The relationship between the United States and China is, as always, both dynamic and difficult. For example, since 1985 we have seen only two declines in the total trade between the two countries, during the debacle of 2009 and in 2016. However, the U.S.-China relationship cannot be captured by this last datum alone. Things are much more complicated than the annual trade summary upon which the pundits and politicians often focus.

The record 2015 U.S. merchandise trade deficit with China in 2015 actually retreated to its 2007 level. Even that datum overstates our trade relationship problem in two ways. First, America continues to sell about $20 billion more services to Chinese customers, than they sell to us – think tourism and education as prominent examples. Our surplus exports in these categories are burgeoning and uncounted in the merchandise trade statistics. Second, that $500 apple iPhone in your pocket and on the import docket is only assembled in China. Most of its parts, labor, and value are actually produced in Japan, South Korea, Germany, and the U.S.

And there’s more to the story about the U.S.-China commercial relationship than the trade deficit – both bad and good news at the start of 2017. Let’s get the bad out of the way.

• As mentioned, two-way trade between the countries declined with lower exports by both
• Energy use and the consequent carbon footprints increased in both countries
• Military spending in China burgeons while America predominates, both disregard domestic welfare
• Chinese holdings of U.S. Treasuries declined sharply, but remain breathtakingly high reflecting that country’s short-term commitment to the commercial relationship and U.S. barriers to Chinese FDI
• Americans’ travel to China (tourism and education abroad) has stalled
•  American students’ interest in learning Chinese is stalling as well
• Americans’ favorability ratings of China have yet to snap back from their steep 2012 decline

Meanwhile:

• We see a slight rise in unemployment in the US, but levels in both countries remain less than 5%
• In the most recent year both countries increased their two-way FDI  
• Chinese are coming to America in exploding numbers for both tourism and education, and they all study English in elementary school
• Life expectancies and consumer purchasing power continue to climb in both countries
• Internet and mobile phone users continue to grow, and both promote peace and prosperity
•  Corruption (bribery and IP piracy) is declining in both, if only marginally
• Perhaps the best news is reflected in the teaming of American and Chinese inventors – the remarkable rise in technological collaboration is reflected by the more than 2000 U.S. patents awarded to such teams in 2016

All the statistics that comprise the Barometer are available as a PowerPoint file for download here.  

Please send your comments and/or feedback to John L. Graham at jgraham@uci.edu.

For additional information CONTACT:

John L. Graham
Professor Emeritus of International Business
The Paul Merage School of Business
John S. & Marilyn Long Institute for U.S.-China Business & Law
University of California, Irvine
949-824-8468