Nixon Opens Trade with China Summary

  • Last updated on November 10, 2022

President Richard M. Nixon’s visit to China was a step toward world peace; in February, the Nixon administration announced a change in U.S. policy on trade with the People’s Republic.

Summary of Event

“I will undertake what I deeply hope will become a journey for peace, peace not just for our generation but for future generations on this earth we share together.” So said President Richard M. Nixon in a televised speech on July 15, 1971. The speech announced a major shift in U.S. trade policy with the People’s Republic of China. On February 21, 1972, at the invitation of Premier Zhou Enlai of China, Nixon began a historic weeklong visit to Beijing that created new and lasting commercial relations between the two countries. On February 27, the two leaders signed the Shanghai Communiqué, Shanghai Communiqué (1972) establishing some basic guidelines for U.S. and Chinese economic policy reforms, setting the stage to reestablish mutually beneficial trade relations. China;U.S.-China relations[U.S. China relations] Trade agreements [kw]Nixon Opens Trade with China (Feb. 21, 1972) [kw]Trade with China, Nixon Opens (Feb. 21, 1972) [kw]China, Nixon Opens Trade with (Feb. 21, 1972) China;U.S.-China relations[U.S. China relations] Trade agreements [g]North America;Feb. 21, 1972: Nixon Opens Trade with China[00580] [g]East Asia;Feb. 21, 1972: Nixon Opens Trade with China[00580] [g]United States;Feb. 21, 1972: Nixon Opens Trade with China[00580] [g]China;Feb. 21, 1972: Nixon Opens Trade with China[00580] [c]Diplomacy and international relations;Feb. 21, 1972: Nixon Opens Trade with China[00580] [c]Trade and commerce;Feb. 21, 1972: Nixon Opens Trade with China[00580] Nixon, Richard M. [p]Nixon, Richard M.;U.S.-China relations[U.S. China relations] Kissinger, Henry [p]Kissinger, Henry;U.S.-China relations[U.S. China relations] Zhou Enlai

Trade relations between the two countries had changed dramatically following the outbreak of the Korean War. Twenty-two years earlier, on June 28, 1950, President Harry S. Truman Truman, Harry S. had declared a national emergency and placed an embargo on all U.S. exports to China. He was granted authority to do this primarily under the Export Control Act of 1949 Export Control Act (1949) and the Trading with the Enemy Act of 1917. Trading with the Enemy Act (1917) When Communist China had entered the Korean War early in 1949, the United States began imposing selective trade controls on that country. By July 20, 1950, the United States had successfully blockaded all strategic export items, including ammunition, atomic energy materials, and petroleum. In October, 1950, Chinese Communist forces joined the North Korean army.

The trade embargo and the trade controls imposed by allies of the United States were basically acts of economic warfare designed to weaken China’s capacity to wage war in Korea. Partners in the North Atlantic Treaty Organization North Atlantic Treaty Organization (NATO) had placed greater restrictions on their trade with China than with other Communist countries such as the Soviet Union. As a result, the list of products banned for export to China was more comprehensive than those for other Communist countries. The effectiveness of the embargo, however, was strongly undermined. If China could not buy goods from Western Europe or Japan, it could get them from the Soviet Union or Eastern Europe, if perhaps at a higher cost.

After the Korean War ended, commercial pressures for decontrol began to build in a number of Western European countries and in Japan. Removal of many of the restrictions occurred in a piecemeal fashion as allies began to disregard them. As early as 1957, the United States officially reduced the list of banned exports to China, putting China on the same basis as other Communist countries. As a result, allied controls did not prevent China from getting most goods but merely imposed higher resource costs on the Chinese economy.

Between 1949 and 1970, economic growth in Communist China fluctuated. In 1950 and 1951, the country experienced strong growth, but it leveled off in 1952. From 1953 to 1956, the growth continued under a program of expansion known as the First Five-Year Plan. Another leveling occurred in 1957, followed by the Great Leap Forward Great Leap Forward of 1958 to 1960, which produced dramatic growth followed by a depression. From 1960 to 1962, the deep depression affected most areas of the Chinese economy, including agriculture, industry, and foreign trade. Gradual economic recovery began after the 1962 harvest and continued until 1966, when China’s economic growth rate exceeded that of the Great Leap Forward. The Cultural Revolution Cultural Revolution, China beginning in 1966 once again set China’s economy back.

