315 billion.

In 2015, China became the largest bilateral trade partner of the United States, surpassing Canada for the first time. In March 2018, the Trump administration announced sweeping tariffs on $50 billion worth of Chinese imports, kicking off the U.S.-China trade war.

After bilateral negotiations with Beijing broke down in May 2019, the Trump administration raised tariffs from 10 to 25 percent on $200 billion worth of Chinese goods. Finally, in January 2020,

The phase one trade deal was signed, relaxing some U.S. tariffs and requiring China to import an additional $200 billion worth of American goods for the next two years. After coming to office in January 2021,

The Biden administration has maintained the Section 301 tariffs on China. And at the end of 2021, U.S. officials stated that China failed to meet its commitments under the Phase 1 trade deal. At present, U.S.-China trade and economic negotiations remain at a standstill.

This episode helps shed light on the evolution of U.S.-China trade relations over the past 10 years. In the following interview, recorded in July 2014,

I spoke with Tim Stratford, former Assistant U.S. Trade Representative, about the roles of the U.S. and China in the Trans-Pacific Partnership, the TPP, and the Regional Comprehensive Economic Partnership, RCEP. But recently there appears to be a warmer reception.

at least by some in China, towards the TPP. And I wanted to ask you if you can explain this apparent shift here in China in their attitude toward the TPP and how you think China now views the agreement. Sure. Let me say, first of all, that I think the TPP is an extremely important initiative. I think that breaking down trade barriers between the United States and countries in the region can really help to

bring economic benefits and greater interaction between the United States and these various countries. PPP was launched toward the end of the Bush administration as an effort to

try to put more momentum into global trade talks when we were concerned about the Doha round of the WTO lagging. And the idea was that if we could demonstrate what a next generation trade agreement would look like and show that the participants were really receiving benefits from that, that it could help spur more interest in trade liberalization. And I think that's what we're seeing with China now. I think

China initially looked on the negotiations with a little bit of suspicion because they weren't being involved. Frankly, the aspirations of TPP were so high and at a different level than what China had been prepared to

commit to in other trade negotiations that the idea was that the US could join talks already taking place between Brunei and Singapore and New Zealand and Australia and so on. So the United States joined that, and it's picked up momentum. And I think now that China has seen some progress, they're looking to say that, gee, maybe this could be beneficial for China as well. So I think that's a very positive direction.

I think that if TPP can be concluded and can demonstrate benefits, it may be a great catalyst for more trade liberalization in the region. I think it's an important point that you make, and I think it's a clarification that is needed here in China that this, in fact...

was not a part of the pivot announcement or the rebalancing strategy. In fact, as you say, this was an initiative created by four other countries outside of the United States. The United States agreed to join it during the Bush administration. In addition to the TPP, there is also the RCEP, the Regional Comprehensive Economic Pact. The RCEP, the Chinese are

actively involved in, but not the US and the TPP. To this point, the US is actively involved and the Chinese are not. Looking to the future and looking at the regional economic integration,

Could the TPP and the RCEP coexist? Could they even converge? Is that something that we should look out to the future to see happen? Is it realistic to imagine a U.S.-China joint effort to create a single trade and investment system for the Asia-Pacific that could potentially draw these two packs, the TPP and the RCEP, efforts together with the goal potentially to establish a WTO-plus system

Standard for the region is that something in your view that is viable is it important to try to do that? What's your sense? I think that that would be a very Constructive and constructive and positive goal to aim towards that would be in everyone's interest it would take a number of years to put in place and

The TPP negotiations, as I've indicated, are intended to be quite ambitious in terms of how deep and broad the liberalization is that they would bring into place. And I think that RCEP is not as ambitious in that respect. But that's okay.

Let TPP get established. Let's see how well it works. And I think other countries would look at that and say, hey, that's working pretty well. We'd like to be involved in that, too. And in the meantime, RCEP, if that can continue to get countries to be making progress from where they are right now,

I mean, not every country is ready to be talking about the TPP commitments. And so if there's another platform for people to talk about what they're able to do now, as long as everyone's moving in the right direction,

then it would be very nice to see convergence at some point. Certainly there would be a lot of economic benefit. In the next interview, recorded in November 2016, I spoke with Claire Reed, senior counsel at Arnold and Porter. You know, we're coming up on the end of the Obama administration, and you've spent a good deal of time, some in the Bush administration, but a big chunk in the Obama administration.

