Economics and Trade Bulletin June 6, 2018
U.S.-China Economic and Security Review Commission2
Bilateral Trade
U.S. Exports, Imports, and Goods Deficit with China Rise
In April 2018, the U.S. goods deficit with China rose 1.2 percent year-on-year to $27.9 billion, as both U.S. exports
and imports from China increased (see Figure 1).1 U.S. goods imports from China reached $38.2 billion in April, a
2 percent increase year-on-year.2 U.S. goods exports to China increased 4.4 percent year-on-year, reaching $10.3
billion.3 In particular, U.S. exports of primary metal manufacturing, petroleum and coal products, forestry products,
and oil and gas increased by 99 percent, 60 percent, 43 percent, and 15 percent year-on-year, respectively.4 Chinese
exports of petroleum and coal products to the United States increased by 483 percent year-on-year, after
underperforming last April.* Chinese exports of beverages and tobacco and chemical products to the United States
increased 46 percent and 23 percent year-on-year, respectively.5
Figure 1: U.S. Goods Trade with China Year-on-Year Growth, January 2017–April 2018
Source: U.S. Census Bureau, “Trade in Goods with China,” June 6, 2018. census.gov/foreign-trade/balance/c5700.html.
In the first four months of 2018, the U.S. goods deficit with China reached $119 billion, an 11.8 percent increase
year-on-year with U.S. exports to China rising 7.5 percent year-on-year and U.S. imports from China increasing
10.6 percent year-on-year.
* In April 2016, Chinese exports of coal and petroleum products to the United States totaled $7 million, the lowest level since February
2012. In April 2015, these exports were $25 million. U.S. Census Bureau, “USA Trade Online,” June 6, 2018.
https://usatrade.census.gov/.
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10%
15%
20%
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30%
JanFebMarAprMayJunJulAugSepOctNovDecJanFebMarApr
20172018
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Economics and Trade Bulletin June 6, 2018
U.S.-China Economic and Security Review Commission3
Bilateral Policy Issues
U.S.-China Trade Negotiations Ongoing, but Firm Outcomes Remain Elusive
On May 17 and 18, U.S. and Chinese delegations met for consultations on the bilateral trade relationship. The two
sides subsequently issued a joint statement on May 19.6 The joint statement’s commitments, however, remain
dependent on outcomes from forthcoming tariff and investment actions.
After initial negotiations in early May, a U.S. trade delegation led by Secretary of the Treasury Steven Mnuchin
met with a Chinese delegation led by State Council Vice Premier Liu He on May 17.7 Discussions occurred in
response to escalating trade tensions following the possible imposition of 25 percent tariffs as determined following
the United States Office of the Trade Representative (USTR) Section 301 investigation.*
According to a document reviewed by reporters from Bloomberg and the Wall Street Journal, the U.S. trade
delegation presented an eight-point list of demands:
Deficit reduction: The U.S. trade deficit with China would decrease by $200 billion from 2018 levels by 2020.8
The Wall Street Journal reported Treasury and U.S. Department of Commerce (DOC) officials constructed
several purchase options for China with items such as aircraft, automobiles, agricultural goods, and liquefied
natural gas.9
U.S. intellectual property (IP) protection: China would “immediately” undertake a series of measures to better
protect U.S. IP, including the cessation of government subsidies for advanced technologies, government support
for cyber espionage, and policies and practices facilitating technology transfer. 10 By January 2019, China would
“eliminate provisions” of technology licensing requirements deemed unfair by the Section 301 investigation
report. 11
Nonretaliation to U.S. investment restrictions: China would not “oppose, challenge, or otherwise retaliate”
against U.S. restrictions on investments from China.12
Removal of investment barriers: China would remove investment restrictions, thereby promoting “fair,
effective, and non-discriminatory market access”; by July 1, 2018, China would compile an “improved”
negative list for foreign investment, with remaining investment restrictions to be removed following discussions
by both parties.13
Removal of tariff and nontariff barriers: By July 1, 2020, China would lower tariffs to the level of U.S. tariffs.14
Increased market access for services and agricultural products: China would remove market access barriers
on U.S. services and agricultural products as detailed.15
Implementation: U.S. and Chinese representatives would meet on a quarterly basis to review progress.16 In the
event of noncompliance, the United States could impose tariffs “or other restrictions” on Chinese imports or
“confiscate counterfeit or pirated goods.”17
For its part, the Chinese delegation put forward the following requests:
Technology: The United States would allow the export of integrated circuits to China, open U.S. government
procurement to Chinese technologies, and modify the export ban on ZTE.18
Financial restrictions: The United States would remove barriers to Chinese e-payment companies and approve
China International Capital Corp.’s financial license.19
* For more information about the Section 301 investigation, see U.S.-China Economic and Security Review Commission, Economics and
Trade Bulletin, April 2018, 2–4. uscc.gov/sites/default/files/trade_bulletins/Apr%202018%20TB_4.9.18_FINAL.pdf.
