Trade-Offs and Tensions in
U.S.-China Relations

​​Gerard DiPippoSenior Fellow
Economics Program
CSIS | Center for Strategic &
International Studies

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In U.S.-China Relations

In this installment of the Forum’s international programming, U.S.-China relations were discussed by Gerard DiPippo, who is a Senior Fellow in the Economics Program at the Center for Strategic & International Studies (CSIS). The session focused on the ongoing challenges to reconcile the United States’ business and economic interests with national security concerns given current forecasts of Beijing’s strategic intentions.

​During the Forum session, the Chinese Communist Party was holding its 20th National Congress in Beijing. Mr. DiPippo noted the importance of the CCP meeting, where Chinese President Xi Jinping was consolidating his power and control of the Party.Xi took on an unprecedented third five-year term, appointed his closest allies to positions of power, and ensured that his political thought was integrated into the Party Constitution.

U.S.-China relations are at their worst point since the Tiananmen Square crackdown of 1989, according to Mr. DiPippo. The central contradiction in the U.S.-China relationship is the tension between U.S. economic interests, which benefit from mutual exchanges, and U.S. concerns about China’s global intentions.

​U.S.-China relations are at their worst point since 1989.

Economic Success

Economics are the driving force in the U.S.-China relationship. Mr. DiPippo reviewed some of the history and expectations that have shaped U.S.-China relationships in recent decades. In 2000, when China was admitted to the World Trade Organization (WTO), U.S. officials hoped that integration would enable greater market access and more exports from the U.S. into China, plus access to its substantial labor force. Additionally, the hope was that economic linkages would expedite China’s transition to a market economy, encourage political liberalization in China, and reduce China-Taiwan tensions.

China’s WTO membership benefited both the U.S. and China in some areas, such as: the globalization of trade; the development of just-in-time production; the advent of container ships; and the evolution of the Internet. All were contributors to a surge of Foreign Direct Investment in China.

​U.S. Trade with China (1990-2021)

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In the early 2000s, U.S.-China mutual economic dependency grew, with China serving as a key market for U.S. firms but also a major exporter to the US. China's economy grew more than 10% for the three decades before the 2008 recession. However, in 2005, a slowing economy led Beijing to focus more on “indigenous innovation” and to develop an aggressive techno-industrial policy. In 2008, China blamed the U.S. for the global financial crisis, which showed free-market economies to be at risk and delegitimized the “Western” economic model. China invested a massive, internally focused stimulus to keep the economy afloat, and became the world's biggest exporter in 2009.

In 2019, China’s economy grew at 6.1%, a more sustainable rate. China is now one of the largest economies in the world. When measured by gross domestic product (GDP) and purchasing power parity (PPP), China is the world’s largest economy.

​When measured by gross domestic product (GDP) and purchasing power parity (PPP), China is the world’s largest economy.

Self-sufficiency at Home and Influence Abroad

Hopes for a liberalization of China remain unrealized as it continues to have a single-party authoritarian rule, with power being consolidated under the rule of China Communist Party General Secretary Xi Jinping. His charge was to address rampant corruption and, to this end, the Roadmap to Reform was launched. The Roadmap allows markets to play a decisive role in allocations, as opposed to corrupt exchanges. However, with 25% of the GDP being state-owned enterprises, China is still not a “market-driven” economy.

​World GDP and Exports

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The state also owns the financial sector, and China is making significant investments such as its global-reaching Belt and Road Initiative, pushing to expand its influence abroad in a more assertive foreign policy. Domestically, China’s Innovation Driven Development Strategy (IDDS) makes billions of dollars available in “Government Guidance Funds” to develop domestic industries in order to avoid reliance on foreign technology. The Communist Party is present in all private firms, including many foreign firms that operate in China.

China also is investing in military modernization, not only acquiring new weapons and equipment but also through major expansions of its infrastructure and its ability to project military power. As China builds it military reserves, tensions with Taiwan also grow, and currently are at one of their highest levels. Chinese leaders are committed to “complete reunification” with Taiwan by 2049, though it is not clear if this is a major focus of Xi Jinping’s. However, China’s military build-up and increased live-fire exercises near Taiwan have raised concerns.

​The central contradiction in the U.S.-China relationship is the tension between U.S. economic interests, which benefit from mutual exchanges, and U.S. concerns about China’s global intentions.

Discussion

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Moderated by

Tom Finneran

Sen. Chuck Winder
Senate President Pro Tempore, Idaho
How much U.S. debt does China own? Is that a concern?

Gerard DiPippo
Senior Fellow, Economics Program; CSIS | Center for Strategic & International Studies
China is the second largest holder of U.S. debt (behind Japan), holding $980.8 billion of U.S. Treasury bonds, or 3.2% of the total U.S. debt. In the year ending May 2022, Chinese ownership of U.S. debt dropped 9%. This does not pose a risk to the US.

Tom Finneran (Moderator): What is happening to Jack Ma, the founder of the Chinese e-commerce giant Alibaba, who criticized China’s government during a speech to a global forum?

Mr. DiPippo: Jack Ma’s criticism of the government led to severe repercussions against Mr. Ma, including cancelled contracts and an antitrust probe launched into Alibaba Group Holding. It also led to a crackdown on technology companies, as the Party leadership strives to get consumer technology firms aligned with Party goals. With the U.S. Chips Act imposing export controls on selling high-end microchips to Chinese companies, the Party also is investing in companies with chip manufacturing capabilities.

Sen. Paul Newton
Chair, Senate Finance Committee, North Carolina
Should we be concerned about Chinese Communist Party ownership of U.S. land, particularly around U.S. military bases?

Mr. DiPippo: The U.S. has an investment screening mechanism, where attempts to buy property are reviewed and denied if there is a national security issue. There could be venture capital firms with hidden partners, but this is less likely as Chinese direct investment in the U.S. also is declining. Furthermore, China has other more effective means of surveillance.

Steve Kester
Senior Manager, State Government Affairs (South and Central), Apple Inc.
How much of a threat is China’s challenge to the U.S. economy?

Mr. DiPippo: The U.S. is no longer unrivaled at the top of the economic mountain. There is a new geopolitical reality. However, China’s industrial policies have had mixed results, and they lack a plan for addressing the demographic cliff they are facing. What the U.S. must do is invest in ourselves and in green technologies or fall behind. Immigration also builds the U.S. tech sector and we need to keep importing talent.

For information about Gerard DiPippo’s organization, visit
CSIS | Center for Strategic & International Studies

Presenter Biography

Gerard DiPippo

Senior Fellow, Economics Program
CSIS | Center for Strategic & International Studies

Sam Schaeffer is the Executive Director and Chief Executive Officer of the Center for Employment Opportunities (CEO), a New York-based nonprofit that provides employment services to individuals with criminal convictions. Sam joined CEO in 2009 to replicate the program in jurisdictions beyond New York City. During his tenure, CEO has expanded to 30 cities and counting across the country. Prior to joining CEO, Sam served as Director of Economic Development for U.S. Senator Charles E. Schumer of New York. In that position, he oversaw all job creation and retention efforts; transportation and infrastructure policy; and social welfare policy. Sam has testified before Congress on multiple occasions and speaks and writes regularly on issues including criminal justice, workforce development, and nonprofit effectiveness. Born and raised in New York City, Sam graduated with a B.A. from Reed College, Phi Beta Kappa.

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