And I wonder if you look back over the eight years of the Obama administration, how would you sort of characterize the issues on trade with China? What are some of the legacy items that have come out of that? And looking into sort of the next administration, where do we go from there? I think the Obama administration focused on

WTO cases with China that were of major significance systemically or structurally. So that was an important dimension of what they were trying to do. One of the most important sets of cases, I think, that were brought against China were the cases related to export restraints that China was putting on some natural resources where it had a dominant U.S. – sorry, a dominant world market share. Mm-hmm.

And so as a result, it could affect world market prices and it could also use its resource richness as a way to try to force companies to come in and locate in China in order to be able to get the resource rather than freely

exporting the resource to the rest of the world. And of course, the WTO rules say that in the normal course of things, you are supposed to freely trade, so you're not supposed to put restraints on your exports any more than you're supposed to put restraints on your imports, that freely trading is best for everybody. So that was very important and was an important...

principle and also important to a couple industries including steel and aluminum and some other lesser known industries as well. And in a series of cases because there's only so much that you can do at a time,

we focused on a number of different raw materials and natural resources that China was hoarding, if you will. It ended up having impacts on high-tech industries as well, because these were resources that were very-- including

Rare Earths, which was a big one that people talked about. So the effort to look at that, the effort to look at the actions of state-owned enterprises, the effort and to see where there were China monopolies that were distorting markets, where China was supposed had committed to opening its market to other suppliers, those are important, also important cases. So that was one useful thing that occurred. The other...

that was done was to amplify the strategic economic dialogue, the so-called SED,

that had been set up by Hank Paulson in the Treasury Department, and to add into it the strategic, a separate strategic component, which was then you created the strategic and economic dialogue, which what the Obama administration did then was add high-level activity by the State Department, and to some extent our military defense came into that to have conversations about,

on strategic issues in addition to the economic issues. Now, my competence sits on the trade and investment side, so I was still firmly on the economic side of the fence. But I will say that adding dialogue with China on the full range of issues that affect our two countries

And having there be high-level conversations where it's not just a random conversation, but there is sort of an expectation that you are going to sit down and seriously review issues together at a specific time. And that at the end of that specific time, from China's perspective, you hopefully are not going to have a blow-up where you leave mad. Right.

That creates, I think, a useful kind of pressure to sit down and try to understand each other and make progress on things. You don't always make progress, but the conversation is important. The next recording comes from an interview in August 2017 with Yukon Huang, senior fellow at the Carnegie Endowment for International Peace. Yukon Huang, thank you very much for joining the China in the World podcast, and thank you for coming to China this week.

to participate here at the Carnegie Tsinghua Center in the seventh annual U.S.-China Strategic Dialogue between leading American thinkers and Chinese thinkers. Really want to talk to you today about your area of expertise, which is, of course, economics and trade, something you focus on very closely at the Carnegie Endowment. Coming into office, and certainly in the presidential campaign, we heard a lot of concerns about trade.

Peter Navarro was a name that came up, and there was great focus on the trade deficit between the United States and China. And a lot of talk about this being sort of at the root of our problems with China in the economics and trade area. We talked looming trade wars. There was a lot of talk about defensive trade enforcement measures, countervailing duties, tariffs, border adjustment tax.

All of that. We heard a lot of this. I first want to get a sense from you where you think this concern comes from. Why are so many in the U.S. concerned by this? Why has there been so much tension on this particular topic? It's a very common public perception that America faces an economic problem because it has the world's largest trade deficit. And of that deficit, 60 to 70 percent of it is represented by a bilateral deficit with China.

So for the ordinary person, even policymakers, it's sort of like common sense would suggest that if I could somehow moderate America's trade deficit with China, that the U.S. would benefit. Growth would be higher. U.S. employment would benefit from the fact that more could be produced domestically. This is also meshed with an observation that, a feeling that American companies are investing towards abroad. Mm-hmm.

