U.S.-China trade: trends and prospects - includes related article on U.S.-China Joint Commission on Commerce and Trade

Business America, Jan 25, 1993 by Rai-Ruenn Chen

December 1992, outgoing Secretary of Commerce Barbara Hackman Franklin led a presidential mission to China and Hong Kong to focus on trade and commercial issues. A central part of this mission was the reconvening after a four-year hiatus of the U.S.-China Joint Commission on Commerce and Trade which is an important bilateral forum established in 1983 to discuss and resolve trade and investment policy and implementation problems. While in China, the Secretary took the opportunity to advance U.S. commercial interests-including reaffirming the need for China to fully implement recent intellectual property rights and market access agreements; underscoring U.S. concerns over the U.S. trade deficit with China; and confirming specific business projects. The Secretary also forcefully urged the Chinese to loosen foreign exchange restrictions and improve business conditions for foreign firms. The mission was successful in setting a stage for further expansion of U.S.-China trade. This article reviews U.S.-China trade in the past and discusses prospects for the future.

Trade Trends

Total Trade. After a 20-year hiatus, trade between the United States and the People's Republic of China resumed in 1972. Trade has developed rapidly since normalization of diplomatic relations in 1979. Two-way trade increased from $2.3 billion in 1979 to $25.3 billion in 1991, a ten-fold expansion. As a result, China became the United States' ninth largest trading partner, up from 35th in 1979. In the first 11 months of 1992, two-way trade reached $30.3 billion, an increase of 31 percent over the same period in 1991.

U.S. Exports. U.S. exports to China have developed unevenly since 1979. The annual volume fluctuated widely throughout the 1980s, and ranged between $2 billion to $4 billion during 1980-87. The export volume rose to $5 billion in 1988 and $5.8 billion in 1989, declined to $4.8 billion in 1990, and then recovered to $6.3 billion in 1991. In the first 11 months of 1992, U.S. sales to China totaled $6.6 billion, up 16 percent over January-November 1991 levels.

In 1991, China was the 16th largest foreign market for U.S. products and took a 1.5 percent share of U.S. total exports. Chinese statistics indicate that U.S. products made up 12.6 percent of China's imports in 1991, making the United States China's third largest supplier after Hong Kong and Japan.

Fluctuations in American agricultural sales to China and China's economic policy changes were largely responsible for the unstable trends in U.S. export trade with China. Economic readjustment policies in 1982 and 1983 resulted in cutbacks in equipment and machinery imports during that period. Import control measures adopted in 1985 and again in the retrenchment period starting from late 1988 were a major factor in the reduction of U.S. exports to China in 1986 and in 1989.

Agricultural commodities had dominated U.S. exports to China until 1983, when agricultural exports dropped to 25 percent of the total from 58 percent in 1979. The share continued to decline sharply to only 2 percent in 1986, largely because of the vastly improved performance of China's own agricultural sector as well as the Chinese government's desire to diversify the sources of foreign grain supplies. U.S. sales have recovered somewhat since 1987, as Chinese purchases have been facilitated by the U.S. Export Enhancement Program. In recent years, the share of agricultural commodities, consisting primarily of wheat and cotton, in U.S. exports to China have fluctuated between 10 to 25 percent.

Among U.S. non-agricultural exports to China, machinery and transport equipment shipments have risen most dramatically. These shipments totaled only $229 million in 1979, or 13 percent of U.S. total exports to China, but expanded rapidly in the first half of the 1980s to reach $1.94 billion in 1985, or 50 percent of the total. This rapid growth was caused by China's demand for these products to support its modernization program, and by the liberalization of U.S. export control policy toward China. Decentralization of China's foreign trade administration was also a contributing factor.

U.S. exports of machinery and transport equipment to China declined in 1986-88 due to tighter central control over foreign exchange spending, then recovered to 1985 levels in 1989-90 despite China's retrenchment policies. U.S. exports topped $2.5 billion in 1991, or 30 percent larger than in 1990. The ending of a three-year economic retrenchment and improvements in the country's balance of payments position contributed to the increase. Constituting about 40 percent of U.S. total sales to China in 1991-92, machinery and equipment remained the number one export category. The leading exports in this category were aircraft and parts, power generating equipment, specialized industrial machinery, electrical machinery, and automatic data processing machines.

Chemical products have been another major export category. The share of chemicals in U.S. exports to China has risen steadily since 1981, from 11 percent in that year to 21 percent in 1984, to 23 percent in 1987, and to 27 percent in 1991. The leading export items in this product category were fertilizers, plastic resins, and organic chemicals. Other important U.S. export categories included professional and scientific instruments, logs and lumber, pulp and paper, synthetic fibers, and cotton yarn and fabric.