Order Code RL31403 China's Trade with the United States and the World Updated January 4, 2007 Thomas Lum Specialist in Asian Affairs Foreign Affairs, Defense, and Trade Division Dick K. Nanto Specialist in Industry and Trade Foreign Affairs, Defense, and Trade Division China's Trade with the United States and the World Summary As imports from the People's Republic of China (PRC) have surged in recent years, posing a threat to some U.S. industries and manufacturing employment, Congress has begun to focus on not only access to the Chinese market and intellectual property rights (IPO) protection, but also the mounting U.S. trade deficit with China as well as allegations that China is selling its products on the international market at below cost (dumping), engaging in "currency manipulation," and exploiting its workers for economic gain. Members of the 109th Congress introduced several bills that would impose trade sanctions on China for intervening in the currency market or for engaging in other acts of unfair trade, while the Bush Administration has imposed anti-dumping duties and safeguards against some PRC products and pressured China to further revalue its currency and remove non-tariff trade barriers. China runs a trade surplus with the world's three major economic centers -- the United States, the European Union, and Japan. Since 2000, the United States has incurred its largest bilateral trade deficit with China ($201 billion in 2005, a 25% rise over 2004). In 2003, China replaced Mexico as the second largest source of imports for the United States. China's share of U.S. imports was 14.6% in 2005, although this proportion still falls short of Japan's 18% of the early 1990s. The United States is China's largest overseas market and second largest source of foreign direct investment on a cumulative basis. U.S. exports to China have been growing rapidly as well, although from a low base. In 2004, China replaced Germany and the United Kingdom to become the fourth largest market for U.S. goods and remains the fastest growing major U.S. export market. China is purchasing heavily from its Asian trading partners -- particularly precision machinery, electronic components, and raw materials for manufacturing. China is running trade deficits with Taiwan and South Korea and has become a major buyer of goods from Japan and Southeast Asia. In the past decade, the most dramatic increases in U.S. imports from China have been not in labor-intensive sectors but in some advanced technology sectors, such as office and data processing machines, telecommunications and sound equipment, and electrical machinery and appliances. China's exports to the United States are taking market share from other Pacific Rim countries, particularly the East Asian newly industrialized countries (NICS), which have moved most of their low-end production facilities to China. This report provides a quantitative framework for policy considerations dealing with U.S. trade with China. It provides basic data and analysis of China's international trade with the United States and other countries. Since Chinese data differ considerably from those of its trading partners (because of how entrepot trade through Hong Kong is counted), data from both PRC sources and those of its trading partners are presented. Charts showing import trends by sector for the United States highlight China's growing market shares in many industries and also show import shares for Japan, Canada, Mexico, the European Union, and the Association for Southeast Asian Nations (ASEAN). This report will be updated bi-annually. Contents The Rationale for U.S. Policy and Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Trade Policy Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Congressional Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Summary of Trade Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 China's Trade Balance and Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 China and the Asia Pacific Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 China's Trade with the United States, Europe, and Japan . . . . . . . . . . . . . . . . . . 14 U.S. Merchandise Trade Balances with Major Trading Partners . . . . . . . . . . . . . 16 U.S. Trade with China by Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 U.S. Exports to China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 U.S. Imports from China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 U.S. Imports From China -- Sector Charts and Data . . . . . . . . . . . . . . . . . . . . . 23 Iron and Steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Specialized Industrial Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Office Machines and Computers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Telecommunications and Sound Equipment . . . . . . . . . . . . . . . . . . . . 27 Electrical Machinery and Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Road Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Building and Lighting Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Travel Goods and Handbags . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Apparel and Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Footwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Professional, Scientific, and Controlling Instruments . . . . . . . . . . . . . 37 Photographic and Optical Equipment and Timepieces . . . . . . . . . . . . 38 Foreign Direct Investment in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 List of Figures Figure 1. China's Exports, Imports, and Balance of Merchandise Trade, 1983-2005 (PRC data) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 2. Shares of Total U.S. Imports by Country and Country Group, 1990 and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 3. U.S. Exports, Imports, and Balance of Trade with China, 1983-2005 . 14 Figure 4. Japan's Merchandise Imports, Exports, and Balance of Trade with China, 1983-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 5. European Union Merchandise Imports, Exports, and Balance of Trade with China, 1983-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 6. U.S. Merchandise Trade Balances with Selected Countries in 2005 . 17 Figure 7. Top Six Imports from China by Industry, 1994-2005 . . . . . . . . . . . . . 19 Figure 8. U.S. Imports of Iron and Steel Products (SITC 67) by Country and Group, 1990-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Figure 9. U.S. Imports of Specialized Industrial Machinery (SITC 72) by Country and Group, 1990-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Figure 10. U.S. Imports of Office Machines and Automatic Data Processing Machines (SITC 75) by Country and Group, 1990-2005 . . . . . 26 Figure 11. Imports of Telecommunications and Sound Equipment (SITC 76) by Country and Group, 1990-2005 . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 12. U.S. Imports of Electrical Machinery and Parts (SITC 77) by Country and Group, 1990-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Figure 13. U.S. Imports of Road Motor Vehicles (SITC 78) by Country and Group, 1990-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Figure 14. U.S. Imports of Building and Lighting Products (SITC 81) by Country and Group, 1990-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Figure 15. U.S. Imports of Furniture and Parts (SITC 82) by Country and Group, 1990-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Figure 16. Imports of Travel Goods, Handbags, and Similar Products (SITC 83) by Country and Group, 1990-2005 . . . . . . . . . . . . . . . . . . . . . . . 33 Figure 17. U.S. Imports of Apparel and Clothing Accessories (SITC 84) by Country and Group, 1990-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Figure 18. U.S. Imports of Footwear (SITC 85) by Country and Group, 1990-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Figure 19. U.S. Imports of Professional, Scientific, and Controlling Instruments (SITC 87) by Country and Group, 1990-2005 . . . . . . . . . . . . . 37 Figure 20. U.S. Imports of Photographic Equipment, Optical Goods, Watches and Clocks (SITC 88) by Country and Group, 1990-2005 . . . . . . 38 List of Tables Table 1. China's Imports by Major Commodity, 1999-2005 . . . . . . . . . . . . . . . 11 Table 2. Top Twenty U.S. Exports to China, 1997-2005 . . . . . . . . . . . . . . . . . . 18 Table 3. Top Twenty U.S. Imports from China, 1997-2005 . . . . . . . . . . . . . . . . 20 Table 4. U.S. Balance of Trade with China by Sector, 2003-2005 . . . . . . . . . . . 22 Table 5. U.S. Imports of Iron and Steel Products (SITC 67) from Selected Countries and Country Groups, 1991, 2000-2005 . . . . . . . . . . . . . . . . . . . . 24 Table 6. U.S. Imports of Specialized Industrial Machinery (SITC 72) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . 25 Table 7. U.S. Imports of Office Machines and Automatic Data Processing Machines (SITC 75) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Table 8. U.S. Imports of Telecommunications and Sound Equipment (SITC 76) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Table 9. U.S. Imports of Electrical Machinery and Parts (SITC 77) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Table 10. U.S. Imports of Road Motor Vehicles (SITC 78) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . . . . . . . . 30 Table 11. U.S. Imports of Prefabricated Buildings, Sanitary, Plumbing, Heating and Lighting Fixtures and Fittings (SITC 81) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . . . . . . . . 31 Table 12. U.S. Imports of Furniture and Parts (SITC 82) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . . . . . . . . 32 Table 13. U.S. Imports of Travel Goods, Handbags, (SITC 83) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . 33 Table 14. U.S. Imports of Apparel and Clothing Accessories (SITC 84) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . 35 Table 15. U.S. Imports of Footwear (SITC 85) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Table 16. U.S. Imports of Professional, Scientific and Controlling Instruments and Apparatus (SITC 87) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Table 17. U.S. Imports of Photographic Apparatus, Equipment and Supplies and Optical Goods; Watches and Clocks (SITC 88) from Selected Countries and Country Groups, 1990, 2001-2005 . . . . . . . . . . . . . 38 Table 18. China's Utilized Foreign Direct Investment Inflows, Top Foreign Investors, 2000-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Table A1. China's Merchandise Trade with the World, 1984-2005 . . . . . . . . . . 40 Table A2. U.S. Merchandise Trade with China and China's Merchandise Trade with the United States, 1984-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Table A3. Japan's Merchandise Trade with China and China's Merchandise Trade with Japan, 1984-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Table A4. European Merchandise Trade with China and China's Merchandise Trade with the European Union, 1984-2005 . . . . . . . . . . . . . . . . . . . . . . . . 