And this is leading to a reduction in manufacturing jobs at home. It increases the competitive advantages of America's competitors overseas who then produce and export to the United States. And again, the feeling was that this was a China problem. Is this really where we should be focusing or is that misguided? I mean, if you look at what just, you know, coming out of Mar-a-Lago, this 100-day plan and what was just recently announced by the U.S.,

You don't see a lot of that in the results of that. It's more about trade liberalization, it looked to be. No, and I think that's a good thing because the Mar-a-Lago, I think, put the dialogue on a better keel. Trade deficits are not really the issue. Bilateral deficits are not really the issue. Trade is inherently a multilateral issue because countries produce parsing components. They're assembled here, they're shipped there.

What you think is a trade deficit with China may actually be products which are largely produced in Japan or Korea or Taiwan or elsewhere. So that's not the issue. The overall trade balance is an issue. And that's determined actually by a country's savings rates. If they save more than they invest, they have a surplus. If, as happens in the United States,

investment needs exceed savings availability, you have a trade deficit. And that deficit in the United States is largely because of budget deficits and households borrowing a lot. It's not really a China issue. But China contributes to this because the reverse is true in China. China is a very strong savings nation.

more so than their investment needs are required. The consequences, they run a trade surplus. And that surplus of money then flows outside. A large amount of it comes to the United States. And when it comes to the United States, it lowers interest rates. It sort of like puts a general encouragement to governments, corporations, households to borrow more. So there are people who say indirectly,

China's excessive savings or trade surpluses may actually be causing America to have a little bit more of a trade deficit. That might not be the case. But this is actually not really the issue. The U.S. has been running a trade deficit for 40 years straight, and a deficit even when China's surpluses were insignificant. So clearly there's no direct relationship. So what is the real issue, however? The real issue happens to be investment flows.

Money is flowing all over the world to see higher returns. So US companies invest at home, they invest abroad.

There's a lot of feeling that a lot of it's going to China, and that's a myth. Only 1.5% of America's foreign investment actually goes to China. Very little. One of the major reasons is the U.S. is largely a services sector-oriented economy. It's media, it's health, it's education, it's financial services, it's IT, it's wholesale retail distribution systems. These are largely services kinds of activities. This is America's strengths.

And this is where I think America does have a legitimate concern, because China has one of the most restrictive and foreign investment regimes, and the greatest bias is in services. In the next audio clip from July 2018, I interviewed Chun Ding Ding, professor of international relations at Qinan University, a

about U.S.-China tensions over trade and technology. What are the things that, in your view, are moving in a negative direction? What are the things on top of the list? Obviously, you know, we've got trade, which everyone's talking about today, but what's your view on that?

Actually, I'm not so much worried about trade if it's only a trade issue, because a trade issue can be, relatively speaking, resolved by both sides as long as they can reach some sort of a consensus or agreement with regard to how to divide the benefits of trade.

So that's maybe strictly an economic issue. But what's really worrying me or maybe some other people is the grand strategy perspective that most countries are now adopting that also seem to be

be in different directions. And those directions, I think, are a result of both domestic in the US and also in China developments and also international factors. Many are here in China talking about this possibility of what they call a technology cold war and arguing that the US and China need to take steps now to avert

what many have called this impending technology cold war. How do you see this issue of a potential technology cold war? How would this evolve? And, you know, what's the possibility of this? And how do we take steps now to avert it?

I think maybe the term itself is a little bit misleading. I don't see that happening anytime soon, but I do see a sort of technological self-independence movement taking on or moving forward. So we are not really fighting war, trying to impede other countries' development in technological sectors, but we are trying to be...

be more independent, be more self-independent so we are not, we will not be impeded by other countries' technology or capital or markets or whatever. So in that sense, we try to promote our own domestic industries but we do not hope to

or destroy others' technological developments because if that happens, there could be real consequences. It could even spread to real countries

Cold War something like that between two countries in the next interview from October 2018 I spoke with dawei director of Tsinghua University's Center for strategy and security about how to build a more constructive us-china Economic relationship finally on the trade and economic issues my concern is

If we continue down this path where, you know, President Trump announces another 200 billion, 10% now, but 25% January 1st. He says he's willing to follow up with another 200 billion plus. If we keep going tit for tat, this will affect the, you know, the...

broader relationship and those dynamics we talked about around Vice President Pence's speech will get worse I think we need some progress on the trade and economic issues we need to show that we're going to shift this into a more constructive direction how do we do that?

