The United States and China are two of the largest economies in the world and have had a complex history of relationships. The economic ties between China and the US are an ever-evolving dynamics and play a big role in both the US and Chinese economies. From trade to investments, the economic relationship between the two countries is an important factor in the global economy. In this article, we will explore the history of the US-China economic relationship, current ties and the implications for both countries.
A Historical Overview of the US-China Economic Relationship
The US and China have had a complicated relationship since the People’s Republic of China was established in 1949. In 1972, the US and China opened diplomatic relations which included trade and investment. In 1979, the US-China relationship became increasingly collaborative with China launching its open-door policy of economic reform. This initiated dialogue with the US such as the US-China Joint Communiqué on Trade and Economic Relations in 1982.
The US and China joined the World Trade Organization in 2001, increasing economic exchange with further commitments for improved market access. China’s entry into the WTO was pivotal in defining an expanding economic relationship between the US and China.
Current US-China Economic Relationship
China and the US have a huge economic relationship with bilateral trade between the two being over 501.2 billion USD in 2019. China is the largest foreign holder of US Treasury bonds, owning 1.14 trillion USD at the end of 2020. In terms of export markets, China is the third-largest destination for US exports after Canada and Mexico.
The US and China are both major investors in the global economy and China is the second-largest destination of foreign direct investment (FDI) after the US. China’s FDI into the US totaled 128 billion USD in 2019, making it one of the biggest sources of foreign investment in the US. Conversely, US FDI into China almost doubled between 2018 and 2019 to 110 billion USD.
Exchange of Goods & Services
Exports from the US to China were 137.6 billion USD in 2019, making China the US’ third-largest export destination. US merchandise exports to China are dominated by agricultural products and industrial and related items.
Major US exports to China include:
• Soybeans (19.7 billion USD)
• Aircraft (17.6 billion USD)
• Passenger cars (5.5 billion USD)
• Computers (4.7 billion USD)
• Petroleum products (3.5 billion USD)
China imported 178.8 billion USD worth of goods from the US in 2019 making it the US’ second-largest export market. The major imports of China from the US are the same as the majority of its imports from the world, including:
• Civilian aircraft (18.2 billion USD)
• Nuclear reactor parts (8 billion USD)
• Semiconductors (7.5 billion USD)
• Oil seeds (6.9 billion USD)
• Industrial components (6.7 billion USD)
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Investment Relations
In terms of investment, China is one of the US’ largest source of foreign direct investment (FDI). US FDI into China was 110 billion USD in 2019, almost double from 2018 and making it one of the largest sources of foreign investment.
Major investments from China in the US include:
• Bank of China: 450 million USD
• China Three Gorges: 300 million USD
• New Hope Liuhe: 200 million USD
• Lenovo: 175 million USD
Similarly, US FDI into China was 128 billion USD in 2019, with major US investments in China including:
• GM: 8.8 billion USD
• Wal-Mart: 4.3 billion USD
• Johnson & Johnson: 1.3 billion USD
• ExxonMobil: 1.2 billion USD
Implications of the US-China Economic Relationship
The US-China economic relationship has had a significant impact on both countries. For the US, it has benefited from the supply of cheaper goods from China, helping to increase disposable income, while also receiving foreign investment inflows via FDI. This has provided the US with access to capital, jobs and improved economic growth.
China on the other hand has significantly benefited from exports, helping to restore economic stability in the country and grow its economy to become the second-largest in the world. The US-China trade relationship has also helped China to become a major source of foreign investment globally and its economic stability has enabled China to become a global superpower.
Key Takeaways
The US-China relationship has been an important part of the global economy for decades. Currently, bilateral trade between two countries is over 501.2 billion USD and China is the largest foreign holder of US Treasury bonds with 1.14 trillion USD. Key investments between the two include Bank of China’s 450 million USD investment in the US and GM’s 8.8 billion USD investment in China. Overall, the US-China economic relationship has benefited both countries, enabling the US to receive cheaper goods via exports and foreign investments while China has seen large improvements in its economy and global influence due to their relationship.