43 Table A5. Major Country Merchandise Exports to China, Imports from China, and Trade Balances with China, 2004 and 2005 . . . . . . . . . . . . . . . 44 Table A6. U.S. Merchandise Trade Balances with Selected Asian Developing Nations, 1984-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 China's Trade with the United States and the World U.S. trade with the People's Republic of China (PRC) has raised several policy concerns. The trade is highly unbalanced in China's favor with a U.S. deficit of $201 billion in 2005. Year-to-date (January-October 2006), the U.S. deficit reached $190 billion. Many associate this deficit with the concomitant loss of American jobs in industries competing with rapidly rising imports from China. Some policymakers as well as leaders of industry and labor blame China for unfair trade practices, including deliberately undervaluing its currency, which they claim create an uneven playing field for U.S. companies when competing against imports from the PRC. U.S.-China trade issues are often driven by larger policy objectives. U.S. trade with China is but one aspect of the overall U.S. policy of engagement with the PRC, a policy that serves broader U.S. interests. Trade also underpins Beijing's development strategy and contributes to domestic support for the PRC government. This report presents data and analysis of China's trade that shed light on various policy issues, provides an overview of recent U.S. legislative initiatives, and examines the goals and constraints of U.S. trade policy toward the PRC. Some of the specific questions addressed are how the U.S. trade balance with China compares with those of the European Union and Japan, whether imports from China are merely replacing imports from other Pacific Rim nations, and how imports from China by industry compare with imports from other countries. The Rationale for U.S. Policy and Initiatives Allowing trade with China to develop is part of the overall U.S. strategy of engagement with the PRC. The rationale behind engagement is that working with China through economic, diplomatic, informational, and military interchanges helps the United States to achieve important national security goals such as preventing nuclear proliferation, defeating global terrorism, defusing regional conflicts, fostering global economic growth, and championing aspirations for human dignity.1 These goals are aimed at achieving U.S. national interests of security and prosperity for all Americans and projecting U.S. values abroad. U.S. trade policy toward China is based upon the assumption that trade between the two countries has both economic and political benefits: (1) in general, trade with China benefits both sides and allows for a more efficient allocation of available resources; (2) the rapidly developing Chinese economy affords a rare opportunity for U.S. businesses to become part of a huge and rapidly expanding market; (3) China's 1 The White House, The National Security Strategy of the United States of America (March 2006), available at [http://www.whitehouse.gov/nsc/nss/2006]. CRS-2 membership in the World Trade Organization (WTO) compels the PRC to comply with international trading rules and spurs the development of market forces in the country; and (4) foreign trade and investment create a dependency on exports, imports, and foreign investment and other interaction with the outside world in China, which in turn strengthen its relations with the Western world, create centers of power outside the Chinese Communist Party, and foster economic and social pressures for democracy; (5) a country as significant as China -- accounting for a quarter of the world's population, armed with nuclear weapons, and a member of the U.N. Security Council -- cannot be ignored or isolated. According to some experts, globalization and economic interests may be exerting a moderating influence on Beijing's policies toward protecting China's national security interests. However, the Chinese Communist Party's determination to maintain political legitimacy through economic growth also creates tensions with other countries and with emerging non-Party political actors. The possible problems or challenges raised by the U.S. strategy of economic engagement with China include adjusting to economic competition in sectors where China has a comparative advantage, responding to PRC unfair trade practices, and the rise of an economically powerful China that is becoming more assertive in global affairs: (1) Imports from China may be entering in such increased quantities that they are a substantial cause of serious injury, or threat thereof, to competing U.S. industries;2 (2) Imports from China may be dumped, subsidized, or unfairly aided by government entities in China, which still wield considerable influence in the economy;3 (3) According to some economists and many policymakers, the U.S. trade deficit with the PRC stems in large part from Beijing's policy of maintaining an undervalued currency; (4) China has a poor record of adopting or enforcing internationally recognized standards for working conditions and environmental regulation which, in addition to violating human rights and harming the environment, may provide PRC businesses with unfair competitive advantages; and (5) U.S. economic engagement with China arguably contributes to the legitimacy of the socialist government and the strengthening of China's military by facilitating general economic development. U.S. trade law and WTO regulations can deal with injury from imports and unfair trade practices. Trade disputes with China would normally be first discussed bilaterally before taking the case to the WTO for dispute resolution. China's alleged violations of international labor and environmental standards, as well as its own laws and government regulations, have fewer institutional remedies for the United States. Policy options include working to improve China's compliance through bilateral consultations and technical assistance, international organizations (such as the International Labor Organization), non-governmental organizations, and multilateral 2 3 See Sections 201 to 204 of the Trade Act of 1974 (19 U.S.C. ?? 2251-2254). Unfair competition includes dumping (sales in the United States of an imported product at less than fair value), countervailable subsidies (excessive government subsidies of exporting industries) (see Subtitles A and B of Title VII of the Tariff Act of 1930, as added by the Trade Agreements Act of 1979 (19 U.S.C. ?? 1673 et seq.), and imports that infringe on intellectual property rights (see Section 337 of the Tariff Act of 1930, 19 U.S.C. ? 1337). CRS-3 treaties (such as the U.N. Framework Convention on Climate Change and Kyoto Protocol),4 and the threat of trade sanctions. Trade Policy Developments In the past few years, the United States has taken numerous actions in response to PRC trade practices that is has deemed unfair while China taken some incremental steps to heed U.S. demands.5 ! In December 2006, China hosted the first China-U.S. Strategic Economic Dialogue led by U.S. Treasury Secretary Henry Paulson and PRC Vice-Premier Wu Yi. Talks focused on the following issues: China's exchange rate flexibility, the bilateral trade imbalance, PRC intellectual property rights violations, energy, and the environment. The U.S. Treasury Department released a report on December 19, 2006, that did not refer to China as engaging in currency manipulation for the purpose of gaining a trade advantage. On January 13, 2006, the Bush Administration announced that it would apply the so-called military catch-all rule to items on the Commodity Control List which could require licenses for the export of items to China that could be used to strengthen China's military power. On November 8, 2005, the United States Trade Representative (USTR) announced that the United States and China had, after three months of intense negotiations, reached a broad agreement on textile trade. The Agreement lasts through the life of the China WTO Textile Safeguard (through 2008), covers more than 30 individual products, and contains quotas that begin at low levels.6 On July 21, 2005, the PRC government announced that its currency, the yuan, would be revalued upward (from 8.3 yuan to 8.11 yuan to the U.S. dollar) and that its future value would be "referenced" to a basket of currencies. However, according to most experts, China's ! ! ! 4 See CRS Report RL33602, Global Climate Change: Major Scientific and Policy Issues, by John R. Justus and Susan R. Fletcher. 5 For further discussion of U.S. trade, U.S. -China trade, and U.S. trade policies toward China, see CRS Report RL33577, U.S. International Trade: Trends and Forecasts, by Dick Nanto; CRS Report RL33536, China-U.S. Trade Issues, by Wayne M. Morrison; and CRS Report RL32165, China's Currency: Economic Issues and Options for U.S. Trade Policy, by Wayne Morrison and Marc Labonte. Office of the United States Trade Representative. "USTR Portman Announces US-China Broad Textile Agreement." USTR Press Release, November 8, 2005. 6 CRS-4 central bank continues to intervene in the currency market in order to maintain a stable exchange rate.7 ! In May 2005, the Bush Administration imposed "safeguard" quotas on 16 categories of Chinese apparel in response to a surge in such imports following the lifting of textiles and apparel quotas worldwide in January 2005. In December 2004, the U.S. government imposed anti-dumping duties on imported Chinese bedroom furniture. This case, the largest anti-dumping action against China, reportedly has both supporters and opponents in the U.S. furniture industry.8 In September 2004, the U.S. government rejected a Section 301 (Trade Act of 1974) complaint filed by the China Currency Coalition alleging that China's fixed exchange rate constituted currency manipulation. In November 2004, the Administration rejected a similar petition filed by Members of Congress, while continuing to press and advise China on revaluing or floating its currency. In April 2004, the Bush Administration rejected a Section 301 petition filed by the AFL-CIO alleging unfair trade practices based upon exploitation of labor in the PRC and calling for a tariff of up to 77% on goods imported from China. In July 2006, the USTR rejected another, similar Section 301 petition filed by the AFL-CIO. In March 2004, the Bush Administration filed the United States' first complaint against China under the WTO's dispute settlement mechanism, charging that the PRC unfairly taxed imported semiconductors.9 In July 2004, China eliminated the tax breaks for domestically-produced semi-conductors. ! ! ! ! Congressional Actions. On December 15, 2006, Representative Sander Levin, who is to chair the House Ways and Means Trade Subcommittee in the 110th Congress, declared that he would support policies that would address what many regard as China's unfair trade advantage, gained largely through the PRC government's manipulation of the value of its currency. These measures include legislation that would impose countervailing duties against non-market economies such as China's and the filing of a Section 301 petition requesting the Administration to file a WTO case against China. Senator Max Baucus, incoming Chairman of the 7 The yuan can fluctuate within a band of 0.3% per day. The exchange rate as of December 2006 was 7.8 yuan to 1.0 U.S. dollar. Doug Palmer, "U.S. Sets Duty of up to 198 Pct on Chinese Furniture," Reuters News, November 9, 2004. Chris Buckley, "China on Unfamiliar Ground in Trade Fight with U.S.," New York Times, March 23, 2004. 