Author: Alejandro Salas
Mentor: Dr. Eric Golson
The Bronx High School of Science
This paper explores the economic and national security implications of United States (US) trade policy with China. It first describes the current US-China relationship, with a focus on China’s ambitions in the South China Sea. It then explores the benefits and downsides of restricting trade with China, specifically focusing on advanced technologies such as semiconductors. Further, the paper explores how the United States’ trade policies with other countries in the region impact US national security with respect to China. Throughout the paper, multiple historical case studies are used to analyze the economic and security implications of the proposed policies. The paper concludes with the recommendation that the United States should use its power to restrict the development of advanced Chinese technology while continuing to trade in other goods with China. It also recommends that the US reduce barriers to trade with other nations, both to strengthen its economy and build relationships beneficial to national security.
Rivalry between states is a concept as old as the concept of states themselves. Before the invention of the atomic weapon, great power rivalry involved large-scale warfare, economic intimidation, and overt threats. Since the Cuban Missile Crisis and the collapse of the USSR in 1991, states have recognized that such tensions must be limited to certain spheres and in ways that ultimately prevent rivalries from turning into wars. However, rivalries still exist. This paper focuses on the increasing tensions between China and the United States (US) as China acts in ways contrary to US interests and security. Economic pressure is increasingly being utilized by the US in order to confront China and decrease the threat it poses to US interests. However, because of the complex nature of global supply chains, any actions the US takes against rivals negatively impacts the US. Recognizing that China is the largest trading partner of the US, the goal of this paper is to articulate the economic policies capable of limiting the threat posed by China while avoiding unnecessary collateral damage; the goal of these policies is to ultimately strengthen the US economy in the long-term, rendering it capable of flourishing despite any damage caused by a confrontation with China.
Status of US-China Relations
The United States has an interest in creating a world where its citizens can participate in global trade based on fair rules. Its main goal in this respect should be creating and maintaining a system based on rules and values that are conducive to trade flourishing. These include ensuring the freedom of navigation, encouraging the free and fair exchange of goods and people between countries, and assisting in the protection of the territorial integrity of other nations so that they can engage in trade. The United States has for many decades worked to implement these goals through international institutions and should continue to further implement these goals. These goals are not shared by all countries, and China in particular has sought to undermine them.
The region of Asia which China seeks to influence is vital for the global economy and for securing the US policy goals mentioned above. The South China Sea, a body of water more than double the size of the Mediterranean Sea, is crucial to the world economy and thus crucial for the health of the US economy. It is estimated that 3.4 trillion dollars of goods pass through the South China Sea every year. In addition, the South China Sea is critical for US allies and trading partners’ supply of energy since more than 80% of the crude oil that goes to South Korea, Japan, and Taiwan passes through the South China Sea.1 Furthermore, 12% of the world’s fish are caught in the sea and there are estimated to be more than 11 billion barrels of oil and 190 trillion cubic feet of natural gas available in the sea.2 One-third of the world’s crude oil and half of its liquefied natural gas passes through this region.3 The island of Taiwan located within the South China Sea produces 65% of the world’s semiconductor chips including over 90% of the most advanced chips crucial for the technology the US and its partners rely on for their economies and militaries. 4
China, in its official public statements and in its actions, has shown itself to be in opposition to US interests. For example, the Chinese Government has openly interfered with the stability of this important trading region vital to US interests and security. China has acted in ways that actively interfere with the US goals mentioned above in order to increase its own regional influence. China has claimed large parts of the South China Sea as its own territorial waters and has taken aggressive measures to interfere with the freedom of the seas. China has built multiple artificial islands in disputed sections of the South China Sea and has built military bases on them as a means to further expand its power in this disputed region. The Chinese military has also sent its forces into the South China Sea to harass and intimidate its neighbors. They have seized islands claimed by other nations, for example, the