On March 28, 1969, U.S. national security adviser Henry Kissinger gave a directive to review the U.S. trade embargo with China. As a result, the United States modified trade controls against China in two ways. First, the ban on travel to the People’s Republic of China was removed. Second, the United States allowed American tourists to purchase up to $100 worth of Chinese goods and bring them back to the United States. These steps, perhaps in combination with growing Soviet aggressiveness around the world at the time, caused China to begin a reassessment of its policies concerning the United States.

When President Nixon took his historic trip to China in February of 1972, he was well received. In addition to promoting the progressive development of trade between the two countries, the Shanghai Communiqué of February 27 also stated that both sides viewed bilateral trade as mutually beneficial and agreed that economic relations based on equality were in the interest of citizens of both countries.

President Richard M. Nixon (right) walks across a bridge in Hangzhou, China, with Zhou Enlai (left) during his trip to China.

(AP/Wide World Photos)

Nixon’s televised speech had announced a policy shift that was formalized in the Shanghai Communiqué, but it was not until 1980 that trade relations with China normalized. On January 24, 1980, Congress passed the U.S.-China Trade Agreement, granting most-favored-nation status for Chinese exports to the United States.

Significance

Although learning to trade with China was a complex undertaking, many companies succeeded. For example, after the signing of the Shanghai Communiqué, ten American companies were invited to attend the Canton Trade Fair held in the spring of 1972. One of these companies stands out as an example of establishing successful long-term trade with China. Seabrook International Foods, Seabrook International Foods Inc., was a manufacturer of finished fabrics and home furnishing products, also distributing frozen foods. By 1979, its annual consolidated sales were $827.9 million. Seabrook’s success prompted questions concerning trade with China. What factors helped Seabrook succeed? Did the success depend on the particular line of products, or did other more general factors contribute? What other companies would succeed in establishing trade with China? Would many other companies move jobs to the Far East, as Seabrook had?

The National Council for U.S.-China Trade conducted a survey and found several common factors in companies trading in China. The survey found that such factors as the managerial attitude of the American firm, its product characteristics, and familiarity with the Chinese culture could all affect a company’s success. A company was more successful when its employees were sincere, patient, and able to establish personal relationships with their Chinese partners. Successful products filled empty product niches rather than competing with established products. An understanding of Chinese business practices, social customs, politics, and language also improved chances of success. If a company lacked understanding of differences in business practices, negotiation styles, and social customs, it was more likely to fail. Differences in ideology and culture, insincerity, and communication breakdown also ranked high on the list of reasons that American companies failed in their ventures into China.

The survey drew five important primary conclusions. First, it found that companies experienced in trading and negotiating with the Chinese were more likely to enter future negotiations. Second, most firms agreed that the Chinese were concerned with establishing long-term relationships. As a result, a firm had to be prepared to invest time, money, and resources to build up a good working relationship. Third, the survey showed that the type of industry did not seem to matter. The Chinese were willing to trade many different products, as long as they fit with national priorities. Therefore, companies had to be familiar with national policies. Fourth, knowledge of Chinese business practices and understanding of Chinese culture was not in itself a key to success. A company also needed a genuine interest in working toward common goals. Fifth, in doing business with China, the American firm had to face the problems of conducting trade with a socialist economy. A firm had to learn how to deal with cultural differences and complexities involved in a trading atmosphere in which political and economic relations merge.

An American company could do business with one or more Chinese foreign trade corporations, which included the China National Machinery Import and Export Corporation, the China National Technical Import and Export Corporation, the China National Chemicals Import and Export Corporation, the China National Metals and Minerals Import and Export Corporation, the China National Light Industrial Products Import and Export Corporation, the China National Native Produce and Animals By-Products Import and Export Corporation, the China National Arts and Crafts Import and Export Corporation, the China National Textiles Import and Export Corporation, and the China National Cereals, Oils, and Foodstuffs Import and Export Corporation. Five industries took the greatest advantage of the open trade with China: textiles, tourism, petroleum products, computers and high-tech equipment, and insurance.

By 1980, textiles had grown to about 20 percent of the total volume of annual exports from China, making up 3 percent of the world’s textile trade. Chinese economic planners saw the potential for increased exports of Chinese textiles through targeting the United States as one of China’s major markets.

