• In 2018, the US announced a series of trade enforcement actions involving China stemming from three investigations conducted by the US Government.
  • In each instance, China retaliated against US enforcement actions with reciprocal tariffs.
  • In total, over US$250bn worth of US imports from China and $110bn worth of US exports to China are subject to tariffs initiated this year.
The Commission’s report to Congress documents numerous challenges in the trade relationship between the two countries.

The Commission’s report to Congress documents numerous challenges in the trade relationship between the two countries.

US steps to address challenges in the country's bilateral trade relationship with China have proved insufficient, a new report to Congress outlines, with the filing of a new case against the southeast Asian country to the WTO amongst its recommendations.

The US-China Economic and Security Review Commission's annual report to Congress documents numerous challenges in the trade relationship between the two countries.

Earlier this year, the US announced a series of trade enforcement actions involving China stemming from three investigations conducted by the US Government. These included Section 232 investigations into the national security risks posed by imports of steel and aluminium, and the Office of the US Trade Representative's (USTR) Section 301 investigation into whether China's acts, policies, and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory.

In each instance, China retaliated against US enforcement actions with reciprocal tariffs. In total, over US$250bn worth of US imports from China and $110bn worth of US exports to China are subject to tariffs initiated this year.

In its report, the Commission asserts that China's state-led "market-distorting economic model" presents a challenge to US economic and national security interests. The Chinese government, it says, continues to exercise direct and indirect control over key sectors of the economy and allocate resources based on the perceived strategic value of a given firm or industry, putting US and other foreign firms at a disadvantage.

Repeated pledges to permit greater market access for private domestic and foreign firms also remain unfulfilled, the report states, while the government instead enhances state control over the economy and utilises "mercantilist policies" to strategically develop domestic industries.

Further, China has reaped tremendous economic benefits from its accession to the World Trade Organization (WTO), and participation in the rules-based, market-oriented international order. However, the report states that more than 15 years after China's accession, the government's state-driven industrial policies repeatedly violate its WTO commitments and undermine the multilateral trading system, reversing on numerous commitments.

The report found that various unilateral, bilateral and multilateral tools available to the US to address these challenges, such as individual subsidy programmes or tariffs, have been successful at targeting some discrete aspects of China's industrial policies. However, US actions to address China's trade distorting practices have proven "narrow and limited" in effectiveness when set against the broad sweep of the government's development strategy, the size of the Chinese market, and the government's willingness to intervene in local firms and markets, the Commission noted.

The report offers a number of recommendations for Congress, including:

  • Examine whether the USTR should bring, in coordination with US allies and partners, a "non-violation nullification or impairment" case— alongside violations of specific commitments—against China at the WTO under Article 23(b) of the General Agreement on Tariffs and Trade.
  • Direct the Government Accountability Office to conduct an assessment of US-China collaborative initiatives in technical cooperation that, among other things, considers whether the intellectual property rights of US researchers and companies are being adequately protected and investigates if any US companies, universities, or labs participating in US government-led collaboration with China have been subject to cyber penetration originating in China.
  • Direct the USTR to identify the trade-distorting practices of Chinese state-owned enterprises and develop policies to counteract their anticompetitive impact.