Scarborough Shoal from the Philippines, in an attempt to assert their dominance in the region. The Chinese have used armed civilian ships, as part of the People’s Armed Forces Maritime Militia (PAFMM), along with other military units to interfere with non-Chinese fishing operations.5 China has also repeatedly attempted to prevent other nations from exploiting oil reserves and other natural resources inside the South China Sea.6 In addition, China does not recognize the sovereignty of Taiwan and claims it as a part of its own country. It has claimed Taiwan is “indispensable for the realization of China’s rejuvenation” and has promised to use force to incorporate Taiwan into China if necessary. China has routinely conducted military drills in Taiwan’s air and water territory and has begun to modernize its military, one of its explicit goals being to force Taiwan under Chinese rule. 7
If China is allowed to grow its power unchecked, it could become a real threat to the United States. However, the United States’ relationship with China is not entirely negative. China is the third largest export market for the United States behind only Mexico and Canada.8 The large Chinese population offers US companies access to one of the largest markets in the world making the US hundreds of billions of dollars every year. The United States also imports hundreds of billions of dollars worth of goods from China including over $120 billion in electronics, over $100 billion in machinery and appliances, and tens of billions more in industries such as textiles, chemicals, metals, rubber, and other products on which the US economy thrives. In 2022, US imports of goods and services from China totaled over $560 billion and S&P 500 companies received more revenue in China than the next three countries combined.9
US Policy Options
The economic and political goals of the United States with respect to China should be to balance the economic opportunities that support large sections of the US economy with the need to preserve a free and open East Asia based on fair rules. The clearest area where China needs to be limited is the technological growth and development of its armed forces. As mentioned in the preceding paragraphs, the Chinese have goals to dominate the larger South Asian region and impose an authoritarian system on it. They have already taken action toward this end. If China’s military is allowed to further strengthen and develop, the Chinese government can take any number of negative actions. The most drastic action China could initiate would be invading the island of Taiwan. If China is unwilling to launch an invasion it could use its military to enforce a naval blockade or no-fly zone surrounding Taiwan. Chinese forces could use their power to further exert control over commercial activities in the South China Sea including oil and gas exploration, internet and communication cables, and fishing. The government could also use its power to pressure or coerce nations into actions that are contrary to the interests of the United States. The United States also has an interest in preventing the growth of Chinese control over its own semi-autonomous regions, such as Hong Kong and Xinjiang, since a stronger internal government allows China to project its power outward.
The United States has many tools available to counter the threats posed by China and to achieve its goal of furthering economic growth and regional stability. Traditional methods like building up US and allied militaries are, to some extent, clearly necessary. However, these actions are expensive and may lead to misinterpretation and unnecessary military escalation. Instead, by utilizing economic tools, the United States can find a middle ground between doing nothing and preparing for war. A two-path approach to economic confrontation is necessary in this case. The first is to take the necessary actions to prevent the growth of the Chinese security apparatus. This can be accomplished primarily by restricting China’s access to advanced technologies. The goal is to ensure that for as long as China remains a threat to US interests, the US and its allies have a strategic advantage over China. While the primary goal is to deter China, in a worst-case scenario that leads to war (especially with a nation that does not have a mutual defense pact with the US), US allies would be able to stand their ground with minimal US involvement. Restricting advanced technology to China will also prevent China from having access to the most advanced tools necessary to control its own population (such as artificial intelligence-powered surveillance). This will make China less internally stable and less confident in its ability to project power abroad. In this respect, general trade sanctions may also be effective, for example, a law passed by the US Congress preventing most imports from the Xinjiang region of China.10 What needs to be analyzed is the economic consequences of these actions and whether they are justified to achieve the stated political ends. China is far from a friend to the US and the US should not seek to appease it, but it would be counterproductive for the US to unnecessarily damage the Chinese economy and by extension its own.
