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 the first Trump administration began a 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 April 2025, a second Trump administration threatened tariffs as high as 145 percent on all Chinese goods, and Beijing’s latest retaliatory tariffs on U.S. imports were as high as 125 percent. Both sides have since de-escalated in the months following—lowering their rates to 30 percent and 10 percent, respectively—and continue to postpone the tariff’s implementation. Export controls, meanwhile, remain a point of contention, with the Trump administration threatening a 100 percent tariff in retaliation for China’s controls on dual-use rare earth minerals and lithium-ion batteries.

On October 26, U.S. Treasury Secretary Scott Bessent announced that U.S. and Chinese trade negotiations reached a “substantial framework” during a meeting at the Association for Southeast Asian Nations (ASEAN) in Kuala Lumpur, Malaysia. Bessent added that China would delay and reexamine its export controls.

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.

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.

Any U.S. decoupling from China could reach its limits in the next decade since the two economies are still greatly interdependent, according to 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 2024 report argues.

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, which gave the president authority to control U.S. exports that were seen as having a “dual-use” capacity for commercial and military purposes. 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.

While China has had export controls in place since 1994, the government modernized its export control policies in 2020, creating a unified framework for managing sales of dual-use technology, military goods, and “national security” interest technology. Its recent controls on rare earths—minerals crucial to the manufacturing of automobiles, semiconductors, and military weapons worldwide—aroused alarm for the global effects it has on the technology supply chain. China produces 60 percent of the world’s rare earths and processes almost 90 percent of rare earth magnets.

Analysts say China’s so-called rare earth chokehold, which made it able to entirely cut off the United States and Europe from several critical minerals, makes the rest of the world more vulnerable to geopolitical tensions between the United States and China. The International Energy Agency argues that China’s export controls could “significantly undermine international efforts to diversify rare earth supply chains and scale up strategic manufacturing.”

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, known as the “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 concern that U.S. companies using Chinese technology could be putting U.S. national security at risk. TikTok, the Chinese-owned social media app, has been a major target by U.S. lawmakers seeking to restrict Chinese access to Americans’ data. After Trump floated the idea of banning TikTok in his first term, Biden signed into legislation that TikTok’s parent company, Bytedance, would be required to sell the social media app to a U.S. owner or face a ban. TikTok sued the U.S. government—arguing that the forced sale is not feasible and violates the First Amendment—but the Supreme Court ultimately upheld the ban. Since then, the ban had been delayed multiple times, and in September 2025, the Trump administration announced it had reached a framework approved by Chinese President Xi Jinping to sell parts of TikTok to U.S. investors, valued at $14 billion.

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.

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. In January 2025, Beijing achieved a major milestone in its domestic technological innovation, with Chinese startup DeepSeek launching one of the world’s most advanced AI models. It supposedly operates at cheaper costs and higher energy efficiency that rivals the capacity of the U.S. AI titans, such as OpenAI and Google DeepMind. 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.

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, under the condition Beijing commit to a sweeping set of economic reforms, including steep tariff cuts for imported goods, protections for IP, and transparency around its laws and regulations.

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).

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.