I think because we don't have a lot of effective communication channel now, all of the dialogues has been, almost all of them has been cut.

So now I think we rely on the two leaders very much, two presidents very much. And I don't know if they are going to, the media yesterday announced that they are going to meet at the G20. I hope that the two countries can reach a kind of agreement on this meeting, on this summit on G20. I totally agree with you that we need to show some progress.

to stop the current trajectory. But probably the G20 is the only chance that I can see now. If we cannot achieve that, then I don't know when can we, maybe we need more times to wait for that. That will be very dangerous. Would it be helpful from your perspective

for the Chinese leadership to do something that indicates their recognition that this is not about containment. This is not about the U.S. or other countries trying to block China's rise. That there are legitimate issues here, as you said, around market access and intellectual property and technology transfer. That...

Some acknowledgement to the international community that, you know, I heard one former U.S. trade representative who worked on Asia and Bush and Obama say to me, China champions itself as a defender of the global and an active supporter and contributor of the global economic and trading system. But if every country operated its economy like China, the global economic and trading system would implode. Mm-hmm.

Is there a way that China can acknowledge? Because I think that would go such a long way to say, look, we get it. There are issues that we, China, this is not about all, this is not just, this is not about the United States alone.

treating us unfairly or moving to containment. There are real legitimate issues here that need to be addressed, and China has a huge role in doing that. Is there a way to do that at this point? Because I think that would go a long way.

I think probably if the two presidents meet at G20, this is a message that China can send to President Trump face to face. I think that and of course then publicly, I think that will be a proper venue. And at the same time, I also hope the U.S. side can send a clear message to China.

We're not trying to keep you down. Yes, we don't want to keep you down. We welcome... We're not trying to block your legitimate rise. Like the previous administration, Obama administration, say we welcome the rise of China. That's an important message for the U.S. to send. But we have not heard the message from the U.S. so far.

And also, we want a unified administration from the American side. And we want a clear message. People here still are asking very basic questions. Does the Trump administration want to strike a deal with China, or are they going to keep China down? So we don't know that, and we don't know who is the reliable interlocutor in China.

in the Trump administration. If we talk to this secretary, then when he back to the D.C., then the agreement being denied by the president. Right, this is Leo He's deal. Yeah, I think this make China feel very difficult to make any meaningful negotiation with the U.S. side. Some people maybe say,

If I made this concession to the U.S. side, then maybe three or six months later, the Trump administration may change its idea, say that's not enough. Though half a year ago it's okay, but now it's not okay.

The following audio clip comes from an interview in January 2019 with Professor Yao Yang, Dean of the National School of Development at Peking University, about tensions in the U.S.-China economic relationship. Let's talk about the current U.S.-China trade tensions. We'll fast forward to the current sort of state of the relationship.

How do you assess, as an economist, what's going on? What are the key challenges that have led to this current high point in trade tension between the US and China? All focus now is on this 90-day period announced after Buenos Aires and what will happen on March 2nd in terms of an outcome. But how do you assess what the dynamics are? What are the challenges? How did we get to this point?

Yeah, I have to say that China's foreign trade policy in the past

were more or less based on a mercantilist belief. So for example, we had a dual track exchange rate regime. After that, we had a fixed exchange rate regime. We subsidized export and we restricted imports. All those mercantilist approach.

United States tolerated China for a long time. That was because the Chinese economy was relatively small and also because of that belief China will become more like us.

But over the last 10 years, the American belief was basically gone, and the Chinese economy has become so big. And the shock to United States, to rest of the world, has been so huge. Let me give you just one number. Ten years ago, there were only 35 Chinese companies

that were Fortune top 500. But last year, 2018, guess what? 120. United States, 126. So that's a-- China's grown four times since 10 years ago. Yeah. 10-year time frame. Yeah, only in 10 years' time. So that's the shock China sent to the whole world.

I think China has to bear this in mind. And I also believe that was the root cause for the trade war. So looking at the prospect of a settlement, I'm kind of optimistic about a settlement by March 2nd. Because that night I have this 90 days. But

This agreement is going to be tentative. It's not going to be the final settlement. I think President Trump really wants an agreement, although his own party and also Democrats probably don't want to have a rush agreement with China.