The actions mentioned in the preceding paragraph are existing or potential punitive actions against China. However, there is another side to this coin. Positive relations with other countries, particularly in South East Asia are essential to deterring Chinese aggression against US interests. Creating a freer exchange of goods and people between the United States and other nations can be an effective way to limit Chinese influence. This can include actions such as the expansion of trading blocs such as the aborted Trans-Pacific Partnership (TPP) which did not include China. Unfortunately, the nationalist views of the Trump administration meant the TPP goals were short-lived. Strengthening the economic bonds between the US and other nations is a way to give others a stake in US interests and thus make them more amenable to helping the US defend them. Demonstrating the superiority of a system based on liberal values through free trade deals and loosening immigration restrictions between nations may incentivize them to turn away from the much more authoritarian Chinese model.
Deciding how the United States should work to counter Chinese influence is just as important as determining the areas where the United States should choose to not counter Chinese influence. For instance, as part of China’s Belt and Road initiative, large amounts of public money are being transferred from China into infrastructure projects in many other, mainly underdeveloped, nations. A strong argument can be made that these policies are not in China’s public interest as they necessitate large amounts of debt and taxes for projects that do not provide the necessary returns to cover these expenses. They are therefore detrimental to the health of the economy. China, being a nation strongly influenced by Marxist ideas and a desire for political power, will oftentimes implement policies that are detrimental to its economy. It is important for the US to identify these policies and not take similar actions in the name of countering China.
Analysis of Punitive Actions against China
Actions aimed at crippling the Chinese economy may be necessary to achieve US national security goals, but they need to be targeted and not cause unnecessary damage to the US economy. During the Trump administration, the US began heavily increasing tariffs on multiple countries and industries, with the government specifically targeting China. In large part due to these increased tariffs and Chinese retaliation, multiple US industries and the economy as a whole suffered. One clear negative effect was the decreased US agricultural exports to China. American agricultural exports dropped by over 60% between 2014 and the end of 2018 which led the US government to spend 28 billion dollars of tax money to subsidize the farming industry.11 In addition between 2018 and 2019, US exports to China of petroleum and coal products dropped by 75% and metal exports dropped by over 50%.12 Contrary to the policies implemented above, future actions against China should be limited and serve specific defined goals.
Limiting China’s Access to Semiconductors
The semiconductor industry has been a particular target for US actions. This is because semiconductors are essential in military and security technology. Consequently, in order to weaken China’s ability to effectively exert control over disputed territory, limiting access to semiconductors is essential. The Trump administration began restricting access to semiconductors to major Chinese companies as punishment for violating US national security sanctions on countries such as Iran and North Korea. The Biden administration escalated this effort on October 7th, 2022 by authorizing sweeping restrictions designed to limit Chinese access to foreign advanced semiconductors and stifle Chinese efforts to design and manufacture them themselves. The Biden administration’s policies include expanding the foreign direct product rule which allows the US to control the transfer of technology made with US technology regardless of the country of origin. Given that so many products within the global supply chain are developed in the United States, the new rule prohibits the transfer of a multitude of advanced technologies necessary to manufacture advanced semiconductors. Furthermore, US nationals are now prohibited from assisting Chinese companies in the manufacturing of these semiconductors.13 There are clear national security benefits to these actions. Chinese entities will now have a harder time acquiring advanced technology to transfer to powers much more hostile toward the United States, most notably North Korea and Iran. China itself will no longer have the ability to use Western technology to threaten Western interests and nations. These moves will limit the advancement of Chinese military technology and temporarily, if not permanently, secure the US and its allies’ military superiority in relation to China.14
It is clear that these export restrictions set China and its armed forces back technologically. While for many years it has been a goal for China to increase its domestic production, the government had to balance the goal of producing semiconductors domestically with the fact that foreign semiconductors were by and large more economical.15 The question that remains is whether this setback is permanent or temporary. Even before the October 7th, 2022 export controls, China was investing heavily in onshoring its semiconductor manufacturing, including in 2021 when it is estimated China invested over $50 billion in the industry. Following the Biden administration’s controls, China no longer has to make that choice: the choice has been made for them – China will need to produce all semiconductors domestically.