9 8 CRS-5 Senate Finance Committee, stated that "greater flexibility for China's currency is long overdue."10 In the 109th Congress, several bills aimed at reducing the U.S. trade imbalance with the PRC were introduced. These bills addressed issues such as China's currency practices, other alleged unfair trade practices (including dumping and export subsidies), violation of intellectual property rights, and non-compliance with WTO regulations. The following are selected bills from the 109th Congress related to U.S.China trade: ! H.R. 4808 (Jones: Introduced February 28, 2006) To prohibit the importation of motor vehicles of the PRC until the tariff rates that China imposes on motor vehicles of the United States are equal to the rates of duty applicable to motor vehicles of the PRC. S. 2267 (Dorgan/Graham: Introduced February 9, 2006) To withdraw normal trade relations treatment from, and apply certain provisions of Title IV of the Trade Act of 1974 to, the products of the People's Republic of China. Related bill: H.R. 728 (Sanders). H.R. 3283 (English: Introduced July 14, 2005) Amends the Tariff Act of 1930 to impose countervailing duties on certain merchandise from nonmarket economy countries. Passed in the House on July 27, 2005. Related bill: S. 1421 (Collins). H.R. 1498 (Ryan: Introduced April 6, 2006) To clarify that exchange-rate manipulation by the People's Republic of China is actionable under the countervailing duty provisions and the productspecific safeguard mechanisms of the trade laws of the United States. S. 377 (Lieberman: Introduced February 15, 2005) To require negotiation and appropriate action with respect to certain countries that engage in currency manipulation. S. 295 (Schumer/Graham: Introduced February 3, 2005) To authorize the imposition of a 27.5% tariff on goods imported from China unless the President certifies that China has made a good faith effort to revalue its currency to reflect its fair market value. Related bills: S. 14 (Stabenow), H.R. 1575 (Myrick), S.Amdt. 309 (Schumer) to S. 600. H.Con.Res. 33 (Ryan: Introduced January 26, 2005) Urging the President to take immediate steps to establish a plan to adopt the recommendations of the United States-China Economic and Security ! ! ! ! ! ! 10 "Levin Says Bernanke Comments Justify CVD Action Against China," Inside US-China Trade, December 20, 2005; Doug Palmer, "U.S. Lawmakers Urge Action after China Meeting," Washington Post, December 15, 2006. CRS-6 Review Commission in its 2004 Report to the Congress in order to correct the current imbalance in the bilateral trade and economic relationship between the United States and China. Summary of Trade Data What light do the trade data shed on the controversy over economic relations with China? First, China has burst onto the U.S. trading scene in recent years. In 2003, the PRC surpassed Japan to become America's third largest trading partner, after Canada and Mexico,11 while the United States is the PRC's second largest trading partner, after the expanded European Union (25 nations).12 In 2005, according to PRC data, EU-China trade was valued at $217.3 billion compared to U.S.-China trade of $211.6 billion.13 China's largest export market is the United States followed by the EU-25 and Japan. Although China is a new player in international trade, it is taking major shares of markets once dominated either by other countries and U.S. domestic industries. China is the second largest source of U.S. imports of merchandise ($243 billion in 2005) after Canada ($287 billion). PRC imports surpassed those of Mexico in 2003 and of Japan in 2002. China now accounts for over 14% of U.S. imports (2005), up from 12% in 2003, 8% in 1999, and 3% in 1990, although this share still falls short of Japan's 18% in the early 1990s. Second, the data show that while U.S. trade with China is unbalanced, the same is also true for Europe and Japan, although to a lesser extent. China runs a trade surplus with the world's three major economic centers. The U.S. bilateral deficit in 2005 ($201 billion), however, was 1.6 times larger than that of the EU-15 ($121.8 billion; the EU-25 deficit was $133 billion) and seven times that of Japan ($28.5 billion). (As reported by the United States, EU, and Japan.) Third, the data show that the U.S. trade deficit with China is rising with the overall U.S. trade deficit or growing at a slightly faster rate. Between 1996 and 1998, China's share of the overall U.S. merchandise trade deficit averaged 24%; between 1999 and 2001, China's share was 18%, and between 2002 and 2004, 22%. In 2005, the United States trade deficit with China constituted 26% of its global trade deficit. Over the same period, the shares of the U.S. deficit in goods trade accounted for by Japan, the Association of Southeast Asian Nations (ASEAN), and the East Asian newly industrialized countries (NICs) have decreased while the European Union's share has increased. In 2005, U.S.-China trade ($285 billion) nearly reached the value of U.S.-Mexico trade ($290 billion). U.S. Census Bureau, Foreign Trade Statistics. "EU Becomes China's Biggest Trading Partner -- USDA Attache," Reuters News, February 25, 2005. PRC data. "China 2005 Trade Surplus Jumps to Record High," Yahoo! Asia News, January 11, 2006. 13 12 11 CRS-7 Fourth, the data show that U.S. exports to China are growing faster than U.S. exports to other nations. U.S. exports to China (up 157% between 2000 and 2005) have grown faster than U.S. exports to Canada (up 19.8% over the same period), Mexico (7.5%), and Japan (-15%), although exports to China have grown from a low base.14 In 2004, China replaced Germany and the United Kingdom to become the 4th largest market for U.S. goods, moving up from 11th place in 1999. The United States exported somewhat more to China ($41.8 billion) than it did to the United Kingdom ($38.6 billion) in 2005. According to Japanese, European, and Korean data, in 2005, Japan was the largest overseas supplier of products to China with $79.9 billion in exports. South Korea and the EU-15 and were the second and third largest exporters to China in 2005 with $69.8 billion and $61.9 billion in exports, respectively.15 Fifth, the U.S. industrial sectors most at risk from import competition from China are generally labor intensive, but China is moving quickly up the technology ladder. The sectors in which the United States runs the largest trade deficits are generally those that depend on abundant and low-cost labor, while the United States accrues surpluses with China in some advanced technology items, such as aircraft, as well as in some agricultural products. In China's trade with the developed countries, over two-thirds of its exports are "low-end manufactures" -- appliances, toys, furniture, footwear, apparel, and plastic goods -- while 85% of its imports are capital-intensive machinery and equipment, electronic goods, and natural resourcerelated products.16 The United States has incurred large trade deficits with China in some high value-added sectors as well. These sectors include office and data processing machines, telecommunications and sound equipment, and electrical machinery and appliances. In 2003, China became the third largest car market and the fourth largest maker of automobiles with an output of 4.4 million vehicles. Production of cars reached an estimated 5.5 million units in 2005, putting the PRC on par with Germany in automobile production. However, China is not a major global importer or exporter of cars and it remains heavily reliant upon foreign technology in this sector.17 Sixth, PRC data show much smaller bilateral trade deficits than those claimed by its trading partners. PRC trade data differ from U.S. data primarily because of the treatment of products from or to China (mainland) that pass through the Hong Kong Special Administrative Region (SAR). Other reasons include different accounting systems and a lack of transparency in China's data reporting. China counts Hong Kong as the destination of its exports sent there, even goods that are then transshipped to other markets. By contrast, the United States and many of China's other trading partners count Chinese exports that are transshipped through Hong 14 15 U.S. Department of Commerce, International Trade Commission. Global Trade Atlas; "Economy Increasingly Dependent on Mainland Ties," Nikkei Weekly, June 14, 2004. 16 Jonathan Anderson, "China, Asia's Paper Tiger?" The Asian Wall Street Journal, August 15, 2002. "China to Become 2nd Largest Automaker by 2010," Asia Times Online [http://www.atimes.com], August 25, 2005; Xinhua News Agency, April 11, 2005. 17 CRS-8 Kong as products from China,18 not Hong Kong, including goods that contain Hong Kong components or involve final assembly or processing in Hong Kong. Furthermore, the United States counts Hong Kong as the destination of U.S. products sent there, even those that are then re-exported to China. However, the PRC counts many of such re-exported goods as U.S. exports to China. Some analysts argue that the U.S. Department of Commerce overstates the U.S. trade deficit with China by as much as 21% because of the way that it calculates entrepot trade through Hong Kong.19 According to PRC data, China's trade surplus with the United States in 2005 was $114 billion -- not $201 billion as reported by the United States government. In Japan's case, both countries claim to be running trade deficits with each other. According to PRC data, in 2005, China ran deficits with many of its major trading partners, including Taiwan ($57.9 billion), South Korea ($41.7 billion), Japan ($16.3 billion), Malaysia ($9.5 billion), Saudi Arabia ($8.4 billion), Philippines ($8 billion), Thailand ($6 billion), Australia ($5 billion), Brazil ($5 billion) Iran ($3.5 billion).20 Seventh, some trade specialists suggest that the surge of U.S. imports from China do not pose an additional threat to U.S. industries and workers because it merely represents a shift of investment and production from other Pacific Rim countries. China's share of U.S. imports has been rising while those of other Pacific Rim nations have been falling or holding steady. In terms of absolute values, until recently, U.S. imports from all major Pacific Rim countries continued to rise, although at slower rates than imports from China. In 2005, U.S. imports from the East Asian NICS -- South Korea, Taiwan, Hong Kong, and Singapore -- fell or barely rose from the previous year. Eighth, the rapid growth of the Chinese economy is adding to world demand for basic commodities that is causing upward pressure on world prices. Particularly significant are Chinese net imports of crude oil, copper, and soybeans. China's Trade Balance and Imports As shown in Figure 1 and Appendix Table A1, according to PRC data, with the exception of 1993, China has run a global trade surplus in goods each year since 1990. That surplus emerged at the beginning of the 1990s, entered into a deficit of $11 billion in 1993 (when the government temporarily loosened controls on imports), and reached a peak of $43.3 billion in 1998 before declining to $22.6 billion in 2001. In 2005, China's global trade surplus leapt to $102 billion (PRC data). According to the Hong Kong Trade Development Council, 55% of Hong Kong's total exports involve re-exports of Chinese (mainland) goods to markets other than China. U.S.