How the US-China economic relationship shapes global trade, investment, and geopolitics.
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Economic and geopolitical interactions between the United States and China define the structure of global trade, technology standards, and security alliances. Transitioning from rapid economic integration after China's 2001 accession to the World Trade Organization, the bilateral relationship now features managed economic decoupling, tariff barriers, and state-backed industrial competition.
Bilateral merchandise trade expanded rapidly for two decades, reaching a record $690.6 billion in 2022. Commercial policy shifted in 2018 when the US imposed tariffs under Section 301 of the Trade Act of 1974, eventually covering approximately $350 billion of Chinese imports with average duties of 19.3%. China retaliated with tariffs on $185 billion of US exports, targeting agricultural commodities and industrial machinery. The Phase One Economic and Trade Agreement signed in January 2020 established structural commitment targets, though structural trade deficits persisted.
Trade friction has expanded into technological containment. The US Department of Commerce placed major Chinese technology firms on the Entity List, restricting access to software and semiconductor manufacturing equipment. Executive Order 14105 established outward investment screening restricting US venture capital in Chinese quantum computing, microelectronics, and artificial intelligence, while enforcement of import tariffs remains central to US trade policy. These policies run alongside complex trade agreements designed to enforce intellectual property protection.
Industrial policy mandates now focus on economic security and supply resilience. The 2022 US CHIPS and Science Act authorized $52.7 billion in subsidies to re-shore advanced semiconductor manufacturing, restricting recipient firms from expanding leading-edge fabrication capacity in China for ten years. Detail on these subsidy races is laid out in global industrial policy race.
Multinational corporations respond by executing "China Plus One" sourcing strategies, relocating factory operations to Vietnam, India, and Mexico. US foreign direct investment into China dropped from $13.5 billion in 2018 to $8.2 billion in 2022, while Chinese holdings of US Treasury securities fell below $850 billion. This shift directly aligns with broader china economic policy, forcing corporations into active supply chain diversification to secure critical inputs in semiconductors.