Since March 2018, the United States and China have been engaged in a trade war with significant repercussions for international markets. The U.S. government has adopted a tariff-based strategy to counter China’s growing global economic influence. The Trump administration attributed various trade deficits to unfair trade practices and the manipulation of the Chinese yuan. The tariffs imposed on Chinese imports are viewed as a defensive mechanism against forced technology transfer, intellectual property theft, and patent violations. China retaliated with equivalent measures, escalating the conflict. Five years after the start of this trade war, China continues its slow decoupling from U.S. exports.
The Complex Trade Relationship Between the U.S. and China
Trade between the U.S. and China has grown significantly over recent decades, with China being one of the leading markets for U.S. goods and services and the U.S. being China’s largest export market. In a 2019 study, economists Xavier Jaravel and Erick Sager found that increased trade with China boosted the average American household’s purchasing power by $1,500 annually between 2000 and 2007. China is now the third-largest U.S. export market, following Canada and Mexico. Data from 2023, provided by the US-China Business Council, indicates that exports to China support over one million U.S. jobs. This has led to lower consumer prices and higher profits for American corporations, but it has also come at a cost. The optimism surrounding China’s entry into the World Trade Organization (WTO) in 2001 has faded as Beijing pursues state-led development, providing subsidies to specific sectors at the expense of U.S. and foreign companies. Chinese investment has raised national security concerns, and the U.S. has accused China of pressuring American companies to hand over their technology or stealing it outright (Siripurapu & Berman).
China’s Declining Reliance on U.S. Exports
The Trump administration’s trade war with China has decreased U.S. exports to China, creating tension between the two nations. Both countries fear the other might weaponize trade flows to gain security leverage, leading them to diversify their trade partners. The decline in U.S. exports to China began with the imposition of tariffs in 2018 as part of the trade confrontation. However, China has not met its promised trade goals, and U.S. exports to China only returned to pre-war levels in 2021. Despite some glimmers of hope, concerns over global food security, exacerbated by the Russia-Ukraine conflict, have surfaced. Chinese buyers seek alternative suppliers, but the U.S. agricultural sector relies heavily on the Chinese export market. Despite these challenges, the trade relationship between the U.S. and China remains mutually dependent and beneficial, even as U.S. exports to China continue to decline (Bown & Wang).
The Value of Agricultural Exports Increased Due to Commodity Price Inflation
According to economists Chad Bown and Yilin Wang of the Peterson Institute for International Economics, 2022 saw positive trends in U.S. agricultural exports to China, driven by rising global commodity prices due to various factors, including the Russia-Ukraine war. These exports were 16 percent higher than in 2021 (Figure 1).
Figure 1
U.S. soybean exports increased by 27 percent due to rising prices and volumes (Figure 2). The U.S. Department of Agriculture attributes this growth to a soybean shortage in South America, export restrictions on related products, and the war in Ukraine. Other major soybean producers include Argentina and Brazil. Although China’s reliance on U.S. farmers has decreased, its dependence on U.S. exports remains substantial.
Figure 2
The Declining Dependence of Chinese Farmers on U.S. Exports
In their article “China’s Growing Independence from U.S. Farmers, but High Dependence on U.S. Exports,” Bown and Wang explain that Trump’s trade war with China has resulted in a drop in U.S. exports to China. However, the Chinese market continues to be a critical destination. In 2022, approximately 19 percent of U.S. agricultural exports went to China, compared to 14 percent in 2017 and 13 percent in 2009 (Figure a). However, U.S. soybean exports, the country’s most valuable export, still heavily rely on China. In 2022, a much smaller percentage of all U.S. soybean exports went to China than the 60 percent seen in some years before the trade war. China is much less dependent on U.S. farmers than before, with only 31 percent of all U.S. soybean imports (Figure B). During the trade war, China imposed retaliatory tariffs on soybeans and other U.S. agricultural products, with American farmers receiving billions of dollars in federal subsidies to offset the impact. Both sides fear a further deterioration in their bilateral relationship, with each potentially using trade as a weapon to restrict imports and exports. As U.S. farmers remain vulnerable to Beijing’s whims, Chinese importers are diversifying their sources to reduce reliance on the U.S. (PIIE).