Economics and Trade Bulletin June 6, 2018
U.S.-China Economic and Security Review Commission4
Trade measures: The United States would cancel 25 percent tariffs on Chinese goods, not employ a “surrogate
country approach” in antidumping cases, and refrain from future Section 301 investigations against China.20
The May 19 joint statement signaled progress on several points of concern. The parties agreed to reduce the U.S.
trade deficit in goods by an unspecified amount, in part through “meaningful increases in [U.S.] agriculture and
energy exports.”21 Related to technology transfer concerns, the parties agreed to “strengthen cooperation” on IP
protection for China to “advance relevant amendments” to its Patent Law.22 Broadly, the parties agreed to
“encourage two-way investment,” create a “fair, level playing field for competition,” and “engage at high levels”
on trade and investment issues.23
The implementation of the joint statement commitments remains uncertain. On May 29, the White House reiterated
that the list of Chinese imports affected by a 25 percent tariff would be announced by June 15, and the list of
investment restrictions and export controls would be proposed by June 30 and implemented “shortly thereafter.”24
Additional negotiations occurred between Secretary of Commerce Wilbur Ross and Vice Premier Liu over the
weekend of June 2 but concluded without an official comment or joint statement.25 On June 3, Chinese government
news agency Xinhua reported that “if the [United States] introduces trade sanctions,” negotiated agreements would
not “go into effect.”26
The United States and ZTE Consider Alternative Penalties
On April 15, 2018, following ZTE’s violation of its 2017 settlement, DOC’s Bureau of Industry and Security (BIS)
banned U.S. firms from exporting components to ZTE directly or through third countries until March 13, 2025.* 27
On May 9, 2018, ZTE announced that “as a result of the Denial Order, the major operating activities of the Company
have ceased.”28 Since the ban went into effect, ZTE has reportedly lost at least $3.1 billion (renminbi [RMB] 20
billion).29
On May 13, 2018, President Donald Trump directed DOC to reexamine the ban after a personal request from
President and General Secretary of the Chinese Communist Party (CCP) Xi Jinping.30 Companies that violate an
agreement can submit additional evidence for BIS consideration but cannot formally appeal the ban.31
This development provoked strong bipartisan Congressional criticism of any steps to negotiate export control or
sanctions.32 On May 22, 2018, the Senate Banking Committee approved an amendment to the Foreign Investment
Risk Review Modernization Act of 2017 (FIRRMA), which states:
The Executive Office of the President may not modify any civil penalty, including a denial order,
implemented by the Government of the United States with respect to a Chinese telecommunications
company pursuant to a determination that the company has violated an export control or sanctions law of
the United States until the date that is 30 days after the President certifies to the appropriate congressional
committees that the company—
(1) has not, for a period of one year, conducted activities in violation of the laws of the United States;
and
(2) is fully cooperating with investigations into the activities of the company conducted by the
Government of the United States, if any.33
To become enacted in law, this bill would need to pass the Senate and the House.
* For additional information on the BIS denial order, see U.S.-China Economic and Security Review Commission, Economics and Trade
Bulletin, May 4, 2018, 6–7. uscc.gov/sites/default/files/trade_bulletins/2018%20May%20Trade%20Bulletin.pdf.
For full text of this legislation, see the U.S. Senate Committee on Banking, Housing, and Urban Affairs, “S. 2098,” May 22, 2018.
banking.senate.gov/imo/media/doc/ROS18588.pdf.。。。