{ "id": "IN11135", "type": "CRS Insight", "typeId": "INSIGHTS", "number": "IN11135", "active": true, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 600651, "date": "2019-06-19", "retrieved": "2019-07-02T22:13:55.379512", "title": "U.S. Trade Friction with China Intensifies", "summary": "Commercial relations between the United States and China are experiencing an increasing level of tension and uncertainty. In August 2017, the Trump Administration launched a Section 301 investigation of Chinese policies relating to technology transfer, intellectual property, and innovation policies deemed harmful to U.S. economic interests. In March 2018, the Administration announced it would take specified action against China in response to such policies, including increased tariffs. The Administration subsequently raised tariffs on three tranches of import products from China, (with estimated combined worth of $250 billion). China imposed retaliatory tariff increase on three tranches of imported products from the United States (with estimated combined worth of $110 billion).\nOn February 14, 2019, President Trump tweeted that trade negotiations with China were in \u201cadvanced stages\u201d and suggested that an agreement could soon be reached. However, on May 5, he tweeted that trade negotiations were going \u201ctoo slowly\u201d and that China was attempting to \u201crenegotiate\u201d previous trade commitments. As a result, on May 10, he ordered that tariffs on a third tranche of Chinese goods be raised from 10% to 25% (made fully effective on June 15) and that the process for increasing tariffs by 25% on nearly all remaining U.S. imports from China (estimated value at $300 billion) be started. On May 13, China announced it would increase its tariffs on many of the U.S. products listed in its third tranche (effective June 1). China blamed the United States for the breakdown in talks, claiming it had \u201cpersisted with exorbitant demands\u201d and demanded concessions touching on \u201cChina\u2019s sovereign affairs.\u201d \nTariff Increases and Trade\nBoth sides are experiencing trade impacts of the tariff hikes. While U.S. merchandise imports from China in 2018 rose by 6.7% (to $540 billion), over the previous year (data not shown), they fell by 13.9% during the first quarter of 2019 year-over-year, while imports covered by U.S. tariff hikes dropped by 29.9% (see Figure 1). Similarly, while Chinese imports from the United States increased by 2.4% (to $154 billion) in 2018 (data not shown), they fell by 29.3% during the first quarter of 2019. Imports of U.S. products covered under China\u2019s retaliatory tariff measures fell 36.6% (year-over-year). (See Figure 2.) This has raised concerns that China is increasingly turning to non-U.S. suppliers who are not subject to the higher tariffs.\nFigure 1. U.S. Imports from China of Products Affected by U.S. Section 301 Tariff Hikes\n(January-March 2019 Year-on-Year (% Change)) \n/\nSource: USITC Dataweb.\nFigure 2. Chinese Imports of U.S. Products Affected by Retaliatory Chinese Tariff Hikes\n(January-March 2019 Year-on-Year (% Change))\n/\nSource: USITC Dataweb.\nAdditional Economic Measures\nIn addition to tariff increases, the United States and China have implemented other measures (or have threatened to take certain actions) that could lead to additional restrictions on bilateral commercial ties and greater uncertainty in the bilateral economic relationship\nInformation and Communications Technology (ICT). China is the largest foreign supplier of ICT equipment to the United States. In 2018, U.S. ICT imports from China totaled $157 billion, or 60% of total U.S. ICT imports. Citing a \u201cnational emergency,\u201d President Trump, on May 15, 2019, issued Executive Order 13873 on Securing the Information and Communications Technology and Services Supply Chain. The order stated the Administration\u2019s view that U.S. purchases of ICT goods and services from \u201cforeign adversaries\u201d posed a national security risk to the United States and authorized the Federal government to ban certain ICT transactions deemed to pose an \u201cundue risk.\u201d As of June 18, the President has not yet designated any entities pursuant to this order. \nRestrictions on Commercial Ties to Huawei. Chinese firm Huawei is the world\u2019s largest telecommunications equipment producer. On May 15, 2019, the U.S. Department of Commerce announced that Huawei \u201cis engaged in activities that are contrary to U.S. national security or foreign policy interest.\u201d As a result, Commerce said it would add Huawei and 68 of its non-U.S. affiliates to the Department\u2019s Bureau of Industry and Security Entity List, which would require an export license for the sale or transfer of U.S. technology to such entities. On May 20, the Trump Administration delayed the measure by 90 days. China responded by announcing on May 31 that it would create an \u201cunreliable entity list\u201d of foreign firms and individuals that seriously damage Chinese enterprises by failing to comply with market rules, deviating from contracts, and imposing restrictions on Chinese firms for noncommercial purposes. China implied that punitive measures could be imposed against such entities.\nPotential Chinese Curtailment of Rare Earths Exports. China is the world\u2019s largest producer and exporter of a number of critical materials, including rare earths, a group of 17 elements (metals) whose unique properties make them critical in a variety of advanced technologies (including some used by the U.S. military). In 2018, nearly three-quarters of U.S. rare earth material imports by value came from China. On May 17, 2019, the USTR published a notice in the Federal Register with a proposed fourth tranche of products imported from China that could be subject to 25% ad valorem tariffs. The notice specified that rare earth materials (and certain other products) would be excluded from the list. On the same day, Chinese President Xi Jinping toured a firm in China\u2019s Jiangxi province that produces rare earth magnets. Some viewed this as a veiled warning to the United States that China could restrict future rare earth exports to the United States if the current trade conflict intensified further. \nSome economists have raised concerns that the current U.S.-China trade conflict (if not resolved soon) could eventually hit nearly all bilateral trade with increased tariff hikes, lead to additional types and rounds of commercial retaliatory measures, and possibly result in \u201ceconomic decoupling.\u201d", "type": "CRS Insight", "typeId": "INSIGHTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/IN11135", "sha1": "f6ad43b04c5d58bedbc0c2a155550defe197cf88", "filename": "files/20190619_IN11135_f6ad43b04c5d58bedbc0c2a155550defe197cf88.html", "images": { "/products/Getimages/?directory=IN/ASPX/IN11135_files&id=/1.png": "files/20190619_IN11135_images_75ed8d2af074ee59f960d8ee2340951dc5d7c839.png", "/products/Getimages/?directory=IN/ASPX/IN11135_files&id=/0.png": "files/20190619_IN11135_images_da4ebf4e2acba042bc93b7349d51ced4f81a39f6.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/IN11135", "sha1": "d89aaf37cc7e866ea7de4689c3a181cd42081f47", "filename": "files/20190619_IN11135_d89aaf37cc7e866ea7de4689c3a181cd42081f47.pdf", "images": {} } ], "topics": [] } ], "topics": [ "CRS Insights" ] }