-China Business Council, "Understanding the U.S.-China Balance of Trade," May 2003. 20 19 18 Global Trade Atlas. CRS-9 Figure 1. China's Exports, Imports, and Balance of Merchandise Trade, 1983-2005 (PRC data) 800 $Billions 600 400 Exports Balance 200 Imports 0 -200 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 Year Sources: PRC General Administration of Customs; Global Trade Atlas (PRC data). Between 1995 and 2001, China's current account surplus (includes trade in goods, services, and unilateral transfers such as remittances and government to government payments) was smaller than its surplus in merchandise trade because of a deficit in its services trade. Since 2002, the current account surplus has exceeded the merchandise trade surplus due to large increases in services exports and remittances. In 2005, the current account surplus was $160.8 billion compared to the merchandise trade surplus of $102 billion. According to one projection, China's global current account balance will remain in surplus "for some years to come," due to continued high rates of foreign investment, strong exports, and excessive savings in the non-state sector.21 As mentioned in the previous section, PRC data show much smaller bilateral trade deficits than those claimed by its trading partners. In 2005, the United States claimed it had incurred a $201 billion trade deficit with China, while China reported a trade surplus of only $114 billion with the United States. Japan reported a $28.5 billion merchandise trade deficit with China, while China likewise claimed a $16.3 billion trade deficit with Japan. In 2005, the European Union's trade deficit with China ($121.8 billion) was only $63 billion according to Chinese data. In 2005, the 156 countries categorized as the "world" by the International Monetary Fund reported an aggregate trade deficit with China of $342 billion. This is approximately 3.3 Global Insight, "China: Interim Forecast Analysis," June 2006, and "China: Economic: Current Situation: Highlights," August 2006. 21 CRS-10 times the $102 billion global merchandise trade deficit reported by China for that year.22 (See Appendix Tables A1-A5.) Not only have the surge in imports from China affected U.S. markets, but China has become a major importer of world commodities or primary goods. Table 1 shows China's imports by major commodity. Imports of machinery (including electrical) have soared from a total of $63.1 billion in 1999 to $271.3 billion in 2005. Such an increase in demand for machinery, however, has only a moderate effect on overall prices. China's imports of mineral fuel, organic chemicals, iron and steel, ores, copper, cotton, and wood, however, can affect world prices, particularly when combined with rising world demand or tightening supplies. In 2004-2005, Chinese demand for mineral fuel, in particular, including crude petroleum added to upward world price pressures. 22 U.S. Department of Commerce, International Trade Commission; Global Trade Atlas; International Monetary Fund, Direction of Trade Statistics Quarterly, June 2006. CRS-11 Table 1. China's Imports by Major Commodity, 1999-2005 (billions of dollars) 1999 Electrical Machinery Machinery Mineral Fuel, Oil, etc. Optics, Medical. Instr. Plastic Organic Chemicals Iron and Steel Ores, Slag, Ash Copper & Articles Thereof Vehicles, Not Railway Misc. Grain, Seeds, Fruit Cotton and Yarn, Fabric Aircraft, Spacecraft Paper, Paperboard Misc. Chemical Products Wood, Articles of Wood 35.3 27.8 8.9 5.0 11.6 5.5 7.2 2.2 3.1 2.4 1.6 2.4 3.2 1.6 2.2 2.9 2000 50.7 34.4 20.7 7.3 14.5 8.3 9.6 3.1 4.7 3.6 3.1 2.8 2.2 2.6 2.5 3.7 2001 55.9 40.6 17.5 9.8 15.3 9.0 10.9 4.2 4.9 4.5 3.3 2.9 4.4 2.7 2.6 3.5 2002 52.2 19.3 13.5 17.4 11.2 13.2 4.3 5.7 6.5 2.8 3.3 4.1 2.9 3.8 4.1 2003 71.6 29.3 25.1 21.0 16.0 22.2 7.2 7.2 11.8 5.7 4.7 4.5 3.9 4.9 4.6 2004 91.5 48.0 40.1 28.0 23.8 23.6 17.3 10.5 12.9 7.3 6.9 4.9 5.2 5.1 5.2 2005 96.4 64.2 49.9 33.3 28.0 26.2 25.9 12.9 12.2 8.1 7.0 6.6 6.3 6.0 5.7 73.3 104.0 142.1 174.9 Source: Global Trade Atlas using Chinese data. China and the Asia Pacific Region While China is gaining manufacturing prowess and its trade surplus with the United States is spiraling, the country is purchasing heavily from neighboring trading partners. In 2004, China's imports rose by 35%, including machinery, raw materials, and components for manufacturing, although this growth in imports slowed to 17% in 2005.23 In addition, the bulk of China's exports are manufactured under foreign brand names, and over half of China's exports are produced by foreign-owned companies. According to PRC official estimates, 70% of PRC exports to the United States contain foreign components, particularly from Taiwan, South Korea, and Singapore.24 China (not including Hong Kong) has become the largest trading partner of Taiwan and the second largest trading partner of Japan. The PRC has become South 23 24 Robert J. Samuelson, "The World's Powerhouse," Newsweek, May 31, 2004. Taiwan's major exports to China include telecommunications products, computers, plastic products, steel, man-made fibers, industrial-use textiles, organic chemical products, optical and photo-taking instruments and parts, copper products, and polyester. Hong Kong Trade Development Council. CRS-12 Korea's largest foreign investment destination and largest export market. According to Taiwanese and Korean data, in 2005, Taiwan's estimated trade surplus with China was $31.9 billion, while South Korea's surplus was $31.2 billion.25 China has become a huge buyer of raw materials, agricultural commodities, industrial machinery, and electronic components from Southeast Asia, as well as an important source of foreign investment and second largest source of foreign tourists in the region.26 China's top exports to Southeast Asia include machinery, electronic goods, iron and steel, mineral fuels, textiles and apparel, and optical, photographic, and medical equipment. Despite worries about economic competition, in 2004, ASEAN, which ran a trade surplus of $20 billion with China that year (PRC data),27 agreed to establish a free trade zone with China which would be implemented gradually over five years.28 In the view of many of its major trading partners in Asia, China's economic growth and open trade policies have presented both competitive challenges and economic opportunities. However, according to some analysts, China's appetite for imports is slowing, while its export production shows little sign of abating.29 Although ASEAN accumulated a trade surplus with China again in 2005 ($19.5 billion, according to PRC data), China's exports to ASEAN grew 50% faster than its imports from Southeast Asia. When Hong Kong is included, China is the largest trading partner of both Taiwan and Japan. Directorate General of Customs, Ministry of Finance, Republic of China; Korean International Trade Association; Global Trade Atlas. Sadanand Dhume, "Buying Fast into Southeast Asia," Far Eastern Economic Review, March 28, 2002. 27 28 26 25 Global Trade Atlas "China-ASEAN Trade Surges over 40 Percent in 2003," Thai News Service, February 11, 2004. Keith Bradsher and David Barboza, "As Exports Boom, China Risks Global Backlash," International Herald Tribune, April 9, 2005. 29 CRS-13 Figure 2. Shares of Total U.S. Imports by Country and Country Group, 1990 and 2005 Some trade specialists suggest that the surge of U.S. imports from China do not pose an additional threat to U.S. industries and workers because it merely represents a shift of investment and production from other Pacific Rim countries. In other words, expanding imports from China have been offset by declining imports from other East Asian or Pacific Rim countries.30 These countries include those at a similar level of development which are competing directly with China, such as Malaysia and Thailand, and more industrialized countries or special administrative regions that have moved their lower-end production to the PRC, such as Macao, Hong Kong, South Korea, and Taiwan. In sectors such as footwear, handbags, apparel, furniture, and building and lighting fixtures, U.S. imports from China have been displacing those from Hong Kong, South Korea, Taiwan, and Mexico and reducing imports those from other developing Asian nations. As shown in Figure 2, China's share of U.S. imports grew from 3% in 1990 to 14% in 2005 (out of total U.S. imports of $491 billion and $1.66 trillion, respectively),31 while the rest of East Asia's share (Japan, NICS,32 and ASEAN) fell from 36% to 19%. Mexico's share of U.S. imports grew from 6% in 1990 to 11.6% in 2002. It fell to 10.6% in 2004 and further to 10.1% in 2005. 30 31 32 Council of Economic Advisors, Economic Report of the President, February 2004. U.S. Imports for Consumption, U.S. International Trade Commission. NICS -- Hong Kong, Taiwan, and South Korea (Singapore is counted in ASEAN). CRS-14 China's Trade with the United States, Europe, and Japan As shown in Figure 3 and Appendix Table A2, by either Chinese or U.S. data, China runs a trade surplus with the United States. Although Chinese figures show it at only $114 billion in 2005, the United States reports it to be $201 billion. According to PRC data, China has run a trade surplus with the United States since 1993. According to U.S. data, the United States has incurred trade deficits with China since 1983. Figure 3. U.S. Exports, Imports, and Balance of Trade with China, 1983-2005 300 200 100 0 -100 $Billions Imports (U.S. figures) Exports (U.S. figures ) Balance -200 -300 Sources: U.S. Department of Commerce IMF. Direction of Trade Statistics Yearbook Global Trade Atlas Balance (PRC data) -201 (U.S. figures) 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 Year As is the case with the United States, Japan has run a trade deficit with China since the 1980s (according to Japanese data). As shown in Figure 4 and in Appendix Table A3, Japan's balance of trade with China dropped from a surplus of $6 billion in 1985 to a deficit of nearly $6 billion in 1990. Japan's trade deficit with China reached a peak of $26.5 billion in 2001, which was surpassed in 2005 ($28.5 billion). Japan's exports to China have grown dramatically in the past few years, its largest exports to the PRC being electronics, general machinery, iron and steel, optical, photographic, and medical equipment, and organic chemicals.33 33 