The Contentious U.S.-China Trade Relationship

Introduction

U.S. trade with China has grown enormously in recent decades and is crucial for both countries. Today, China is one of the largest export markets for U.S. goods and services (second to Mexico), and the United States is the top export market for China. This trade—much of which grew after China joined the World Trade Organization (WTO) in 2001—has brought lower prices to U.S. consumers and higher profits for U.S. corporations. But it also comes with costs, notably the loss of American jobs due to import competition, automation, and multinational companies moving manufacturing overseas.

After President Donald Trump began a so-called trade war with China in 2018, economic tensions between Washington and Beijing have been on the rise. Chinese officials have warned that there are “no winners” in a trade or tariff war, although President Joe Biden continued many of Trump’s policies. 

In his first months of his second administration, Trump has threatened tariffs as high as 145 percent on all Chinese goods, and Beijing’s latest retaliatory tariffs on U.S. imports are as high as 125 percent. The Trump administration claims the levies attempt to punish China for unfair trade practices, including Chinese subsidies that hurt American workers and the long-standing accusation that Beijing pressures U.S. companies to hand over their technology and intellectual property, as well as China’s role in illicit fentanyl trafficking. Some economists doubt Trump’s approach will achieve its desired goals and raise concerns that tariffs will drive up inflation and the costs of goods, hurting U.S. consumers and exports.

What are the stakes of the relationship?

The United States and China are the two largest economies in the world; the status of their trade relationship has compounding implications for both countries and the global economy. Combined, their economies comprised 43 percent of the global gross domestic product (GDP) and nearly 48 percent of global manufacturing output in 2023, according to the World Bank. 

China is also the third-largest export market for the United States, behind Canada and Mexico, with U.S. exports exceeding $195 billion in 2024. That year’s $295 billion U.S. trade deficit with China is the lowest since 2009, but it’s still the United States’ largest trade deficit with any country. As for imports, Chinese goods make up around 13.5 percent of the market, trailing just behind Mexico. Many of these imported goods are technologies such as computers, electric batteries, and video displays. China also has a substantial holding in U.S. treasury bonds—roughly $760 billion—making it the second-largest foreign creditor to the United States, after Japan.

This economic reality “underscores the futility of decoupling efforts” by Washington and Beijing, CFR Senior Fellow for China Studies Zongyuan Zoe Liu writes, and policymakers have demonstrated greater concern over the intertwined trade relationship in recent decades.

Is there a trade war between the United States and China?

Yes. Many experts say escalations have not subsided since 2018, when Trump imposed tariffs on hundreds of billions of dollars worth of Chinese goods. At the time, the president claimed the levies would decrease the U.S. trade deficit with China, bring back manufacturing jobs to the United States, and force China to reform its trade practices, including intellectual property (IP) theft. Few of these promises materialized. Meanwhile, China retaliated with its own tariffs on U.S. goods and has even imposed export controls on critical minerals central to the manufacturing of automobiles, semiconductors, and military weapons worldwide.

In 2020, Trump negotiated a so-called Phase One agreement [PDF] with China that called for resolving the trade war and outlined protections for U.S. trade and commitments from the Chinese government to reform some of its trade practices. Many experts criticized the deal as punting on core U.S. concerns in exchange for a commitment by Beijing to purchase an additional $200 billion worth of U.S. goods—which it failed to live up to.

Biden retained some $360 billion worth of tariffs from Trump, even increasing the levy for certain competitive industries. For instance, Biden quadrupled tariffs on electric vehicles made in China, tripled those on steel and aluminum, and doubled the duty on semiconductors; introduced unprecedented export controls that restrict Beijing’s ability to obtain advanced technology; and banned some U.S. investment in sensitive technologies that lawmakers fear could be used to aid China’s growing military.

The trade war that started in 2018 resulted in both countries experiencing economic pains; U.S. economic growth slowed, the trade deficit continued to grow, and studies found that U.S. companies primarily bore the cost of the tariffs. CFR Fellow for Trade Policy Inu Manak says these tariffs largely fail to divert trade away from China in a global economy. As China moves production to other parts of the world, the United States eventually purchases Chinese goods from other trade partners, such as Mexico and Vietnam.