So after March the 2nd, probably we are going to have kind of a peaceful several months. And then by the end of this year, we are going to see the tension to rise again because the United States is going to enter this campaign year. Right. In the next audio recording from April 2019, I interviewed Susan Thornton, former Assistant Secretary of State for East Asian and Pacific Affairs,

on the state of US-China trade negotiations.

One of the things that's sort of out there in the realm of the immediate is this trade deal and these trade negotiations that are taking place. And we've talked a lot about those this week during your time out here. How important is this at this particular juncture for the U.S. and China to get a trade deal? And what needs to be in the deal for it to be a success from a U.S. standpoint?

Yeah, I think it's pretty important to get some kind of a success marked in this relationship in the pretty near future. So and right now, the only thing we're really talking about with China is this trade deal. So I think it's pretty important that we be able to show that we can work together, that we can have a negotiation, that we can reach a successful conclusion, that we can get some progress on various issues.

Of course, the trade deal that we've been working on will also help push forward China's reform and opening, which is something that has been at the center of our effort to engage China from the beginning. And I think that's an important ingredient in whatever deal comes out. So that means that a deal can't just be about purchases. It also has to be about

and opening and a lot of the structural issues that people have raised. And I think in order to have it be a success and have it be embraced by the international community and the U.S. business community and the U.S. public, that it has to include some of these fundamental protections, you know, things like

on foreign investment, more open market access, no forced transfer of technology, forced joint ventures, protection for intellectual property rights. Those structural issues seem, I think, I would agree with you, are important. And from our discussions this week, I think

I do get the sense that many in China have seen these negotiations as an opportunity for them to use it in their own interests to drive Chinese reforms forward. The notion that in order for their economy to continue to grow and be successful, they need those reforms themselves.

Uh, and this to me seems like the win-win in this trade deal. Do you agree with that? Yeah, it's interesting how many people have mentioned that there are these interest groups also in China that are resistant to changing and, and, and making the kind of adjustments for efficiency that the economy needs right now. Uh,

Of course, reform is always hard. We find that in our system and in any country. It's always difficult to try to break these iron rice bowls and move forward and push interest groups to change. But I think what we're hearing, at least from the reformers, is they're welcoming this kind of push. Whether they can actually get it done, though, and get it implemented, I think is a big challenge. They welcome the outside pressure. The next recording comes from an interview in August 2019.

with Professor Jiaqing Guo, School of International Studies at Peking University about the US-China trade war. How important is getting this trade deal done? How important is that to the broader relationship in your view? It's very important. It's a stabilizer of the relationship.

But I think the two countries, the most important thing for the two countries to do in the days to come is not to let the people who alarm us to take control of the relationship and react to each other. So we need pragmatic

approaches to handle the relationship and try to identify the interests, the shared interests and stakes and try to work over on that basis and try to come out with some kind of arrangement and also at the same time try to control the areas of differences. I believe that

We are a country of the same category. In other words, we are all, you know, stakeholders in the existing international order. And we can help each other to maintain the world order because both of us, we need to maintain the world order in order to protect our own interests. I think we can work on that basis.

We should not let ideology, identity, those issues to take over the relationship.

The next recording comes from an interview with Dr. Sheena Gretens in August 2022 about U.S. economic engagement in Asia, including the U.S. Indo-Pacific Economic Framework. Honestly, the sort of glaring weakness on implementation will continue to be the lack of detail and the lack of a positive economic agenda. You know, we sometimes say about other countries to watch what they say, not what they do.

And that goes for us as well. And if I was sitting almost anywhere in Asia right now, I would look at the United States and say, the domestic politics seem so difficult for the administration to overcome that I don't see the things that really are driving economic integration in the region

as things that the United States is going to be able to come in and fully participate in, let alone lead on. So there is economic integration and progress happening in the region, but it's happening largely with the United States on the sidelines. And so I think,

in terms of US strategy, right? There's separate questions about regional outcomes and regional economic frameworks and development and stability and growth. But in terms of that, from a US strategy standpoint, I think it's just gonna continue to really handicap the administration.

Thank you for listening to the China and the World podcast. For more episodes and research, please go to carnegieendowment.org. This episode was produced by Nathaniel Schur with assistance from Michael Malinconi. The music was composed by Spencer Barnett.