Global Trade Atlas. CRS-15 Figure 4. Japan's Merchandise Imports, Exports, and Balance of Trade with China, 1983-2005 120 100 80 60 40 20 0 -20 -40 $Billions Imports (Japan's Data) Exports (Japan's Data ) Balance (China's Data) Balance (Japan's Data) 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 Year Sources: IMF. Direction of Trade Statistics Quarterly Global Trade Atlas As shown in Figure 5 and Appendix Table A4, according to EU data, the European Union incurred a trade deficit with China of $947 million in 1988, which grew to $121.8 billion in 2005. According to Chinese figures, however, the EU trade deficit with China began in the late 1990s and grew to $63 billion in 2005. Compared to the world's two other major economic centers, the U.S. trade deficit with China at $201 billion in 2005 was the largest, followed by the EU-15 deficit with China at $121.8 billion and Japan at $28.5 billion. Within the EU, according to trading partner 2005 data, Germany's trade deficit with China was $23 billion, the U.K.'s was $18.8 billion, and France's was $9.9 billion. As shown in Appendix Table A5, however, China's trade statistics indicate smaller European trade deficits or even surpluses. CRS-16 Figure 5. European Union Merchandise Imports, Exports, and Balance of Trade with China, 1983-2005 200 150 100 50 0 -50 -100 -150 Note: For 1980-88, data are for the EEC12 nations. After 1988, data are for the EU 15. Sources: IMF.Direction of Trade Statistics Quarterly Global Trade Atlas $Billions Imports (EU/EEC Data) Exports (EU/EEC Data ) Balance (China's Data) Balance (EU/EEC Data) 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 Year U.S. Merchandise Trade Balances with Major Trading Partners The U.S. trade deficit with China is notable for not only its size but also the large imbalance between imports from and exports to China. In 2005, Japan exported 2.5 times more to the United States than it imported, while Canada and Mexico exported 1.3 times and 1.4 times more, respectively, than they imported. China, by comparison, exported 5.8 times more to the U.S. market in 2005 than it imported from the United States. This indicates that the Chinese market has been vastly underdeveloped as a destination for U.S. exports. CRS-17 Figure 6. U.S. Merchandise Trade Balances with Selected Countries in 2005 U.S. Trade with China by Sector U.S. Exports to China As shown in Table 2, among the top twenty U.S. exports to China in 2005, the top five by dollar value were electrical machinery, transport equipment, metalliferous ores, oil seeds and fruits, and general industrial machinery. Exports of metalliferous ores and oil seeds and fruits have grown by over 12 times and 6 times, respectively, since 1999, suggesting that China's appetite for raw materials and agricultural commodities has grown relative to that for general industrial machinery and office machines. Among the top 20 U.S. export items to China, textile fibers have experienced the largest growth in the past five years (969%). China's top ten imports from the world in 2005 were: electrical machinery, machinery, mineral fuels, optical and medical instruments, plastics, organic chemicals, iron and steel, iron ores, copper articles, and vehicles. CRS-18 Table 2. Top Twenty U.S. Exports to China, 1997-2005 (millions of dollars) Category Electrical Mach. Transport Equip. Metalliferous Ores Oil Seeds and Fruits Gen. Ind. Mach./Equip. Office Machines Plastics in Prim. Forms Prof. & Scientific Instr. Textile Fibers Organic Chemicals Specialized Industrial Machinery Telecom, Sound Recording Equip. Power Gen. Equip. Pulp and Waste Paper Road Vehicles Nonferrous Metals Misc. Manufactures Hides, Furskins Chemical Materials Metalworking Mach. 1997 1998 1999 2000 2001 2002 2003 2004 2005 741 1,013 1,380 1,747 2,109 2,657 3,722 4,631 5,170 2,127 3,604 2,325 1,695 2,471 3,443 2,495 2,025 4,479 180 419 766 343 340 429 682 208 770 644 603 148 348 172 297 112 124 173 195 288 674 878 320 527 199 212 538 655 542 156 140 120 247 126 143 190 285 685 394 538 98 302 481 573 505 193 192 140 242 96 177 162 618 919 956 1,525 2,198 3,482 890 2,832 2,332 2,256 354 1,020 1,014 838 1,080 1,145 1,404 1,912 2,067 545 583 154 473 758 628 886 160 373 740 278 931 1,342 1,793 909 1,638 1,657 842 1,498 1,602 1,193 1,274 1,396 1,835 931 1,167 1,568 1,710 554 1,054 1,542 1,457 819 1,124 1,218 1,744 1,325 978 1,104 1,299 640 600 506 315 515 457 403 304 965 1,042 753 624 333 647 521 582 618 992 903 872 750 629 604 547 817 1,204 1,110 312 276 185 289 384 237 247 211 507 330 223 144 440 402 285 265 462 414 272 161 509 397 312 367 Note: Ranked by data for 2005. Source: U.S. Department of Commerce, International Trade Commission. U.S. Imports from China As shown in Figure 7 and Table 3, among the top twenty U.S. imports from China in 2005 by dollar amount, the top six were office machines and automatic data processing machines, telecommunications and sound equipment, miscellaneous manufactured articles, apparel and accessories, electrical machinery, and furniture and bedding. The value of U.S.-imports of PRC office and data processing machines alone ($42.2 billion) exceeded total U.S. exports to China in 2005 ($41.8 billion). While U.S. imports in all these categories have increased, the most dramatic percentage changes have been not in traditional labor-intensive industries but in sectors that encompass advanced technology, such as office and data processing CRS-19 machines (up 284% between 2000 and 2005), telecommunications and sound equipment (245%), and general industrial machinery (234%). Figure 7. Top Six Imports from China by Industry, 1994-2005 200 $Billions 150 100 50 l ic a ctr arel quip. EleApp . E com e le ines T Mach Office Furniture ry in e ch Ma Miscell. Manufactures 0 94 95 96 97 98 99 2000 1 2 3 4 5 Year Source: U.S. Department of Commerce CRS-20 Table 3. Top Twenty U.S. Imports from China, 1997-2005 (millions of dollars) Category Office Machines, Data Processing Telecom and Sound Equip. Misc. Manufactured Articles Apparel and Accessories Electrical Machinery, Parts, and Appliances Furniture and Bedding Footwear Manufactures of Metals General Industrial Machinery Textile Yarn, Fabrics Travel Goods, Handbags Road Vehicles Building Fixtures/Fittings Nonmetallic Mineral Manufactures Professional & Scientific Instruments Iron and Steel Photographic Optical Equip, Watches, Clocks Misc. Low-Valued Items Cork and Wood (Non-Furniture) Organic Chemicals Power Generating Machinery Paper Products 1997 5,019 5,126 14,155 7,406 4,877 1,545 7,354 1,816 1,180 1,369 1,917 574 1,194 1,216 634 314 1,211 282 335 335 314 310 1998 6,329 6,405 15,872 7,133 5,707 2,183 8,016 2,238 1,449 1,432 1,942 731 1,444 1,441 715 398 1,400 425 445 337 354 401 1999 8,239 7,382 17,291 7,351 7,022 3,261 8,438 2,878 1,833 1,583 1,974 923 2,073 1,681 837 349 1,600 586 568 392 408 471 2000 10,980 9,812 19,445 8,473 9,037 4,476 9,206 3,651 2,087 1,816 2,214 1,800 2,555 2,059 1,025 623 2,016 759 710 467 505 611 2001 10,763 10,118 19,763 8,866 9,110 5,018 9,758 4,119 2,414 1,854 2,171 1,406 2,377 2,165 1,177 439 1,935 784 792 488 553 627 2002 15,230 14,144 23,494 9,538 10,217 6,954 10,241 5,219 3,259 2,501 2,741 1,796 2,962 2,431 1,301 441 1,842 957 990 564 694 792 2003 23,646 16,937 26,287 11,381 11,875 8,749 10,546 6,302 41,213 3,365 3,319 2,373 3,202 2,624 1,666 483 2,030 1,229 1,162 772 842 1,022 2004 35,620 24,388 29,505 13,607 15,270 10,910 11,350 8,257 5,528 4,253 4,044 3,265 3,700 2,953 2,180 1,609 2,248 1,652 1,612 1,071 1,112 1,263 2005 42,242 34,249 33,573 19,931 18,102 13,187 12,721 10,110 7,007 5,605 4,658 4,170 4,143 3,510 2,490 2,354 2,176 2,068 2,006 1,600 1,573 1,535 Note: Ranked by data for 2005. Source: U.S. Department of Commerce, International Trade Commission. CRS-21 Balance of Trade by Sector In modern economies, trade by sector generally follows two patterns. The first is based on traditional comparative advantage in which one country trades with another in those products in which it has an abundance of resources or in which it is comparatively productive. The United States economy is characterized by high technology, extensive farmland with high agricultural yields, expensive labor, and deep capital. As such, the United States would be expected to be strong in exports of high-technology goods, food and grains, and capital intensive products. The Chinese economy, on the other hand, is characterized by abundant and cheap labor, low capital intensity, and a mix of low, medium and high technology both in manufacturing and agriculture. As such, China would be expected to be strong in exports of not only labor-intensive manufactures, such as textiles and apparel, shoes, toys, and light manufactures, but also items produced under the tutelage of foreign companies that have invested in Chinese factories. These could include household appliances, electronics, tools, or automobile parts. One would expect trade that is conducted on the basis of comparative advantage to be unbalanced on a sector-bysector basis. The United States, for example, would run a surplus with China in aircraft but a deficit in apparel. The second trade pattern occurs among industrialized countries and is called intra-industry or trade within industrial sectors. This is typical of trade among North America, the European Union, and industrialized nations of Asia (e.g., Japan, South Korea, and Taiwan). The products traded usually carry brand names, are differentiated, and may be protected by intellectual property rights. For example, the United States both imports and exports items such as automobiles, machinery, electronic devices, prepared food, and pharmaceuticals. A considerable share of U.S. intra-industry trade is carried out within a multinational corporation (e.g., between Ford Motors and one of its related companies, such as Mazda in Japan, Jaguar in the United Kingdom, or with other subsidiaries abroad). A large deficit in an intraindustry trading sector in which the United States is competitive may indicate that the trading partner country is using import barriers to tip the trade balance in its favor. Table 4 shows the U.S. balance of trade with China by major sector. Most of the sectors in which the United States runs the largest trade deficits with China are, as expected, those that depend on mostly abundant and low-cost labor. These include toys and sports equipment, furniture and bedding, footwear, textiles and apparel, and leather goods. Among the large deficit sectors, however, are machinery and mechanical appliances and electrical machinery, which reflect China's foreign investment and growing technological sophistication. In plastic articles, optical and medical instruments, books and magazines (indicated by shading in the table), the United States runs a surplus in its balance of trade with the world but a deficit with China. CRS-22 Table 4. U.S. Balance of Trade with China by Sector, 2003-2005 (millions of dollars) 2003 Total China Major U.S. Deficit Sectors (HTS Categories) Machinery/Mechanical Appliances Electrical Machinery Toys and Sports Equipment Furniture