Although tourism was not listed as a national priority, by 1980 it had become a potentially large source of foreign exchange earnings for China. Because of a shortage of hotels and other facilities, the Chinese had to turn away almost 75 percent of all tourist applications. Nearly one million tourists visited China in 1979 alone. The potential for increased tourism induced the Chinese to build more hotels. A number of major hotel chains discussed prospects of constructing hotels in China.

Until 1956, geologists considered China as a nation poor in petroleum resources. In that year, oil was discovered in Tacheng. China soon had enough oil to meet its needs, with surplus oil available for export. This presented several major oil companies with the opportunity to expand through offshore drilling.

Development of trade in computers and other equipment involving high technology depended on the world’s political climate. The Soviet invasion of Afghanistan in 1979 led to a softening of the military stance the United States took with China, clearing the way for sales of military support and dual-use equipment. Companies began to sell computer systems with general-purpose simulation capabilities for training and advanced research. Although companies still faced the frustration of having to obtain export licenses to complete sales, the open door to China created huge opportunities for those willing to take the risk.

Because U.S. investors faced various risks with their ventures in China, insurance was vital to establishing and maintaining business relationships. These risks included those involved with currency fluctuations and with the relationships between capitalist and socialist firms, along with all the usual risks of business dealings. Major U.S. corporations formed joint ventures with the Chinese. The American International Group, Inc., merged in 1980 with the People’s Insurance Company of China to become known as the China-American Insurance Company. Other companies soon followed.

Although the Chinese market was important for some American industries, products, and firms, the Chinese market was limited for American goods in general. Establishing trade with China was almost certainly of greater political than economic importance. Implementing the guidelines of the Shanghai Communiqué created a policy that led to normalization of relations between China and the United States through the trade channel. Becoming trading partners and working for mutual economic benefit did move the countries, and the world, closer to peace. China;U.S.-China relations[U.S. China relations] Trade agreements

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Buss, Claude A. China: The People’s Republic of China and Richard Nixon. San Francisco: W. H. Freeman, 1972. A thin volume giving an outline of Chinese history as well as a discussion of relationships with the United States.
  • citation-type="booksimple"

    xlink:type="simple">Choudhury, G. W. China in World Affairs: The Foreign Policy of the PRC Since 1970. Boulder, Colo.: Westview Press, 1982. A good general source on China’s foreign policy. Chapter 4 discusses Nixon’s visits to China. Other chapters discuss relationships with other countries.
  • citation-type="booksimple"

    xlink:type="simple">Congressional Quarterly, Inc. China and U.S. Foreign Policy. Edited by William B. Dickinson, Jr. Washington, D.C.: Author, 1973. Includes a brief summary of U.S. policy toward China along with a diplomatic history. Discusses House and Senate hearings on China and includes the text of statements by Nixon concerning China, including his televised speech from July 15, 1971.
  • citation-type="booksimple"

    xlink:type="simple">De Pauw, John W. “Introduction.” In U.S.-Chinese Trade Negotiations. New York: Praeger, 1981. An excellent summary of the events. Also provides interesting tables showing increases in U.S. trade with China between 1970 and 1980. Good on specific details of negotiating business contracts, examples of difficulties encountered with Chinese trade, and methods for overcoming the impediments inherent in the U.S.-Chinese trade system.
  • citation-type="booksimple"

    xlink:type="simple">Foot, Rosemary. The Practice of Power: U.S. Relations with China Since 1949. New York: Oxford University Press, 1997. Traces changes in U.S. relations with China, from hostility to rapprochement, and finally normalization.
  • citation-type="booksimple"

    xlink:type="simple">Mann, James. About Face: A History of America’s Curious Relationship with China, from Nixon to Clinton. New York: Vintage Books, 2000. Clearly written account of the tangled U.S.-China relations and the United States’ ineffective diplomacy. Written by a former chief of the Beijing bureau for the Los Angeles Times, 1984-1987.
  • citation-type="booksimple"

    xlink:type="simple">Tung, Rosalie L. U.S.-China Trade Negotiations. New York: Pergamon Press, 1982. Contains the findings of the questionnaire from the National Council for U.S.-China Trade. Each chapter details case studies of separate success stories. Includes interviews with presidents of major corporations. Interesting, informative, and easy to read.

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