What are some of the criticisms of the trade relationship?

Though the trade relationship has undoubtedly brought benefits, it has also presented the United States and other countries with a host of problems.

Manufacturing job losses. Research led by economists David Autor, David Dorn, and Gordon Hanson found that the costs of boosting trade with China, the so-called China Shock, were more pronounced than those from increased trade with other countries, such as Japan. This was due to the speed at which imports rose, the vast size of China’s low-wage workforce, and the range of affected industries. Their research shows that political polarization also increased in the areas of the country most harmed by competition with China, which some analysts say helped to spur the rise of Donald Trump and populist political forces. In 2024, economists including CFR Senior Fellow Brad W. Setser referred to a renewed glut of Chinese exports—particularly in electric vehicles, solar panels, and other “green” technologies—as the “second China shock.”

National security. U.S. policymakers are increasingly worried about Chinese efforts to spread disinformation and collect sensitive information on Americans. Washington, wary of espionage, has raised concerns that U.S. companies that use Chinese technology could be putting U.S. national security at risk. Amid these concerns, Trump floated the idea of banning TikTok, the Chinese-owned social media app, during the last year of his first term. In April 2024, Biden signed into legislation a requirement that TikTok’s parent company, Bytedance, sell the social media app to a U.S. owner or face a ban Beijing calls the move “bullying.” TikTok sued the U.S. government—arguing that the forced sale is not feasible and violates the First Amendment. The Supreme Court ultimately upheld the ban; however, in his first day in office, Trump issued a seventy-five day review period to stall the moratorium.

IP Theft. U.S. officials also fear that China’s acquisition of sensitive U.S. technology will bolster China’s military. U.S. firms and officials have long accused Chinese companies of stealing intellectual property to develop counterfeit products, pirated software, access trade secrets, and forced technology transfer on condition of doing business in China. One of the most recent estimates by the independent policy think tank National Bureau of Asian Research in 2017 found that the annual cost of Chinese IP theft is between $225 and $600 billion [PDF]. Under China’s state-led economic system, government policies often require firms to transfer technology and other capabilities in exchange for operating in China. Although China’s IP laws have improved over the past decade, theft is still prevalent, even among Chinese firms that have appropriated capabilities domestically. 

Subsidization and state-owned enterprises. To achieve its economic goals, the Chinese government has poured subsidies into a range of industries, including renewable energy, with the aim of creating “national champion” companies. Some experts argue that these subsidies are wasteful, but they can be disruptive to other countries whose companies cannot compete against such levels of state support. The United States argues that many Chinese state-owned enterprises are effectively arms of the government and, unlike their private competitors, do not make decisions based on market forces.

Currency manipulation. Many economists say China kept the value of its currency, the renminbi, artificially low in the decade after it joined the WTO by accumulating U.S. dollar reserves. A weaker renminbi makes Chinese products more affordable abroad and U.S. goods more expensive in China, thereby contributing to the United States’ trade deficit with China. Under the first Trump administration, the U.S. government designated China as a currency manipulator for the first time in decades.

Labor and human rights violations. The United States has long been critical of China on human rights issues, and U.S. labor groups have persistently complained about poor working conditions in China. These concerns have resurfaced on the trade agenda in recent years with reports of forced labor in Xinjiang, where China is repressing millions of Uyghurs. Beijing’s 2020 national security law, which fundamentally altered Hong Kong’s freedoms, is another source of tension; experts say the law could make foreign firms hesitant to do business in the city, jeopardizing its standing as a global financial hub.

CFR Senior Fellow for Trade and International Political Economy Jennifer Hillman says Beijing has perfected the model of obtaining Western technology; it uses the technology to develop domestic companies into giants, and then unleashes them into the world market—at which point foreign companies can no longer compete. Hillman cites 5G networks as an example of an industry in which China dominates. “You start to see how big a problem it is to try to live in this world in which China owns more and more markets and you can’t get in,” she says. The United States has been the most vocal critic of Chinese trade practices, but other countries including European Union (EU) members and Japan share these concerns.

