Chinese trade with the United States

Trade between communist China and the United States went from nearly nonexistent to hundreds of billions of dollars of imports in the twenty-first century, making China a major U.S. trading partner and a key supplier of many goods.

Largely closed to foreign business interests until the nineteenth century, China limited most of its trade with foreign powers to Macao and, on the mainland, to one port city: Guangdong. It was there that the British first made inroads into Chinese markets and where they could obtain goods that were highly prized in Europe, such as tea, porcelain, and silk. Although relations between Great Britain and China were strained, the two powers signed a number of agreements that slowly opened China to Western merchants. The Treaty of Nanking (1842) allowed for open trade between China and the West, and it was followed by the Treaty of Tianjin (1858) and the Treaty of Beijing (1860). The latter agreement also led to China signing commercial treaties with other Western powers such as France, Germany, Russia, and the United States. Western traders enjoyed greater openness in Chinese markets, and Western companies increased their investments in Chinese industries. This is not to say that financial cooperation had not existed before 1860. For example, Americans had established several plants in China for the production of ships. In 1856, a forty-ton steamer was built under the supervision of the American Captain Baylies, which marked the beginning of a long period of American production of ships on the mainland. In 1863, Americans introduced the boiler and machinery parts to shipbuilding in China, which revolutionized the industry.Trade;U.S. with ChinaChina;U.S. trade with

After the negotiation of the Treaty of Beijing, other business interests came to China in search of vast, new markets. Several United States-based banks greatly increased their activities on the mainland after 1860. These included various California banks that had been linked to China through India, such as the Exchange Bank Corporation, the English & American Bank, the British & California Banking Company, and the American-China Development Company. In 1867, the Ezra R. Goodridge Company opened several plants for the manufacture of silk and ribbon.

Throughout the 1880’s, several American companies built flour-milling plants in China and engaged in fierce competition for control of the Chinese markets. The Sperry Milling Company, Golden Gate Flouring Mills, Centennial Mills, and the Portland Flour Company, all of which began their operations in Hong Kong, struggled to gain the upper hand in the lucrative trade in flour with the mainland. The American concern Mustard & Company began to import cigarettes into China in 1890. Following its defeat in the First Sino-Japanese War, China signed the Treaty of Shimonoseki (1895), which allowed for the further expansion of foreign business concerns in the interior as well as for the establishment of permanent foreign settlements in China, especially in coastal cities.

The Twentieth Century

The dawn of the twentieth century found American trade with China to be stronger than at any other time since its inception during the 1850’s. In 1902, the British-American Tobacco Company established itself in China, building its first factory in Shanghai, and later expanded its operations into numerous Chinese cities such as Shanghai, Tianjin, Mukden (later Shenyang), Hankou, Qingdao, and Harbin. American shipping groups such as the Pacific Mail Steamship Company and the Shanghai Steam Navigation Company continued to do business in China, although the American presence in the industry was minimal in that the American firm Russell & Company had sold its Chinese operations to local businesspeople during the 1870’s. Textiles were of great importance, and the American Trading Company soon established operations in China through its subsidiary, the International Cotton-Manufacturing Company, which enjoyed great profits garnered through its mainland operations. With the new electrical age, American business interests also scored great financial successes in China. The General Edison Company opened its first plant for the production of lamps in Shanghai in 1918 and, with the growth of the business itself, realized the construction of a larger plant in the same city in 1926 by its new International General Electric Company. This was complemented by the American-owned Shanghai Power Company.

China imported agricultural products such as tobacco and raw cotton, timber, automobiles, kerosene, gasoline, and machinery and other heavy equipment throughout the first decades of the century. For its part, the United States also imported a range of Chinese goods: textiles, electronic products, leather goods, footwear, skins, bristles, soybeans, silk, tea, and glass. The founding of the Republic of China (1911) marked a new interest by reform-minded leaders in modernizing both the Chinese political system and the economy, and by 1936, the United States had become China’s largest trading partner. Yet all this was to change quickly. With the Japanese invasion in 1937 and the simultaneous military revolt of the CommunismCommunists under Mao ZedongMao Zedong, business production declined precipitously, and China quickly slid into economic disaster. Only vast amounts of American aid to the Nationalist government propped up the economy and the military sufficiently for Chiang Kai-shek and his government to limp their way to the island of Formosa (Taiwan) in late 1949, there to establish the new seat of the Republic of China in exile.

Communist China

From the founding of the People’s Republic of China in 1949 under the communist rule of Mao Zedong until 1978, China isolated itself from contact with much of the outside world, especially the United States. Trade between the United States and China was virtually nonexistent, and it was not until the summit of 1972 between Mao and U.S. president Richard M. Nixon that diplomatic and trade channels were once again opened. Deng XiaopingDeng Xiaoping’s embracing of the outside world in his 1978 Open-Door Policy saw China’s full engagement in diplomatic and economic relations with other nations, which culminated in formal reestablishment of diplomatic relations between the United States and China in January, 1979.

