Over five decades, trade between the United States and China has grown exponentially to
become fundamental to both countries’ economies. The U.S. relies on China for imports more
than any other country, while China has become one of the largest export markets for American goods and services.
Both sides have benefitted from the relationship – the U.S in the form of lower prices for consumers and higher profits for corporations. But there have also been difficulties, including a loss of U.S. jobs to import competition and accusations of China pressuring American companies to hand over technology.
In recent years, the relationship has become more difficult and taken a turn toward the uncertain. Graham Allison, founding dean of Harvard's Kennedy School of Government, said recently in an interview, "Unfortunately, the relationship has deteriorated to its worst state since Henry Kissinger and Zhou Enlai began their conversations to reestablish relations between the two countries over fifty years ago."
With news of strained U.S.-China relations growing more frequent – calls to restrict or ban Chinese-owned TikTok, a Chinese balloon shot down over U.S. airspace, a close call between ships in the Taiwan Strait — your clients may wonder how we arrived at this point and what may lie ahead.
Here’s a quick picture of U.S.-China business relations.
A tale of two-way sanctions
After years of growing imports from China, former President Donald Trump introduced tariffs on more than $300 billion worth of Chinese goods in 2018. The tariffs were initially driven by concerns that Chinese trade practices forced American companies to handover valuable intellectual property. Beijing retaliated with $100 billion in tariffs on U.S. products.
An aggressive stance toward trade and the desire to move away from Chinese products and supply chains became popular in many quarters in the U.S. In 2020, the phrase “decouple from China” appeared in three times as many articles as in the previous three years combined.
Decoupling, de-risking, destabilizing
While many of the tariffs and restrictions imposed in 2018 remain, many policymakers have adopted terminology that moves away from the concept of “decoupling” and now talk about “de-risking” or “diversifying” the relationship with China.
Treasury Secretary Janet Yellen has said that fully separating from China would be “disastrous.” In a speech, she said the U.S. will assert itself when vital interests are at stake but called for a “constructive and fair” economic relationship between China and the US. “A full separation of our economies would be disastrous for both countries. It would be destabilizing for the rest of the world,” Yellen said.
Impact beyond the U.S. and China
The World Bank has warned that the deepening division between the world’s two biggest economies poses “the most immediate challenge” in the Asia-Pacific region and added that empirical evidence shows “adverse effects of recent restrictions” on companies in China and the U.S., as well as their top trading partners.
In a statement released following the recent Group of Seven (G7) summit meeting in Hiroshima, Japan, the group agreed there’s a need to de-risk, but not decouple, from China while acknowledging Chinese practices that “distort the global economy.”
China’s Foreign Ministry accused G7 leaders of hindering international peace and said, “The massive unilateral sanctions and acts of ‘decoupling’ and disrupting industrial and supply chains make the US the real coercer that politicizes and weaponizes economic and trade relations.”
Tough talk and trade discussions
Even with the tough talk, discussions to stabilize the relationship have continued. This includes a meeting between Chinese commerce minister Wang Wentao and U.S. Commerce Secretary Gina Raimondo. Following the meeting, the Commerce Department said the officials had “candid and substantive” discussions, including on the “overall environment in both countries for trade and investment and areas for potential co-operation.”
Back to business?
Meanwhile, some of America’s most important business leaders have resumed trips to China and are looking to reduce or downplay tensions between the countries. Tesla CEO Elon Musk, JPMorgan CEO Jamie Dimon, and Apple CEO Tim Cock have all made recent trips to China. Cook said in a speech at the annual China Development Forum that China and Apple have a “symbiotic” relationship that both parties have enjoyed.
Through it all, trade between the world’s two leading economies has hit an all-time high. According to numbers from the Commerce Department, two-way trade between the United States and China set a new record in 2022 of $690 billion.
As you follow developments in the U.S.-China trade relationship, FundVisualizer can help by making it easy to evaluate more than 30,000 funds and explore sector exposure, top holdings, and more that may be affected.
Putnam Retail Management.