Following the American sanctions, Chinese intentions are increasingly clear: devote as many resources as possible to creating domestic capacity to design and manufacture advanced semiconductors. However, assuming the US is able to continue to convince its allies that the export controls are in their self-interest which so far it seems to be doing, the Chinese goal is easier said than done. The financial cost itself is staggering. One estimate of the cost to create a fully localized and self-sufficient supply chain for the manufacture of semiconductors is at least one trillion dollars in upfront investments and an increase of semiconductor prices between 35 and 65 percent.16 The financial cost is not the only obstacle in the path of China’s goal.
The global semiconductor industry that has developed over at least the last 70 years is a complex system that includes a multitude of trade secrets, research institutions, and manufacturing facilities spread across many countries and companies. The difficulty of recreating the supply chain, no matter how much investment or corporate espionage, cannot be overstated. As of 2021, the US contributes 39% of the value in the semiconductor supply chain, and US allies in Asia and Europe contribute an additional 53% of the value while China contributes 6% of the value in the supply chain.17 With regard to the most advanced semiconductors, China’s position is even worse; three companies based in the US, South Korea, and Taiwan control virtually all of the world’s advanced semiconductor manufacturing capacity.18 China is advancing in the semiconductor industry, but given the above facts combined with the systematic cutting off of information and technology to China by the US and its allies, it is difficult to imagine a situation where China will obtain superiority over the West in this field.
The Chinese could defeat the export controls by separating the US from its allies. The export controls rely on the cooperation of multiple European and Asian countries such as the Netherlands, Germany, South Korea, and Japan. While all these countries have been victims to varying extents of Chinese economic and political aggression, if China can convince some of these countries to allow the export of their technology, the export control’s effectiveness will be limited. It is important to note that the US need not hold China to the technological level it currently possesses for the controls to be successful. All that needs to occur is that the US and its allies restrict China enough so that by the time it achieves the current technology, continued R&D by Western nations means they will already have more advanced semiconductors. Thus, so long as China remains a threat, the West will remain dominant with regard to advanced semiconductors.
Downside of Export Controls
With the semiconductor example, a compelling argument can be built suggesting export controls are a strong and effective tool for the US to achieve its foreign policy goals; however, they are not consequence-free. Specialization caused by international trade has led to the creation of trillions of dollars in wealth; the disruption of the free flow of goods leads to a decrease in wealth in the same way. It is estimated that every $1 billion of exported US goods supports approximately 6,000 jobs in the United States.19 Approximately 4,500 US jobs are supported by every billion dollars of exported US services.20 The loss of jobs is not the only consequence that should cause policymakers to hesitate before expanding export controls.
The loss of American technological leadership is a potential risk with sanctions: with others developing semiconductor technology, they could create a competitor to American firms by making a better chip. In the late 1990s, the US Congress passed export controls on satellite technology which directly resulted in a loss of $2.4 billion, 19% of the market share, for US companies operating in the commercial communication satellite industry over a three-year period.21 Furthermore, almost one-third of US technology companies divested resources from the research of new satellites subject to US sanctions.22 It is not unreasonable to assume that if the US continues to expand export controls, a similar fate could await the much larger and strategically important US semiconductor industry. The more regulations which are placed on US products, the less favorably they will be looked at by consumers. Companies will naturally begin moving away from US products and toward foreign products that are less controlled. This is not to say that export controls are inherently wrong, and there are ways to limit the damage caused by these regulations. Most importantly, the US needs to ensure that the export controls will actually be effective. The reason that controls on highly advanced and sophisticated Western products and labor can be so effective is that no economically viable alternative exists. As export controls are applied to less sophisticated goods, viable alternatives begin to exist. If export controls restrict the ability of US companies to provide goods to China, which the country could obtain anyway, it actively harms the US while not holding back China. Thus, export controls have to be continuously updated and specifically focused on unique products to ensure they do not cause damage while providing no strategic advantage.