How has the United States tried to contain China’s technological growth?

The rise of China, as well as a new appreciation for the fragility of global supply chains laid bare by the COVID-19 pandemic, has contributed to the revival of industrial policy in the United States. The CHIPS and Science Act and Inflation Reduction Act, both passed in 2022, direct hundreds of billions of dollars to scientific research and domestic production of high-tech goods, such as semiconductors and artificial intelligence (AI). 

As the U.S. technology sector continues to develop, previous administrations have sought to restrict exports to protect U.S. technology from advancing the Chinese military. In 2018, the U.S. Congress passed the Export Control Reform Act that gave the president authority to control U.S. exports that were seen as having a “dual-use” capacity for commercial and military purposes, and Biden strengthened these restrictions as well as limited some U.S. investment in certain Chinese technologies and bulk data transfers to China. Since then, U.S. exports of goods and services to China, such as energy and manufacturing, have not returned to pre-trade war levels.

Experts say the simultaneous efforts to impair competing Chinese industries, particularly export controls, could stifle China’s semiconductor industry. However, Washington’s technology sharing restrictions have accelerated Beijing’s domestic technological innovation. In January 2025, Chinese startup DeepSeek launched one of the world’s most advanced AI models, supposedly operated at cheaper costs and higher energy efficiency, that rivals the capacity of the U.S. AI titans, such as OpenAI and Google DeepMind.

What is the history of the U.S.-China trade relationship?

In 1979, the United States and China normalized relations as Chinese policymakers aimed to boost international trade and investment under the leadership of Deng Xiaoping, and in 1986, Beijing applied to rejoin the General Agreement on Tariffs and Trade, the WTO’s predecessor. After protracted negotiations with the United States and other WTO members, China joined the organization in December 2001. As a condition of admission, Beijing committed to a sweeping set of economic reforms, including steep tariff cuts for imported goods, protections for IP, and transparency around its laws and regulations. 

WTO membership ensured “permanent normal trade relations,” providing U.S. and foreign companies additional certainty that they could produce in China and export to the United States. Trade surged after China’s ascension: the value of U.S. goods imports from China rose from about $100 billion in 2001 to more than $400 billion in 2023. This leap in imports is due in part to China’s critical position in global supply chains; Chinese factories assemble products for export to the United States using components from all over the world. (For instance, components for smartphones, such as Apple’s iPhone, are mostly sourced from China, Japan, Taiwan, and South Korea).

At the time, U.S. President Bill Clinton and his advisors contended that bringing China into the global trading system would not only benefit the United States, but also foster economic and ultimately democratic reform in China. Still, the move was opposed by U.S. labor unions and many congressional Democrats, who argued [PDF] that China’s weak worker and environmental protections would incentivize similar practices elsewhere and bring about a “race to the bottom.” Although U.S. negotiators demanded a temporary safeguard that could be used to limit imports from China once it entered the WTO, this was hardly used before it expired twelve years later. 

But the U.S.-China trade relationship has only grown more combative over the past decades as U.S. policymakers have charted a progressively more assertive course as China has failed to comply [PDF] with many of the WTO rules. The George W. Bush administration, responding to calls from U.S. companies for better protections, imposed some tariffs on a range of Chinese goods that were subsidized or “dumped” (i.e., sold at an abnormally low price). It also launched high-level dialogues with China to address other ongoing trade issues.

These dialogues continued under President Barack Obama, whose administration used the special safeguard to impose tariffs on imported tires. Scrutiny of Chinese investment also increased, with Obama taking the rare step of blocking two Chinese acquisitions on the recommendation of the Committee on Foreign Investment in the United States (CFIUS), an interagency body that screens investments on national security grounds. His administration also concluded negotiations for the Trans-Pacific Partnership (TPP), a mega-regional trade agreement that it billed as a way to confront China on trade. President Trump withdrew from the TPP in 2017 after taking office.