Following on the heels of the political rapprochement, in July of 1979, the two countries signed the Bilateral Trade Agreement. Between 1981 and 1990, China’s economy grew at an average rate of 10.3 percent, and its trade grew at an annual rate of 16 percent. Trade between the United States and China has grown from $2.3 billion in 1979 to more than $386.6 billion in 2007, making China the fourth-largest trading partner of the United States. In 1980, the United States granted China most-favored-nation status, and China also gained access to both the International Monetary Fund (IMF) and the World Bank. In 1992, China agreed to lower trade barriers, and in 1995, it entered into an agreement with the United States to protect intellectual property.

By 2007, U.S. exports to China were valued at $65.2 billion, while its imports from China reached an all-time high of $321.4 billion–a negative trade balance of some $256.2 billion. China is a major supplier of numerous products, including toys, sporting goods, apparel, foodstuffs, metals and metal products, textiles, apparel, automotive parts, plastic materials, games, footwear, chemicals, raw materials, machine tools, handicrafts, telecommunications equipment, computers and other electronic machinery, agricultural chemicals, fertilizers, cereals, leather and travel goods, vehicles (not railway), and furniture. For its part, the United States also supplies China with many essential products: electrical machinery, air- and spacecraft, power-generation equipment, plastics and plastic products, iron, steel, optical and medical equipment, copper and copper articles, organic chemicals, pulp and paperboard, oil seeds, and oleaginous fruits. In 2007, the United States became China’s top trading partner, while China was the fourth-largest trading partner with the United States. Combined with Hong Kong, however, China was the third-largest trading partner with the United Sates. As of 2008, the United States was China’s major export location, and China was the fourth-largest import market of the United States.

Expanding Trade

A review of trade statistics from 1985 to 2007 shows that American exports to China grew steadily and reached almost ten times their levels in 1985. Imports from China grew to alarmingly high levels. In 1985, the United States imported approximately $3.8 billion in goods, as compared with almost $321.4 billion in products in 2007. The huge trade deficit, which increased from $6 million in 1985 to $256.2 billion in 2007, became the center of an enormous economic and political controversy and the cause of increasingly strained relations between the United States and China. For its part, the United States claims that Chinese markets still remain closed to American products, while Chinese officials note that the value of U.S. products sold to China has also grown enormously, if not as dramatically as U.S. imports from China have increased. Many in Congress have clamored for the revaluation of the official Chinese Currency;Chinesecurrency, the renminbi (RMB, or, colloquially, the yuan), as it was pegged directly to the U.S. dollar as of 2008. Some contend that raising the exchange rate of the RMB will place American and Chinese companies on a more equal footing, thus encouraging Chinese purchase of American goods and discouraging U.S. purchase of Chinese products. Many economists warn, however, that the problem is far more complex. Some note that foreign direct investment in China became the largest in the world in 2007. Revaluing the RMB, and thus slowing Chinese exports, may cause these foreign investors to receive lower returns on their investments, thus harming the wider global economy. What is more, decreases in Chinese profits will adversely harm world asset market valuations. The resulting deflation of the Chinese economy might very well affect all retailers who sell Chinese products. Again, the negative effects of revaluation and a slowing of Chinese sales might not yield the result desired by American legislators. Chinese officials contend that the American trade deficit has little to do with a lack of reciprocal trade between the two nations but rather is a function of the American desire for material goods. They point out that, by the end of the 1990’s, the U.S. trade deficit had not only grown dramatically with China, but also had reached its highest levels ever with other Asian trading partners, including Singapore, Hong Kong, Korea, and Taiwan.

Trade tensions between the United States and China have risen and declined, especially since the 1990’s. Although American businesses recognize that China has become a large market for their products, many still fear that China’s enormous economy will overtake that of the United States. This fear is not unfounded: The Chinese economy is projected to surpass that of the United States as the largest economy in the world by 2020. However, even this negative prediction has a bright side for American businesses, which recognize that prospects for trade with a vast Chinese market may be still greater in the future. Some markets offer particular hope of growth for American interests: computers, cell phones, aircraft, and automobiles.

The Chinese have been accused of unfair trade practices, but China’s entrance into the World Trade Organization (WTO) in December, 2001, offered hope that the vast “dragon economy” could gradually be brought into conformity with the regulations and procedures of the global business community. In 2006, China gained full membership in the WTO, although the United States has since complained that the Chinese response to international regulations has been tepid, at best, especially in the areas of product dumping and intellectual property rights. Also, tensions regarding the pegging of the RMB have remained. In December of 2003, Congress threatened to apply heavier tariffs to Chinese products unless Chinese markets were further opened. Tensions rose to such a point that some feared a U.S.-China trade war. If Chinese markets were not made more accessible to American businesses and if the RMB were not revalued, Congress threatened to levy an additional tariff of 27 percent on all Chinese imports. Although the tariff was not enacted, the issue has remained critical. In 2005, the Chinese government reiterated its commitment to full enforcement of intellectual property rights, but American regulators have continued to complain of random enforcement that is very public but only symbolic.