In addition to the economic damage directly caused by sanctions, additional damage is caused by the retaliation they invite. The US sanctions against China have instigated retaliatory measures which will only increase in intensity as the US continues to confront China. One of the more overt acts of retaliation since the October 7th, 2022 export controls were instituted, is the ban of equipment produced by Micron, a US-based semiconductor manufacturer, in a wide range of Chinese products. The ostensible reason given for the ban was that the company failed a cyber security review, but it is widely accepted that the Micron ban is retaliation for US sanctions. Micron sales in China totaled $3.3 billion in 2022, a number which will decrease dramatically in future years as the ban takes effect.23
As tensions escalate with China, more companies will become collateral damage and it will leave US policymakers with a choice: should these firms be compensated as bystanders? A policy could be pursued similar to the billions of tax dollars given to farmers as compensation for the damage the Trump administration’s trade war caused. Alternatively, the US could use the Micron ban and other similar actions as an opportunity to push a narrative that China is an authoritarian regime with arbitrary laws, and companies that engage in business under those conditions do so at their own risk. 24
Possible Retaliation by China
Any US policy has to be viewed in terms of Chinese retaliation: on the spectrum of retaliatory measures China could take is restricting exports of rare earth minerals. China currently controls over 60% of rare earth metal mining and 80% of refining capacity globally; however, China’s position here may not be as strong as it originally may appear.25 Part of the reason China is so dominant in this industry is that other nations have chosen to artificially limit their capabilities for political reasons. However, political priorities can change; between 2010 and 2015, Japan cut its reliance on Chinese rare metals by over 20% in response to China boycotting sales of minerals to Japan over a fishing dispute.26 The United States and its allies have the mineral reserves necessary to weaken Chinese dominance in the industry should they ever make that choice.
There is also a clear risk of runaway retaliation: more radical actions that China can take than those described in the previous paragraph in response to escalating US pressure. One action that could be taken is the voiding of intellectual property rights of foreign entities in China. While the specifics of such an action are difficult to predict, multiple laws and draft laws in Russia provide some clarity into what the Chinese could implement. Following the Russian invasion of Ukraine, the Russian government issued an order eliminating the royalty owed to patent holders from nations Russia viewed as unfriendly.27 Another law waived trademarks for various consumer products heavily targeting computers, clothing, and automobiles. In addition, Russian courts have taken actions to nullify the intellectual property of foreign firms. There have also been other laws drafted weakening intellectual property, for example an order that would legalize piracy of foreign software, a law that would withdraw Russia from the World Trade Organization, and multiple laws limiting or voiding IP protections for firms based in “unfriendly countries.” These laws are at various stages of implementation and some have hit roadblocks within the Russian government, but if China were to pursue actions similar to this, it would have incredibly destabilizing effects for the global economy. There would be a breakdown in international trade cooperation: if such laws were enacted, it would deprive foreign firms of billions of dollars. Furthermore, China uses more intellectual property than it produces; in 2017, over 2.7 times more patents were filed in China by foreign actors than Chinese actors filed in foreign countries.28 In the long-term, this strategy would harm China as much as it harms the rest of the world. China’s expenditure in R&D is increasing rapidly; however, if intellectual property is voided, and assuming nations would not respect the IP of companies that didn’t respect theirs, China will never be able to become a net exporter of intellectual property. Furthermore, nations where China was a net exporter of IP would have little incentive to protect Chinese intellectual property which would further deprive China of funds. Lastly, foreign companies will be deprived of revenue to invest further in intellectual property thus harming China in the long run.