Abolition of the World Trade Organization (WTO)
Republican Senator Josh Hawley of Missouri argues that COVID-19 left 30 million Americans unemployed, creating an economic crisis that reshaped the modern global economy, weakened American workers, and fueled China’s rise. Hawley suggests that the WTO should be abolished. The WTO was established in 1995 as the crown jewel of a new global market designed by ambitious Western political leaders following the collapse of the Soviet Union. It aimed to create a large, liberal international economy, replacing the liberal international order. The Cold War system aimed to strengthen the economies of free nations and contain the Soviet Union. It took the independent state as its basic unit and promoted trade and investment between nations as equal sovereigns. However, by the early 1990s, Western political leaders were in a messianic state, with George H.W. Bush promising a “new world order” of open borders, free trade, and open minds. This liberal economic order failed, sending American manufacturing overseas, compromising U.S. supply chains, and costing American jobs while enriching Communist China. The WTO promoted free trade but allowed some countries, like China, to maintain trade barriers and protectionism, while others, like the U.S., advocated for their interests. Foreign agriculture gained concessions while U.S. farmers struggled for fair market access. The WTO required American workers to compete with China’s forced labor, yet it did not effectively prevent China’s theft of U.S. intellectual property and products (Hawley).
Conclusion
While the trade relationship between the U.S. and China has brought lower prices to consumers and more profits to U.S. corporations, it has also come at a significant cost. Economists David Autor, David Dorn, and Gordon Hanson found that the costs of increasing trade with China, known as the “China shock,” were more pronounced than the effects of trade with other countries like Japan. This was due to the speed of import growth, China’s low-wage workforce, and the variety of affected industries. National security is a concern for the U.S. due to China’s efforts to spread disinformation and gather sensitive information about Americans. Washington fears that U.S. companies using Chinese technology could endanger national security. U.S. officials also worry that China’s acquisition of American technology could bolster its military. Beijing has been repeatedly accused of intellectual property theft and forcing U.S. companies to share their technology as a condition of doing business in China, known as the forced transfer of technology. The Chinese government has invested in subsidies in various sectors, including renewable energy, to create “national champions.” Experts argue these subsidies could harm countries where companies cannot compete with such high state support. The U.S. contends that many Chinese state-owned enterprises are government arms that do not make market-based decisions. Since it entered the WTO, the value of the Chinese renminbi has been artificially low, allowing China to accumulate U.S. dollar reserves. This devaluation makes Chinese goods more affordable abroad and U.S. goods more expensive in China, contributing to the U.S. trade deficit with China. The U.S. also criticizes China for human rights violations and labor abuses, as well as the resurgence of trade agendas tied to reports of forced labor in Xinjiang and Beijing’s 2020 National Security Law that curtails freedoms in Hong Kong. Experts warn that this law may deter foreign companies from doing business in the city, highlighting the ongoing tensions between the U.S. and China.
Regarding the implications for U.S. agriculture, China has reduced its reliance on U.S. exports by diversifying its suppliers. At the same time, the U.S. agricultural sector remains heavily dependent on the Chinese market for exports. The U.S. argues that many Chinese state-owned enterprises act as extensions of the government and do not base their decisions on market forces. For this reason, Senator Josh Hawley suggests that the WTO should be abolished to restore U.S. economic sovereignty and strengthen capitalism. The U.S. and its allies have maintained a free trade network for 50 years, protecting national interests and workers. In the 21st century, the U.S. must leave the WTO and pursue new agreements to restore American economic sovereignty and promote more robust capitalism. This includes bringing production back to the U.S., securing critical supply chains, and encouraging domestic innovation and manufacturing so that China continues to depend on U.S. exports. Negotiations with China should continue, but they must be fair and beneficial for the U.S.
ABOUT THE AUTHOR
Luis Henry Contreras Del Aguila
Food Industries Engineer Universidad Nacional Agraria de la Selva- Tingo Maria- Peru
Master in Agribusiness Administration ESAN University – Lima-Peru
Country Agribusiness CEO
REFERENCES
Autor David, Dorn David, et al. “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade”, www.nber.org, January 2016, https://www.nber.org/papers/w21906
Bown Chad and Wan Yilin. “Five years into the trade war, China continues its slow decoupling from US exports”, www.piie.com, March 16, 2023, https://www.piie.com/blogs/realtime-economics/five-years-trade-war-china-continues-its-slow-decoupling-us-exports
Bown Chad. and Wan Yilin. “China is becoming less dependent on American farmers, but US export dependence on China remains high”. www.piie.com, March 21, 2023, https://www.piie.com/research/piie-charts/2023/china-becoming-less-dependent-american-farmers-us-export-dependence-china
Howley, Josh. “The W.T.O. Should Be Abolished”. www.nytimes.com, May 5, 2020, https://www.nytimes.com/2020/05/05/opinion/hawley-abolish-wto-china.html
Observatorio de Relaciones Internacionales. “El enfrentamiento entre China y Estados Unidos por la hegemonía internacional”. www.senado.gob.ar, https://www.senado.gob.ar/bundles/senadomicrositios/pdf/internacionales/observatorio/informe45.pdf
Siripurapu Anshu and Berman Noah. “The Contentious U.S.-China Trade Relationship”. www.cfr.org, May 14, 2024. https://www.cfr.org/backgrounder/contentious-us-china-trade-relationship