What are the benefits of U.S.-China trade?

U.S. consumers have benefited from lower prices, and U.S. companies have profited immensely from access to China’s market. In a 2019 study, economists Xavier Jaravel and Erick Sager found that increased trade with China boosted the annual purchasing power of the average U.S. household by $1,500 between 2000 and 2007. A 2023 report by the U.S.-China Business Council, an industry group, found that exports to China supported more than one million jobs in the United States, or about 0.5 percent of the civilian labor force.

American companies earn hundreds of billions of dollars annually from sales in China—money they can then invest in their U.S. operations. Chinese companies have invested tens of billions of dollars in the United States, though this investment has dwindled in recent years amid heightened U.S. government scrutiny. 

For China, the gains from trade with the United States and the rest of the world have been tremendous. Since 2001, China’s economy has grown more than five-fold, adjusted for inflation, and it is now the world’s second largest, behind only the United States. (By some measures, it is the largest.) Hundreds of millions of people have escaped extreme poverty as a result of this growth.

What lies ahead for U.S.-China trade?

The past few administrations’ increased economic confrontation with China has raised questions about the future of the trade relationship. Neither U.S. tariffs on Chinese goods (and retaliatory Chinese tariffs on U.S. exports) nor U.S. export controls has shown signs of being rolled back. Henry Gao, a professor at Singapore Management University and an expert on Chinese law and international trade, says that the use of unilateral tariffs damages the United States’ image as a champion of free trade and cedes moral authority to China. Yet, some legislators have introduced bills that would expand investment restrictions to include more Chinese industries; other proposed legislation would require federal government investment plans to divest from Chinese companies.

The future of the CHIPS Act is also uncertain. Trump has repeatedly criticized the legislation for financing “rich companies,” and in April 2025, he signed an executive order to set up a new entity, known as the United States Investment Accelerator, to oversee semiconductor manufacturing under CHIPS. Meanwhile, Taiwan Semiconductor Manufacturing Company’s Chief Financial Officer Wendell Huang said in January that the firm believes funding will continue under the new administration, and semiconductors from Taiwan have been excluded from the otherwise 32 percent tariff Trump has imposed on Taiwanese goods. As for TikTok, Trump’s review period was set to expire in mid-April, after which the federal ban would be imposed if the app was not sold to an American company, but his administration extended this deadline by another seventy-five days.

Meanwhile, Jamieson Greer, the U.S. Trade Representative (USTR) in the second Trump administration, has backed the president’s sweeping tariffs. Greer has called for the United States to be a “country of producers” and seeks to study how tariffs can lower the U.S. trade deficit. However, several experts say tariffs end up reducing overall trade and harming U.S. consumers. Any U.S. decoupling from China could reach its limits in the next decade since the two economies are still greatly interdependent, writes experts from the Carnegie Endowment of International Peace. “Both China and the United States have an interest in preserving much of their economic relationship,” their report argues.

China filed a dispute with the WTO in February 2025, arguing that the United States is failing to meet its obligation of imposing the same regulatory treatments to all WTO member states as equal trading partners, known as the most favored nation clause. However, the Trump administration has voiced frustration with the WTO’s arbitration process, arguing that the body often rules against U.S. interests. He sought to block the naming of WTO judges during his first term, which meant the appellate body could not issue verdicts for disputes. 

While Trump has not yet announced plans to withdraw or disengage with the WTO, some experts have questioned whether the WTO system is sufficient to address U.S. grievances and whether China’s economic model is fundamentally incompatible with global trading rules. The concept of a subsidy, for example, presupposes a bright line between the state and private industry that is increasingly blurry in China. In a 2022 report, the USTR office said it has become “widely accepted in the United States that WTO rules do not, and cannot, effectively discipline many of China’s most harmful policies and practices.” That view has informed the decisions of both Democrat and Republican leaders, who continue to neuter the WTO.