Another form of retaliation China could implement is to restrict the shipping of foreign goods on Chinese ships. China controls approximately 30% of the world’s shipping, and any restrictions placed on it could lead to a global shipping crisis. China could announce a large increase in the fees companies must pay in order to ship foreign goods on Chinese ships or a total ban on the shipment of foreign goods. Both actions would have similar effects varying only in degree. The immediate effects of such an action would be a shortage of ships transporting non-Chinese goods thus resulting in a price increase, and an increase in the supply of ships transporting Chinese goods resulting in a price decrease. The effects of a law like this on China are complicated. The artificially decreased prices of Chinese shipping would lead to an increase in sales of Chinese goods. This would lead to massive short-term gains for the Chinese economy. However, beneath the surface problems begin to arise. The market for shipping Chinese goods would become oversaturated and as shipping prices decreased, multiple Chinese shipping firms would risk bankruptcy. Companies could, in theory, leave China and provide shipping to the rest of the world. However, due to the nature of the Chinese economy and the fact that the shipping firms are owned or strongly influenced by the government, it is unlikely that shipping companies would pursue this action. Ultimately, China would need to significantly subsidize its shipping industry with state funds. In the long run, the rest of the world would build more shipping capacity and prices would begin to drop for non-Chinese goods. China ultimately would be under economic pressure to allow their shipping firms to compete as subsidies become unsustainable and a drag on the rest of the economy.
In sum, there is a wide range of retaliatory actions which China can take. While some initial actions have already been taken, others are more probable and some are much less probable. It is clear that US regulation on semiconductors or Chinese limits on shipping cause economic damage whenever these regulations are promulgated. Both the US and China recognize this to some extent; however, there comes a moment where rational long-term judgment may be abandoned in favor of short-term gain. It is unclear when the actions taken by the US, combined with internal political pressure, will cause the Chinese government to reach that point. The US should enact the necessary regulations to defend its interests and security at the same time; however, the US should not needlessly antagonize the Chinese. Whenever possible, the free exchange of goods and services should be encouraged, and when it is not possible, other positive actions to strengthen trade should be enacted.
Analysis of Positive Actions to Strengthen Trade
The actions discussed above are designed to hold China back in strategically important ways. However, the United States must also take steps to strengthen its economy to ensure it remains an important player in the global system and to mitigate any economic damage caused by the imposition of sanctions and subsequent Chinese retaliation.
Trade is essential to the economy of the United States and strengthening trade with other nations. Attempting where possible to find common ground with China is necessary even as the US moves to economically confront the Chinese government. The main instrument to strengthen trade is trade deals with other nations. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a trade agreement among multiple countries mainly in Asia, but also including Canada, Mexico, and South American countries. The agreement was created after the US withdrew from the prior proposed agreement, the Trans-Pacific Partnership (TTP) which was designed to limit Chinese influence. The TTP was created to further integrate the US with Asia thus increasing US influence relative to China. The US not participating in a trade deal with three out of its top four trading partners in a crucial region of the world does not bode well for US political or economic influence. Contrary to the actions of the US, the Canadian government participated in the trade deal and has seen substantial benefits. Total merchandise trade between Canada and the five signatories that do not have additional trade deals with Canada (Australia, Japan, New Zealand, Singapore, and Vietnam) increased by 10% in the first three years, representing nearly $5 billion.29 Canadian exports to those five countries increased by 8.3% in the same period, and taxable imports increased by 11.2% mainly in consumer products such as clothing and furniture.30 While the agreement has increased trade and wealth, there are some legitimate issues that make the US reluctant to join, including issues relating to intellectual property and state control. The US, as the world’s largest economy, does have leverage in negotiating a favorable entry into the agreement. The US can insist on strengthening protections for intellectual property and currency manipulation similar to those included in the United States-Mexico-Canada trade agreement (USMCA) that was ratified by Congress in 2019. It can also insist on strengthening protections for companies against government interference and increase regulations on state-owned enterprises.31 The US should participate in agreements like CPTPP and others to strengthen its economy and influence, and thus better protect its national interests.