and Bedding Footwear Woven Apparel Knit Apparel Leather Art; Saddlery; Bags Articles of Iron and Steel Plastic Articles Misc. Textile Articles Vehicles, Not Railway Misc. Art of Base Metal Precious Stones and Metals, Pearls Wood and Articles of Wood Tools, Cutlery, of Base Metals Optical, Medical Instruments Rubber and Rubber Articles Miscellaneous Manufactures Ceramic Products Artificial Flowers, Feathers Books, Newspapers, Manuscripts Major U.S. Surplus Sectors (HTS Categories) Aircraft, Spacecraft Misc. Grain, Seed, Fruit Cotton and Cotton Fabrics Wood pulp, Etc. Hides and Skins Copper and Articles Thereof Ores Iron and Steel 2,388 2,787 587 599 477 436 34 879 1,870 2,260 1,260 752 527 344 105 45 4,296 2,165 1,215 990 624 545 373 336 -25,262 -24,007 -16,070 -11,739 -10,528 -5,484 -3,192 -5,040 -3,086 -3,032 -2,353 -1,947 -1,414 -1,391 -1,019 -1,373 -1,650 -698 -1,023 -1,112 -1,091 -653 -37,628 -34,113 -17,163 -14,339 -11,318 -6,606 -4,092 -5,708 -4,376 -3,402 -3,052 -2,729 -1,809 -1,714 -1,454 -1,554 -1,704 -1,036 -1,203 -1,203 -1,109 -892 -46,375 -46,249 -19,074 -16,942 -12,679 -10,220 -6,553 -6,247 -5,886 -4,380 -3,953 -3,268 -2,243 -2,065 -1,847 -1,774 -1,729 -1,551 -1,404 -1,316 -1,145 -1,130 -123,960 2004 161,977 2005 201,625 Note: Categories in italics are those in which the United States runs a trade surplus with the world but a trade deficit with China. Classification is by Harmonized System tariff codes at the 2-digit level. Source: U.S. Department of Commerce, International Trade Commission. CRS-23 The sectors in which the United States runs a trade surplus with China mirror U.S. competitive advantages and include aircraft, agricultural products, and cotton fabrics. In 2005, U.S. trade surpluses with China in aircraft, copper, iron ores, and iron and steel rose dramatically. U.S. Imports From China -- Sector Charts and Data This section presents charts and data on U.S. imports from China by selected industrial sectors. The charts show imports from China as compared with imports from other major exporting countries or groups of countries. These include the European Union (fifteen original countries), the Association of Southeast Asian Nations (ASEAN, which includes, Indonesia, Malaysia, Singapore, Thailand, the Philippines, Brunei, Vietnam, Laos, and Myanmar [Burma]), Taiwan, Mexico, South Korea, Japan, Hong Kong, and Canada. The data in this section are presented according to two-digit standard international trade classification (SITC) codes as reported by the U.S. Department of Commerce. The industries selected are those in which the share of imports from China has risen to a significant level or trade policy has played a significant role (e.g. iron and steel and automobiles) even though U.S. imports from China in those industries might be relatively small. Iron and Steel. In iron and steel products, China is becoming a major exporter to the United States. In 2005, China was the fourth largest foreign supplier of iron and steel products to the United States (surpassing Russia, South Korea, Germany, and Japan), up from seventh place in 2003. In 2005, China also bought $445 million worth of iron and steel products from the United States, making it the third largest market for U.S. exports of iron and steel. In 2005, the United States incurred a trade deficit with China in the SITC 67 category (iron and steel), which includes semi-finished products, tubes and pipes, iron and steel rods, and ferroalloys. However, the United States attained a trade surplus with China in the HTS 72 category (iron and steel), which includes more items in "primary form." CRS-24 Figure 8. U.S. Imports of Iron and Steel Products (SITC 67) by Country and Group, 1990-2005 Table 5. U.S. Imports of Iron and Steel Products (SITC 67) from Selected Countries and Country Groups, 1991, 2000-2005 (millions of dollars) 1990 EU15 Canada Mexico China Japan Korea Taiwan ASEAN Hong Kong Rest of World World 3,303 1,504 357 71 2,097 574 154 65 2 1,691 9,818 2001 3,637 2,437 1,021 439 1,213 815 346 191 2 3,657 13,758 2002 3,041 2,981 1,340 441 991 687 290 193 3 4,469 14,436 2003 2,621 2,885 1,334 490 799 505 219 161 2 3,929 12,945 2004 4,697 3,979 2,530 1,610 1,072 1,031 803 395 3 10,204 26,324 2005 5,828 4,699 2,738 2,340 1,468 1,374 735 406 10 9,034 28,632 Source: U.S. Department of Commerce CRS-25 Specialized Industrial Machinery. China is becoming an important supplier of specialized industrial machinery, which includes machine tools and sewing machines, but lags behind the European Union, Japan, and Canada and competes with other newly industrialized countries such as Mexico, South Korea, and Taiwan. China accounted for only 4.5% of U.S. imports in this category in 2005. Figure 9. U.S. Imports of Specialized Industrial Machinery (SITC 72) by Country and Group, 1990-2005 Table 6. U.S. Imports of Specialized Industrial Machinery (SITC 72) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) EU15 Japan Canada China Mexico Korea Taiwan ASEAN Hong Kong Rest of World World 1990 6,786 3,340 1,384 23 139 69 313 13 18 868 12,953 2001 9,511 4,479 2,297 331 537 305 626 101 12 1,314 19,513 2002 8,463 4,217 2,294 485 490 325 638 113 17 1,373 18,415 2003 9,586 4,445 2,556 791 578 467 623 145 15 1,614 20,820 2004 11,656 6,105 3,010 1,069 862 746 730 250 18 2,049 26,495 2005 13,419 7,019 3,482 1,415 1,241 1,159 684 287 17 2,464 31,187 Source: U.S. Department of Commerce CRS-26 Office Machines and Computers. In U.S. imports of office machines and automatic data processing machines (including television sets, computers and computer hardware), China has quickly become the largest supplier, surpassing ASEAN. Imports of such products from China rose by over 75% between 2003 and 2005 and now account for 42% of U.S. imports in this category. Office machines and computers from other East Asian countries -- Japan, Taiwan, and South Korea -- have been leveling off or decreasing, although many of their high tech manufacturers have built plants in China and export from there. The top exporters of office machines and data processing machines to the United States in 2005 were China, Malaysia, Japan, Mexico, and Singapore. Figure 10. U.S. Imports of Office Machines and Automatic Data Processing Machines (SITC 75) by Country and Group, 1990-2005 120 $Billions 100 Rest of World EU15 ASEAN Taiwan Mexico S. Korea Japan 80 60 40 20 China 42% Canada 90 91 92 93 94 95 96 97 98 99 2000 1 2 3 4 5 0 Year Source: U.S. Department of Commerce Table 7. U.S. Imports of Office Machines and Automatic Data Processing Machines (SITC 75) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) China ASEAN Japan Mexico Taiwan EU15 Korea Canada Hong Kong Rest of World World 1990 117 5,150 11,007 706 3,084 2,461 1,347 1,893 809 297 26,871 2001 10,761 20,676 11,055 10,377 8,751 4,676 4,657 2,942 276 1,729 75,900 2002 15,230 22,043 9,464 8,828 8,659 4,505 4,632 1,825 392 1,342 76,920 2003 23,612 21,571 8,978 7,516 6,996 4,815 3,779 1,644 328 2,947 80,542 2004 35,579 22,460 9,282 7,726 6,132 4,810 3,885 1,865 304 1,492 93,535 2005 42,169 23,473 8,936 7,075 4,879 4,516 3,104 1,966 210 2,015 98,343 Source: U.S. Department of Commerce CRS-27 Telecommunications and Sound Equipment. China's share of U.S. imports of telecommunications and sound equipment has risen to 33%. Such imports from China rose from $1.1 billion in 1990 to $34 billion in 2005. Imports of these products from elsewhere in Asia, particularly from ASEAN countries, have also been rising rapidly. The largest suppliers of telecommunications and sound equipment to the United States in 2005 were China, Mexico, Malaysia, Japan, and South Korea. Figure 11. Imports of Telecommunications and Sound Equipment (SITC 76) by Country and Group, 1990-2005 Table 8. U.S. Imports of Telecommunications and Sound Equipment (SITC 76) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) China Mexico ASEAN Korea Japan EU15 Canada Taiwan Hong Kong Rest of World World 1990 1,142 2,302 3,122 1,632 9,061 890 972 1,426 478 322 21,347 2001 10,062 15,765 8,548 6,001 8,577 3,883 4,533 2,361 224 2,446 62,400 2002 14,144 14,483 9,514 6,353 8,473 4,559 3,543 2,137 357 2,264 65,827 2003 16,723 14,239 10,218 7,955 8,889 4,051 3,053 2,655 522 2,363 70,668 2004 24,311 17,475 11,779 10,942 9,967 3,707 3,435 3,261 647 1,941 87,465 2005 34,140 18,840 17,114 8,214 9,707 4,382 4,103 4,125 672 2,637 103,934 Source: U.S. Department of Commerce CRS-28 Electrical Machinery and Parts. U.S. imports of electrical machinery and parts (including semi-conductors) have been growing dramatically from nearly all major suppliers. At 18% of such imports in 2005, China has become a significant supplier -- surpassing the EU, Japan, and ASEAN. Mexico remains the leading foreign supplier. Figure 12. U.S. Imports of Electrical Machinery and Parts (SITC 77) by Country and Group, 1990-2005 120 $Billions 100 80 Rest of World EU15 ASEAN 60 Taiwan Mexico 40 20 S. Korea Japan H.Kong 0 90 91 92 93 94 95 96 97 98 99 2000 1 2 3 4 5 China 18% Canada Year Source: U.S. Department of Commerce Table 9. U.S. Imports of Electrical Machinery and Parts (SITC 77) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) Mexico China EU15 ASEAN Japan Canada Taiwan Korea Hong Kong Rest of World World 1990 4,406 652 4,898 4,644 8,658 3,323 2,180 2,504 792 1,080 33,137 2001 16,290 9,047 11,009 13,748 11,941 5,871 5,878 5,194 1,050 4,112 84,140 2002 16,930 10,217 10,881 12,427 9,406 5,025 5,296 5,150 881 4,359 80,572 2003 17,547 11,808 11,462 11,308 8,713 4,920 5,160 5,105 585 4,916 81,524 2004 19,120 15,197 12,314 11,557 10,251 5,619 6,170 5,992 637 5,414 92,271 2005 20,671 17,980 13,360 11,736 10,665 6,210 6,077 5,437 593 5,560 98,289 Source: U.S. Department of Commerce CRS-29 Road Motor Vehicles. China is the world's third largest auto market and fourth largest auto producer. China's automobile sector has absorbed heavy foreign investment -- roughly 70% of the country's car market is held by Chinese-foreign joint ventures such as Shanghai General Motors (GM), Shanghai Volkswagen, and First Auto Works-Toyota -- and is aimed primarily at Chinese buyers.34 China became a net exporter of vehicles for the first time in 2005, with exports of 172,800 vehicles and imports of 161,900 units. Most of China's vehicle exports are sold in Middle Eastern, North African, and South American countries. In addition, China has become a major supplier of motorcycles to Southeast Asia. Chinese auto makers Geely and Chery reportedly have plans to begin exporting passenger cars to the United States in 2007 or 2008.35 Currently, China is not a significant player in the U.S. car market. U.S. road vehicle and related imports from China mainly consist of auto parts, bicycles and motorcycles, and specialty vehicles such as golf carts and beach go-carts. C h i n a has become an important supplier of auto parts to the United States, with $2 billion in selected auto parts in 2005, but trails Canada ($11.8 billion), Japan ($8.8 billion), Mexico ($7.7 billion), and Germany ($2.3 billion). China exported $290 million worth of motorcycles to the United States in 2005, accounting for 8% of U.S. motorcycle imports compared to Japan's 73%. China is expected to continue to lower tariffs on imported automobiles, to 25% in 2006, pursuant to China's WTO accession agreement, although many non-tariff barriers reportedly remain.36 In 2005, GM sold more than 650,000 vehicles in China compared to Volkswagen, with sales of 500,000 cars, and Toyota, with 179,000 units. "Toyota in China: Full Speed Ahead," BusinessWeek Online, March 9, 2006. "Chinese Automaker Geely Sets Sights on Exports to U.S." Associated Press Newswires, January 11, 2006. "MOC: Tariff Cut to Put Little Effect on Imported Car Price next Year," Xinhua News Agency, December 19, 2005. 