The U.S.-China Economic Relationship

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US President Donald Trump sits with Chinese President Xi Jinping during a bilateral meeting at the Mar-a-Lago estate in West Palm Beach, Florida.

The USS Empress set out from New York harbor in 1784, bound for Canton (Guangzhou, China), and for the first time, the U.S. flag flew on a ship in a diplomatic setting. This was the beginning of the more than 200-year-old Sino-American relationship.

Several decades later, the U.S., along with the other European powers, agreed to the Treaty of Wang Hai in 1844 and the Treaty of Tientsin in 1860 with China, opening Chinese ports for trade. These treaties began an era of Chinese history in which the country was opened up to the West, as Westerners were allowed to live and trade in ports, such as Shanghai and Guangzhou. Some of these ports, such as Hong Kong, followed Western laws and became a protectorate of the British empire.  

Throughout the 19th and into the early 20th century, the relationship between the U.S.-Sino relationship fluctuated. The Boxer Rebellion in 1901, where Chinese rebels slaughtered all the European residents in the diplomatic quarter of Beijing, was a low point. Nonetheless, both countries became allies during World War II, and China played a vital role in defeating the Japanese.  

The U.S.-Sino relationship came to an abrupt end in 1949, when Mao’s Communists rebels forced the army of the pro-US Republic of China to retreat to Taiwan.  This was followed by the establishment of the communist People’s Republic of China (PRC) by Mao Zedong. The US refused to recognize Mao’s new regime until 1979. Therefore, China turned to the Soviet Union for help. At first they cooperated extensively, with the USSR supplying China with military aid. However, starting in the late 50s, the USSR under the Nikolay Khrushchev began to compete for influence with Mao in the communist world. The Chinese branded the USSR as traitors to the legacy of Stalin, while the USSR attempted to pain Mao as a megalomaniac dictator. This rivalry intensified, reaching a tipping point in 1969, when China and the USSR clashed over disputed territories on the Amur River in southern Siberia. Henry Kissinger, then President Nixon’s National Security Adviser, reached out to the Chinese to counter the USSR in the Far East.   

This culminated with President Richard Nixon’s 1972 now famous visit to China. The week-long trip opened the doors to the economic relationship between the two nations that still exists today. It put aside the nations disagreements over political philosophy, and focused on the trade and economic benefits for both nations. 

In the ensuring years, many Chinese factories opened, and China began producing goods for U.S. companies. Cheap wages encouraged manufactures to hire workers in China, compared to the United States. American items became plastered with the label, “Made in China” despite the United States not even having a formal trade treaty with China. Then, in 2001, shortly before he left office, President Clinton allowed China to join the World Trade Organization, the organization that governs trade between countries. Lately, however, there has been a growing trade deficit between the United States and China.  

Currently, for every 1 dollar in goods the US sells to China, it imports 4 dollars in goods. In 2016, U.S. imports reached $463 billion, dwarfing the $116 billion in exports. The resultant trade deficit of $347 billion is the U.S.’s largest with any nation, and accounts for almost 70% of the U.S.’s $502 billion overall trade deficit.  While this has kept the price of goods low for American families, it has also led to the disappearance of many manufacturing jobs in the United States. 

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U.S. President Donald Trump and Chinese President Xi Jinping walk together at the Mar-a-Lago estate in West Palm Beach, Florida.

Presently, there is no bilateral trade deal between the two nations, and trade is governed by the World Trade Organization’s rules. A few months ago, President Trump proposed imposing a flat 45% tax on all goods imported from China, in an effort to create jobs that were shipped overseas.  However, economists predict that this would result in the price of Chinese goods rising. Following the backlash, Trump dropped his support for the tax. In order to cut the trade deficit, Trump has more recently focused on the strength of China’s currency. China purposely devalues their currency, thus allowing Chinese manufacturers to make more products for a lower price in U.S. dollars. The act of purposely devaluing one’s currency is called currency manipulation, and is illegal under the rules of the World Trade Organization. However, the World Trade Organization lacks the ability to effectively punish China. The devaluation of their currency has enraged Trump, and he threatened to label China a currency manipulator, which would most likely result in a decrease or ceasing of trade relations. In response to the threat, China has allowed their currency to more naturally strengthen. 

The U.S.-Sino economic relationship affects all of their citizens, and is fraught with ambitions from both sides. China will most likely not accept a trade deal that erases their surplus without major geopolitical concessions. Furthermore, the most recent threat to label China a currency manipulator will not permanently stop China from devaluing. As much as the U.S. and China would like to play hardball with each other, there would be near crippling repercussions for both countries if they cease trading.