It is important that the US cements its research and development leadership so that it can continue to have control over the most advanced and best technology. For the US to compete and outperform in the global economy, it needs to increase the number of workers in advanced technology areas. By 2030, it is estimated there will be a shortage of 1.4 million workers, such as skilled technicians, engineers, and computer scientists, in technology fields.32 If current trends continue, 58% of semiconductor jobs risk going unfilled by 2030.33 Multiple policies have been proposed, such as increasing the number of resources invested in science education; while these policies warrant debate, it is worth noting that, in addition to causing an increase in taxes and debt, attempting to reform the education system is a long term solution to a current problem.
While some government investment may be necessary, one of the best ways to assist the semiconductor and broader technology industry without sacrificing the rest of the economy is through immigration: at US colleges and universities, over half of the graduates with a master’s degree in engineering are foreigners and over 60% of PhD engineering graduates are foreigners. Approximately 80% of foreigners with a master’s degree and 25% of PhDs in engineering leave the US after graduating. The plurality of foreign students in US universities are Chinese. Instigating an exodus of Chinese tech workers from China would help fill the US worker shortage while depriving China of skilled engineers necessary for the development of strategic technology. A model can be found in the US approach to Cuba during the reign of Fidel Castro. Several factors increased immigration from Cuba: an authoritarian regime had already incentivized many to flee the country, the US put economic pressure on an already fragile communist economy, and the US incentivized the migration of Cubans by making it easier for them to obtain permanent residency, among other actions.34 A more limited, but still effective, policy can be pursued with regard to China. China too is an authoritarian regime that naturally makes many people predisposed to leaving. In the case of Cuba, sanctions were implemented on goods from a variety of sectors further fueling the exodus. In the case of China, limited sanctions on the technology sector would restrict the growth of that industry and thus further incentivize an exodus of Chinese tech workers to the US. This can be done with an action similar to the Cuban Medical Professional Parole Program that specifically incentivized a wide range of Cuban medical professionals and their families to come to the US. Another option would be to announce increased incentives for tech workers to enter the US from any nation, understanding that a large portion of those would be Chinese for the reasons mentioned above. While other actions such as export controls would harm China, such actions also deal damage to the US, while increasing immigration from China would actually be a benefit to the US and should be pursued more aggressively.
While the United States should join multilateral trade agreements and increase immigration, long-term strategy suggests that the United States should also engage with China directly on issues where both sides can find some common ground. It is worth reiterating that China is the largest trading partner of the US and both countries benefit from the relationship. If the US limits its coercive actions to measures which are necessary to defend national security and the property of US companies, there is still billions of dollars of trade to be done between China and the US. In 2022, US exports to China rose by 12.4% compared to the previous year, to a total of $35 billion. Between the years 2018 and 2022, there was an over 400% increase in US agricultural exports to China. In addition, US imports of everyday consumer items such as furniture, toys, paint, and other manufactured products increased to a total of $69.4 billion in 2022 constituting 50.7% of total US imports of those product categories. Demand for Chinese textiles in the US also increased by 6.7% to $53.7 billion representing almost 30% of total US imports in that sector.35
The US will also become less dependent on China in time. As more countries are industrializing, the ratio of Chinese exports to the US compared to total exports has been declining even as the amount of Chinese exports to the US has risen. For instance, the total amount of miscellaneous manufactured goods imported from China between 2018 and 2022 increased by $4.5 billion even as the share of US imports from China in that sector decreased by nearly ten percent. The world is diversifying away from China in some ways but the evidence is unequivocal that there is still demand for Chinese products in the United States and there is also Chinese demand for American exports. 36
Political Obstacles to Policy Options
The United States government ultimately relies on the consent of its citizens in order to carry out its foreign policy. Many of the policies proposed in this paper lead to increased economic growth and prosperity for large numbers of Americans and thus can, in all likelihood, be implemented without substantial backlash. However, some of the actions proposed will inevitably result in negative economic consequences for Americans. Currently, China has not taken actions that seriously threaten the way of life of most Americans, and thus targeted sanctions against the Chinese regime can be instituted. These sanctions limit the Chinese’s ability to commit acts of aggression and, due to their targeted nature, allow most Americans to suffer relatively minor economic damage. However, should China choose to escalate matters through further aggressive actions, for example through an incursion into Taiwan’s outlying islands or a blockade of that nation, further US action may be necessary. An effective response to such an escalation would need to involve broad sanctions aimed at crippling the entire economy of China. Such a response would result in significant economic damage to US citizens.