36 35 34 CRS-30 Figure 13. U.S. Imports of Road Motor Vehicles (SITC 78) by Country and Group, 1990-2005 250 $Billions 200 Rest of World EU15 Mexico S. Korea 150 100 Japan 50 China 2% Canada 0 90 91 92 93 94 95 96 97 98 99 2000 1 2 3 4 5 Year Source: U.S. Department of Commerce Table 10. U.S. Imports of Road Motor Vehicles (SITC 78) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) 1990 Canada Japan EU15 Mexico Korea China Taiwan ASEAN Hong Kong Rest of World World 26,094 29,839 12,270 4,084 1,275 59 871 88 7 930 75,517 2001 50,477 41,429 28,022 26,246 6,778 1,404 1,124 247 13 2,892 158,632 2002 52,050 45,449 31,043 26,181 7,382 1,796 1,239 280 14 3,338 168,772 2003 52,448 43,178 35,975 25,222 8,503 2,369 1,387 297 38 4,271 173,688 2004 58,832 45,033 37,813 26,114 10,773 3,267 1,522 359 43 4,412 188,168 2005 61,332 48,867 39,958 26,744 10,187 4,198 1,804 432 39 3,853 197,414 Source: U.S. Department of Commerce Building and Lighting Products. In U.S. imports of prefabricated buildings, sanitary, plumbing, heating and lighting fixtures and fittings, China has surged to become a main factor. The PRC accounted for over half such imports in 2005, although total imports of such products from China amounted to only $4 billion, making it the 13th largest U.S. import from China. CRS-31 Figure 14. U.S. Imports of Building and Lighting Products (SITC 81) by Country and Group, 1990-2005 8 $Billions 6 Rest of World EU15 ASEAN Taiwan Mexico Japan H Kong 4 2 China 54% 0 90 91 92 93 94 95 96 97 98 99 2000 1 2 3 4 5 Canada Year Source: U.S. Department of Commerce Table 11. U.S. Imports of Prefabricated Buildings, Sanitary, Plumbing, Heating and Lighting Fixtures and Fittings (SITC 81) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) 1990 China Mexico Canada EU15 Taiwan ASEAN Hong Kong Japan Korea Rest of World World 94 117 80 205 495 27 47 28 61 78 1,232 2001 2,383 903 572 329 156 116 70 59 32 275 4,895 2002 2,962 961 598 319 152 106 77 36 36 319 5,566 2003 3,199 1,036 617 356 151 115 80 41 42 362 5,999 2004 3,697 1,132 693 428 154 121 73 49 37 422 6,806 2005 4,146 1,300 762 497 142 137 59 52 37 464 7,596 Source: U.S. Department of Commerce CRS-32 Furniture. In U.S. imports of furniture and related parts, China has become a dominant supplier. The PRC accounted for over 43% of U.S. furniture imports in 2005. U.S. imports of furniture from China now exceed the combined U.S. imports from Canada and Mexico, which were the leading foreign suppliers of furniture until the late 1990s. In 2004, the Bush Administration imposed anti-dumping penalties on approximately 500 furniture manufacturers in China. Figure 15. U.S. Imports of Furniture and Parts (SITC 82) by Country and Group, 1990-2005 35 $Billions 30 Rest of World EU15 ASEAN Taiwan Mexico 25 20 15 10 China 43% 5 Canada 0 90 91 92 93 94 95 96 97 98 99 2000 1 2 3 4 5 Year Source: U.S. Department of Commerce Table 12. U.S. Imports of Furniture and Parts (SITC 82) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) 1990 China Canada Mexico ASEAN EU15 Taiwan Japan Korea Hong Kong Rest of World World 145 1,209 578 331 1,174 1,009 162 67 29 299 5,003 2001 5,017 4,411 3,212 1,492 2,309 765 141 75 98 1,081 18,601 2002 6,954 4,423 3,824 1,753 2,321 794 107 75 90 1,219 21,560 2003 8,742 4,551 4,275 1,886 2,489 748 135 69 109 1,289 24,293 2004 10,905 5,007 4,316 2,303 2,491 753 181 68 97 1,557 27,678 2005 13,179 5,126 4,297 2,800 2,371 716 210 111 82 1,691 30,583 Source: U.S. Department of Commerce CRS-33 Travel Goods and Handbags. China has become the principal supplier of imported travel goods, handbags, and similar items, accounting for nearly 75% of U.S. imports of such merchandise in 2005. The EU has become an important supplier while China appears to have taken market shares from South Korea, Taiwan, and, more recently, ASEAN. This U.S. import category is ranked only 42st in total customs value. Figure 16. Imports of Travel Goods, Handbags, and Similar Products (SITC 83) by Country and Group, 19902005 7 $Billions 6 5 Rest of World EU15 ASEAN Taiwan Mexico S. Korea H.Kong 4 3 2 1 China 75% 0 90 91 92 93 94 95 96 97 98 99 2000 1 2 3 4 5 Year Source: U.S. Department of Commerce Table 13. U.S. Imports of Travel Goods, Handbags, (SITC 83) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) 1990 China EU15 ASEAN Hong Kong Mexico Canada Taiwan Korea Japan Rest of World World 692 270 114 50 46 17 406 446 9 121 2,171 2001 2,211 463 836 46 104 39 129 106 7 384 4,325 2002 2,741 476 538 52 87 35 52 56 7 292 4,336 2003 3,136 602 372 85 69 37 79 39 8 233 4,660 2004 3,936 715 340 95 63 35 47 31 12 248 5,522 2005 4,504 790 275 92 54 36 32 21 12 262 6,078 Source: U.S. Department of Commerce CRS-34 Apparel and Clothing. U.S. imports of apparel and clothing accessories from China have been rising, reaching 26% of U.S. imports in 2005. According to some estimates, more than 80% of Chinese apparel exports are produced by joint ventures, many of them involving East Asian investment.37 Global quotas on imported textiles and apparel expired on January 1, 2005, pursuant to the Multi-Fiber Agreement, resulting in a surge in U.S. garment imports from China, which increased by 46% in 2005. Other nations with large gains in the U.S. apparel market were India (up 33%), Indonesia (20%) Bangladesh (20%), and Cambodia (20%). Although wages for low skill labor in China reportedly are rising relative to other developing countries, China's clothing manufacturers retain competitive advantages such as high labor productivity, "vertical integration" -- the ability to produce all manufacturing inputs domestically -- and developed infrastructure. In November 2005, the United States and the PRC signed a three-year agreement on textiles trade which imposes quotas on 21 types of Chinese textiles and clothing but which allows for a progressive increase in U.S. imports of apparel products from China through 2008. Figure 17. U.S. Imports of Apparel and Clothing Accessories (SITC 84) by Country and Group, 1990-2005 80 $Billions 60 Rest of World EU15 40 ASEAN Taiwan Mexico S. Korea H.Kong 20 0 90 91 92 93 94 95 96 97 98 99 2000 1 2 3 4 5 China 26% Canada Year Source: U.S. Department of Commerce Jiang Jingjin, "China Not the Only Beneficiary," China Daily (China Business Weekly), April 5, 2004. 37 CRS-35 Table 14. U.S. Imports of Apparel and Clothing Accessories (SITC 84) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) 1990 China ASEAN Mexico Hong Kong EU15 Canada Korea Taiwan Japan Rest of World World 3,422 3,404 709 3,974 1,790 247 3,244 2,475 158 5,891 25,314 2001 8,852 9,581 8,127 4,282 2,584 1,764 2,354 1,907 170 24,168 63,789 2002 9,538 10,020 7,731 3,928 2,473 1,799 2,206 1,664 205 24,150 63,714 2003 11,341 11,773 7,199 3,760 2,564 1,740 1,925 1,690 252 25,907 68,060 2004 13,567 12,157 6,943 3,919 2,586 1,692 1,936 1,626 325 27,438 72,189 2005 19,888 13,043 6,321 3,553 2,444 1,468 1,253 1,203 121 26,983 76,277 Source: U.S. Department of Commerce Footwear. U.S. imports of footwear from China surged during the 1990s. From $1.5 billion in 1990, they rose to over $10 billion in 2002 or two-thirds of all such imports. China has largely replaced South Korea and Taiwan as the main source of Asian-produced footwear in the United States. Other large suppliers are Italy, Brazil, and Vietnam. Figure 18. U.S. Imports of Footwear (SITC 85) by Country and Group, 1990-2005 20 $Billions 15 Rest of World EU15 ASEAN Mexico 10 Taiwan 5 S. Korea China 70% 0 90 91 92 93 94 95 96 97 98 99 2000 1 2 3 4 5 Year Source: U.S. Department of Commerce CRS-36 Table 15. U.S. Imports of Footwear (SITC 85) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) 1990 China EU15 ASEAN Mexico Canada Taiwan Hong Kong Korea Japan Rest of World World 1,475 1,523 579 165 53 1,528 109 2,558 5 1,543 9,538 2001 9,766 1,950 1,185 311 78 75 81 103 2 1,698 15,249 2002 10,241 1,826 1,237 278 67 73 67 65 2 1,523 15,379 2003 10,546 1,763 1,184 275 64 73 60 50 2 1,542 15,559 2004 11,347 1,722 1,259 242 76 80 86 51 2 1,632 16,497 2005 12,654 1,558 1,525 247 93 69 52 45 3 1,588 17,834 Source: U.S. Department of Commerce CRS-37 Professional, Scientific, and Controlling Instruments. China is a minor supplier of U.S. imports of professional, scientific and controlling instruments, supplying 8% of U.S. imports in this category in 2005. Over two-thirds of such imports originate in the European Union, Mexico, and Japan. Figure 19. U.S. Imports of Professional, Scientific, and Controlling Instruments (SITC 87) by Country and Group, 19902005 35 $Billions 30 Rest of World 25 20 EU15 ASEAN Taiwan Mexico 15 10 Japan 5 0 90 91 92 93 94 95 96 97 98 99 2000 1 2 3 4 5 China 8% Canada Year Source: U.S. Department of Commerce Table 16. U.S. Imports of Professional, Scientific and Controlling Instruments and Apparatus (SITC 87) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) EU15 Mexico Japan China Canada ASEAN Taiwan Korea Hong Kong Rest of World World 1990 2,310 513 1,494 74 527 152 176 89 82 604 6,021 2001 6,887 3,895 3,561 1,172 1,793 1,027 372 152 55 2,287 21,201 2002 6,543 4,436 2,902 1,301 1,575 1,037 393 156 67 2,400 20,810 2003 7,744 5,090 3,177 1,660 1,406 1,139 450 153 70 2,675 23,564 2004 10,225 5,082 4,016 2,176 1,611 1,448 458 177 67 3,101 28,361 2005 10,802 5,371 3,887 2,483 1,833 1,571 472 230 79 3,433 30,161 Source: U.S. Department of Commerce CRS-38 Photographic and Optical Equipment and Timepieces. China is a rising supplier of photographic apparatus, equipment and supplies and optical goods as well as watches and clocks. In 2005, China accounted for 17.5% of U.S. imports of such products. Japan and the European Union still dominate U.S. imports. By country, the top three suppliers of such imports for the United States are Japan, China, and Switzerland. Figure 20. U.S. Imports of Photographic Equipment, Optical Goods, Watches and Clocks (SITC 88) by Country and Group, 1990-2005 Table 17. U.S. Imports of Photographic Apparatus, Equipment and Supplies and Optical Goods; Watches and Clocks (SITC 88) from Selected Countries and Country Groups, 1990, 2001-2005 (millions of dollars) Japan EU15 China ASEAN Mexico Canada Taiwan Hong Kong Korea Rest of World World 1990 2,668 1,619 191 199 128 180 334 526 127 574 6,546 2001 3,848 2,439 1,908 650 648 545 282 236 168 1,348 12,072 2002 3,309 2,535 1,842 664 634 414 288 200 150 1,353 11,389 2003 3,138 2,612 2,001 587 555 461 280 164 134 1,510 11,442 2004 3,140 2,716 2,239 614 665 428 265 182 