Continuing Problems

A host of other problems plague the trade relationship between the United States and China. A great reduction in manufacturing jobs in the United States has engendered a spirit of protectionism in some political and economic circles. Increasingly, pressure has been brought to bear on Congress to force the Chinese to come into parity with the rest of the international business community. The enormous trade imbalance between the two countries has exacerbated the problem, as has the question of Chinese investment in the United States. As of March, 2008, China was the second-largest holder of United States Treasury securities ($491 billion, or 19.5 percent of total foreign ownership of U.S. Treasury securities), and fears arose–irrationally–that the Chinese might, at any time, demand immediate payment, thus destroying the U.S. economy in one fell swoop. However, as economists were quick to note, such an action would eliminate the U.S. market for Chinese business and bring about a complete collapse of the world economy.

The thought of communist China “controlling” the U.S. economy raised the specter of disaster for many Americans, especially in the light of several other business developments involving China. During the early part of the twenty-first century, Chinese attempts to take control of some American businesses, especially those related to national security, raised controversy. Evidence of Chinese cyber espionage and cyber jamming made many in the business and political communities wary of Chinese intentions. China’s launch of new communication and navigation satellites made some nations nervous, as these developments indicate that China is capable of launching nuclear weapons. Many in Congress have discussed greater controls on American exports of technological information and equipment as a response to growing nationalism and militarism in China. For the last decade, China has registered double-digit increases in military spending, apparently in an attempt to compete with the United States. Such expenditures have cast a pall over U.S.-China trade relations and have made some Americans wary of Chinese attempts to make peaceful overtures to the world community. Some American scholars and members of the business community have noted that the Chinese, known for their attempts to sinicize their potential adversaries, have shown signs of trying to do the same in the realm of economics. They have cautioned that, until China fully conforms to the regulations and procedures of the entire global community, the United States should deal very cautiously with Beijing.

An issue that continues to plague U.S.-China trade relations is the question of Human rights violationshuman rights. Global human rights groups have listed China as the nation that least respects human rights. Highly publicized imprisonments of Chinese journalists, activists, and even prominent business figures had led to stormy debates in Congress as to whether the United States should be dealing with the Chinese at all. Many legislators has stated that they believe that China must be forced into conformity with the human rights conventions of the United Nations and that, barring full compliance, it should be isolated from the American trading community. However, unilateral action by the United States in this matter would be difficult. More moderate legislators have urged American administrations to work more closely with world bodies such as the World Bank, the WTO, the United Nations, Association of South-East Asian Nations (ASEAN), and the Group of Seven to pressure China to respect human rights, especially in the area of religious tolerance. All agree that the situation has improved since 1979; however, much is still lacking in the Chinese human rights record. American companies have tried to institute fair labor practices in their factories in China and have also sought to instill a respect for human rights in Chinese managers and workers at every level.

Further Reading

  • Henderson, Callum. China on the Brink: The Myths and Realities of the World’s Largest Market. New York: McGraw-Hill, 1999. A study of the many difficult challenges that China faces on the road to economic development, especially as it deals with the suspicions of the global community. This work combines political analysis with economic realities.
  • Hinkelman, Edward G., ed. China Business: The Portable Encyclopedia for Doing Business with China. San Rafael, Calif.: World Trade Press, 1995. An excellent sourcebook for almost any aspect of doing business with China, this work provides a wealth of data and analysis of critical issues.
  • Hudson, Christopher, ed. The China Handbook. Chicago: Fitzroy Dearborn, 1997. This collection of essays, although topical, provides a fine overview of China’s economic transition from the founding of the People’s Republic of China to the late 1990’s.
  • Hufbauer, Gary Clyde, et al. U.S.-China Trade Disputes: Rising Tide, Rising Stakes. Washington, D.C.: Institute for International Economics, 2006. This study of the economic tensions between the United States and China is balanced and scholarly.
  • Lardy, Nicholas R. China in the World Economy. Washington, D.C.: Institute for International Economics, 1994. An excellent analysis of the Chinese economy and its relation to the international economy. Chapter 4 is a particularly helpful overview of U.S.-China trade difficulties.
  • Studwell, Joseph. The China Dream: The Quest for the Last Great Untapped Market on Earth. New York: Atlantic Monthly Press, 2002. An interesting study of China’s historical record in the realm of business and economic cooperation with the rest of the world. Provides important historical perspective.
  • Tong, Sarah Yueting. U.S.-China Trade Balance: Why Such a Huge Discrepancy? Singapore: East Asian Institute of the National University of Singapore, 2004. A scholarly analysis of the complex problems involved in the U.S.-China trade imbalance. Tong, an authority in this area, offers a clear presentation of the challenges facing both nations at the level of trade.

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