The question is, in such a circumstance, how much damage should the US be willing to accept in order to limit China’s aggression? If, as soon as such an escalation is made against Taiwan, a forceful response is not implemented, China will be further emboldened which will only fuel its aggression. Given the stakes involved, the ideal response would be a complete cessation of all trade with China thus breaking its economy and its war machine. Such a response would not be undertaken for altruistic purposes; on the contrary, as mentioned before, the US has a strong self-interest in deterring Chinese aggression. The only limitation to a policy of complete secession of trade would be the will of the American people; it is unclear if Americans would be willing to endure higher prices and declining living standards. This is one of the most important reasons to take positive actions to increase the wealth of the US economy; a wealthier population will be more amenable to accepting short-term economic losses in order to preserve their nation’s national security.
While there will be some rivalry between the US and China due to their strong economic and political differences, as this paper has suggested, the goal is to confront China and strengthen the United States to prevent unnecessary damage in both the economic and military realms. As this paper has detailed, in order to defend US interests from Chinese aggression, two simultaneous approaches should be taken. The first is punitive measures against Chinese strategic technology: most notably, advanced semiconductors for military technologies such as advanced surveillance technology for warships and hypersonic missiles. The second is increasing positive actions which can strengthen the US economy. This includes increasing trade with other nations and increasing immigration, especially in important sectors such as semiconductors and the wider technology sector. It is necessary to take both actions to maintain economic pressure on China. In order to limit the damage to the US economy, the US should trade with China in fields not related to national security while limiting its growth in the field of advanced technology.
- O’Rourke, Ronald. “U.S.-China Strategic Competition in South and East China Seas .” Congressional Research Service , 2023. https://sgp.fas.org/crs/row/R42784.pdf
- “Territorial Disputes in the South China Sea | Global Conflict Tracker,” Council on Foreign Relations, 2023, https://www.cfr.org/globa “The South China Sea Is an Important World Energy Trade Route.” Homepage – U.S. Energy l-conflict-tracker/conflict/territorial-disputes-south-china-sea.
- Information Administration (EIA), 2013. https://www.eia.gov/todayinenergy/detail.php?id=10671.
- “Territorial Disputes in the South China Sea | Global Conflict Tracker,” Council on Foreign Relations, 2023, https://www.cfr.org/global-conflict-tracker/conflict/territorial-disputes-south-china-sea.
- Francis, Robert, and Roswell Lary . “Winning the Public Diplomacy Battle in the South China Sea.” Council on Foreign Relations, 2021. https://www.cfr.org/blog/winning-public-diplomacy-battle-south-china-sea.
- “Timeline: China’s Maritime Disputes.” Council on Foreign Relations. Accessed August 14, 2023. https://www.cfr.org/timeline/chinas-maritime-disputes.
- “Territorial Disputes in the South China Sea | Global Conflict Tracker,” Council on Foreign Relations, 2023, https://www.cfr.org/global-conflict-tracker/conflict/territorial-disputes-south-china-sea.
- Berman, Noah. “The Contentious u.s.-China Trade Relationship.” Council on Foreign Relations, 2022. https://www.cfr.org/backgrounder/contentious-us-china-trade-relationship.
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