124 1,797 12,170 2005 3,082 2,807 2,153 646 494 469 258 178 127 2,072 12,286 Source: U.S. Department of Commerce CRS-39 Foreign Direct Investment in China Fueling China's export boom is an unprecedented infusion of foreign capital in the manufacturing sector.38 Foreign direct investment (FDI) is directed toward investments in companies in which the foreign investor has a controlling interest. It is primarily for physical plant and equipment and for the costs of establishing enterprises in China. It is not for portfolio investment on China's stock exchanges. In 2002, China overtook the United States as the world's largest recipient of foreign direct investment. In 2005, China remained in that position, despite a slight decrease from a year earlier, with $60 billion in utilized FDI. The United States is one of the largest sources of utilized FDI in China, investing $3.1 billion in 2005. (See Table 18.) China relies heavily upon investment from Hong Kong and other East Asian countries and regions. A significant amount of FDI from Hong Kong comes from Taiwan or from mainland Chinese companies via their subsidiaries in Hong Kong.39 Annual or utilized FDI from Japan and South Korea surpassed that of the United States in 2003. In 2004, South Korea surpassed Japan to be the third largest source of FDI in China. The United States remains the second largest source of cumulative FDI after Hong Kong. China's WTO commitments include allowing more foreign investment in sectors such as telecommunications, energy, banking, and insurance. Table 18. China's Utilized Foreign Direct Investment Inflows, Top Foreign Investors, 2000-2005 (billions of dollars) Country or Region Hong Kong Virgin Islands40 Japan South Korea United States Singapore Taiwan Germany All Sources 2001 16.7 5.0 4.3 2.1 4.4 2.1 2.9 1.2 46.9 2002 17.8 6.1 4.2 2.7 5.4 2.3 3.9 0.9 52.7 2003 17.7 5.7 5.0 4.5 4.2 2.0 3.4 0.8 53.5 2004 18.9 6.7 5.4 6.2 3.9 2 3.1 1 64 2005 17.1 9.0 6.5 5.2 3.1 2.2 2.1 1.5 60.3 Source: U.S. & Foreign Commercial Service and U.S. Department of State, "Doing Business in China: A Country Commercial Guide for U.S. Companies," 2006. For further discussion of China's economy and foreign investment, see CRS Report RL33534, China's Economic Conditions, by Wayne M. Morrison. Mainland subsidiaries in Hong Kong and Macao can take advantage of investment incentives for foreign companies on the PRC mainland. Many foreign firms, including U.S. companies, are registered in the Virgin Islands, Cayman Islands, and Western Samoa for tax purposes. 40 39 38 CRS-40 Appendix Table A1. China's Merchandise Trade with the World, 1984-2005 (millions of dollars) China's Trade with the World (Chinese data) China China China Exports Imports Balance 24,824 25,953 -1,129 27,329 42,534 -15,205 31,367 43,247 -11,880 39,464 43,222 -3,758 47,663 55,352 -7,689 52,916 59,131 -6,215 62,876 53,915 8,961 71,940 63,855 8,085 85,492 81,843 3,649 91,611 103,552 -11,941 120,822 115,629 5,193 148,892 132,063 16,829 151,093 138,949 12,144 182,917 142,163 40,754 183,744 140,385 43,359 194,932 165,717 29,215 249,212 225,097 24,115 266,200 243,600 22,600 325,642 295,302 30,339 438,472 413,095 25,377 593,647 560,811 32,831 762,326 660,221 102,105 World Trade with China (Partner Country Data) World World World Exports Imports Balance 24,640 26,904 -2,264 38,355 30,867 7,488 36,152 35,310 842 39,250 46,654 -7,404 51,794 59,748 -7,954 51,666 72,810 -21,144 49,036 88,692 -39,656 61,732 112,372 -50,640 81,996 136,853 -54,857 108,406 156,896 -48,490 120,634 191,663 -71,029 145,897 233,614 -87,717 156,200 254,440 -98,240 165,230 286,540 -121,310 152,890 289,620 -136,730 162,650 322,080 -159,430 212,060 398,060 -186,000 221,450 413,280 -191,830 270,930 483,610 -212,680 422,590 601,920 -179,330 527,370 794,480 -267,110 647,690 989,880 -342,190 Year 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Note: Summation of data reported by 109 of China's trading partner countries in 1983 growing to 156 countries reporting in 2005. Sources: Chinese data: PRC General Administration of Customs and Global Trade Atlas. World Data: International Monetary Fund, Direction of Trade Statistics Yearbook and Direction of Trade Statistics Quarterly. CRS-41 Table A2. U.S. Merchandise Trade with China and China's Merchandise Trade with the United States, 1984-2005 (millions of dollars) U.S. Trade with China (U.S. data) U.S. U.S. U.S. Exports Imports Balance 3,004 3,381 -377 3,856 4,224 -368 3,106 5,241 -2,135 3,497 6,910 -3,413 5,017 9,261 -4,244 5,807 12,901 -7,094 4,807 16,296 -11,489 6,287 20,305 -14,018 7,470 27,413 -19,943 8,767 31,183 -22,416 9,287 41,362 -32,075 11,749 48,521 -36,772 11,978 54,409 -42,431 12,805 65,832 -53,027 14,258 75,109 -60,851 13,118 81,786 -68,668 16,253 100,063 -83,810 19,234 102,280 -83,046 22,053 125,167 -103,115 26,806 151,620 -123,960 34,721 196,699 -161,978 41,836 243,462 -201,626 China's Trade with U.S. (Chinese data) China China China Exports Imports Balance 2,313 3,837 -1,524 2,336 5,199 -2,863 2,633 4,718 -2,085 3,030 4,836 -1,806 3,399 6,633 -3,234 4,414 7,864 -3,450 5,314 6,591 -1,277 6,198 8,010 -1,812 8,599 8,903 -304 16,976 10,633 6,343 21,421 13,977 7,444 24,744 16,123 8,621 26,731 16,179 10,552 32,744 16,290 16,454 38,001 16,997 21,004 41,946 19,480 22,466 52,104 22,363 29,741 54,300 26,200 28,100 69,959 27,227 42,731 92,510 33,882 58,628 124,973 44,652 80,321 162,938 48,734 114,204 Chinese data from PRC General Year 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Sources: U.S. data from U.S. Department of Commerce. Administration of Customs and Global Trade Atlas. CRS-42 Table A3. Japan's Merchandise Trade with China and China's Merchandise Trade with Japan, 1984-2005 (millions of dollars) Japan's Trade with China (Japanese Data) Japan Exports 7,199 12,590 9,936 8,337 9,486 8,477 6,145 8,605 11,967 17,353 18,687 21,934 21,827 21,692 20,182 23,450 30,440 30,941 40,001 57,474 73,971 79,972 Japan Imports 5,943 6,534 5,727 7,478 9,861 11,083 12,057 14,248 16,972 20,651 27,569 35,922 40,405 41,827 37,079 43,070 55,340 57,795 61,882 75,579 94,446 108,515 Japan Balance 1,256 6,056 4,209 859 -375 -2,606 -5,912 -5,643 -5,005 -3,298 -8,882 -13,988 -18,578 -20,135 -16,897 -19,620 -24,900 -26,558 -21,881 -18,105 -20,475 -28,543 China's Trade with Japan (Chinese Data) China Exports 5,155 6,091 5,079 6,392 8,046 8,395 9,210 10,252 11,699 15,782 21,490 28,466 30,888 31,820 29,718 32,400 41,611 45,078 48,483 59,453 73,536 84,097 China Imports 8,057 15,178 12,463 10,087 11,062 10,534 7,656 10,032 13,686 23,303 26,319 29,007 29,190 28,990 28,307 33,768 41,520 42,810 53,489 74,204 94,191 100,467 China Balance -2,902 -9,087 -7,384 -3,695 -3,016 -2,139 1,554 220 -1,987 -7,521 -4,829 -541 1,698 2,830 1,411 -1,368 90 2,267 -5,006 -14,751 -20,655 -16,370 Year 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Sources: IMF, Direction of Trade Statistics Quarterly; Global Trade Atlas; PRC, General Administration of Customs. CRS-43 Table A4. European Merchandise Trade with China and China's Merchandise Trade with the European Union, 1984-2005 (millions of dollars) EU-15 Trade with China (EU data) EU Exports 2,929 5,484 6,403 6,430 6,772 7,360 7,373 7,719 9,604 14,301 16,246 19,327 18,387 18,054 19,298 20,326 23,063 26,620 32,208 44,217 57,773 61,894 EU Imports 2,639 2,971 4,106 5,945 7,719 9,877 13,289 18,160 20,995 23,730 27,644 32,333 35,440 42,172 47,005 52,573 64,022 67,634 77,495 108,562 147,111 183,734 EU Balance 290 2,513 2,297 485 -947 -2,517 -5,916 -10,441 -11,391 -9,429 -11,398 -13,006 -17,053 -24,118 -27,707 -32,247 -40,958 -41,025 -45,227 -64,345 -89,338 -121,840 China's Trade with the EU-15 (Chinese Data) China Exports 2,232 2,283 4,017 3,916 4,746 5,114 6,275 7,127 8,004 12,258 15,418 19,258 19,868 23,865 28,148 30,207 38,193 40,904 48,184 72,457 99,843 134,872 China Imports 3,323 6,157 7,757 7,274 8,176 9,785 9,147 9,297 10,863 15,739 18,604 21,313 19,883 19,205 20,715 25,463 30,845 35,723 38,552 53,112 68,011 71,694 China Balance -1,091 -3,874 -3,740 -3,358 -3,430 -4,671 -2,872 -2,170 -2,859 -3,481 -3,186 -2,055 -15 4,660 7,433 4,744 7,348 5,181 9,632 19,345 31,832 63,178 Year 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Note: From 1980-88, data are for the 12 nations of the European Economic Community and after 1988 for the 15 nations of the EU (addition of Austria, Finland, and Sweden). Sources: IMF. Direction of Trade Statistics Yearbook and Direction of Trade Statistics Quarterly; Global Trade Atlas; PRC. General Administration of Customs. CRS-44 Table A5. Major Country Merchandise Exports to China, Imports from China, and Trade Balances with China, 2004 and 2005 (billions of dollars) Trading Partner Data Partner Exp U.S. Japan EU-15 Hong Kong Taiwan S. Korea Germany Singapore U.K. France 34.7 73.9 57.7 114.2 44.9 54.9 26.0 15.4 4.3 6.7 2004 Imp 196.6 94.4 146.7 118.0 16.7 29.2 38.4 16.2 19.1 14.5 Bal -161.9 -20.5 -89.0 -3.8 28.2 25.7 -12.4 -0.8 -14.8 -7.8 Exp 41.8 79.9 61.9 130.3 51.8 69.8 26.4 19.7 5.1 8.0 2005 Imp 243.4 108.5 183.7 135.1 19.9 38.6 49.4 20.5 23.9 17.9 Bal -201.6 -28.5 -121.8 -4.8 31.9 31.2 -23.0 -0.8 -18.8 -9.9 Exp 44.6 94.2 68.0 11.8 64.7 62.0 30.0 14.0 4.7 7.6 2004 Imp 124.9 73.5 99.8 101.0 13.5 27.8 23.7 12.6 14.9 9.9 Bal -80.3 20.7 -31.8 -89.2 51.2 34.2 6.3 1.4 -10.2 -2.3 Exp 48.7 100.4 71.7 12.2 74.6 76.8 30.6 16.5 5.5 9.0 Chinese Data 2005 Imp 162.9 84.1 134.8 124.5 16.7 35.1 32.5 16.7 18.9 11.6 Bal -114.2 16.3 -63.1 -112.3 57.9 41.7 -1.9 -0.2 -13.4 -2.6 Sources: IMF. Direction of Trade Statistics Yearbook and Direction of Trade Statistics Quarterly; Global Trade Atlas; Hong Kong Trade Development Council; Ministry of Economic Affairs, Board of Foreign Trade (Taiwan). CRS-45 Table A6. U.S. Merchandise Trade Balances with Selected Asian Developing Nations, 1984-2005 (millions of dollars) Year 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 China -377 -373 -2,135 -3,422 -4,237 -7,094 -11,488 -14,018 -19,943 -24,927 -32,076 -36,772 -42,431 -53,026 -56,927 -68,668 -83,810 -83,045 -103,115 -123,960 -161,977 -201,625 Indonesia -4,674 -4,152 -2,757 -2,955 -2,438 -2,618 -1,785 -1,675 -1,927 -3,117 -4,209 -4,599 -4,778 -5,222 -7,042 -7,575 -7,839 -7,605 -7,062 -6,999 -8,142 -8,971 S. Korea -4,188 -4,992 -7,588 -10,326 -10,578 -7,115 -4,888 -2,224 -2,732 -3,003 -2,346 523 3,286 1,269 -7,456 -8,308 -12,398 -12,988 -12,979 -12,864 -19,829 -16,109 Malaysia -9983 -936 -807 -1,159 -1,715 -2,052 -2,071 -2,446 -4,144 -4,858 -7,454 -9,162 -9,809 -7,695 -10,043 -12,349 -14,573 -12,956 -13,661 -14,517 -17,288 -23,252 Philippines -913 -959 -805 -898 -1,069 -1,102 -1,151 -1,439 -1,870 -1,646 -2,137 -2,070 -2,372 -3,370 -5,211 -5,153 -5,147 -3,666 -3,715 -2,068 -2,072 -2,355 Taiwan -11,266 -13,295 -16,069 -19,221 -14,314 -14,305 -12,347 -11,038 -10,601 -10,050 -10,864 -10,863 -12,610 -13,331 -14,960 -16,077 -16,134 -15,239 -13,805 -14,111 -12,866 -12,788 Thailand -381 -804 -1,018 -904 -1,739 -2,343 -2,597 -2,693 -3,944 -5,214 -5,938 -5,452 -4,587 -5,699 -8,198 -9,340 -9,747 -8,733 -9,939 -9,338 -11,214 -12,569 Source: U.S. Department of Commerce, International Trade Commission.