• President Trump has threatened and imposed a variety of new tariffs for his second term in office, from universal baseline tariffs to country-specific tariffs.
• We estimate that the imposed tariffs on China would reduce long-run GDP by 0.1 percent, the proposed tariffs on Canada and Mexico by 0.3 percent, the proposed expansion of steel and aluminum tariffs by less than 0.05 percent, and the proposed tariffs on motor vehicles and motor vehicle parts by 0.1 percent—before accounting for foreign retaliation.
• The first Trump administration imposed tariffs on thousands of products valued at approximately $380 billion in 2018 and 2019, amounting to one of the largest tax increases in decades.
• The Biden administration kept most of the Trump administration tariffs in place, and in May 2024, announced tariff hikes on an additional $18 billion of Chinese goods, including semiconductors and electric vehicles.
• We estimate the 2018-2019 trade war tariffs imposed by Trump and retained by Biden reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs.
• Academic and governmental studies find the Trump-Biden tariffs have raised prices and reduced output and employment, producing a net negative impact on the US economy.

2025 Trade War Timeline

President Trump signed an executive order on January 20, 2025, instructing certain cabinet secretaries to develop reports on trade practices and recommendations for tariffs due by April 1, 2025. Since then, several new tariffs and tariff investigations have been threatened, initiated, and/or imposed.

Country-Specific Tariffs:

• Canada, Mexico, China: President Trump signed three executive orders on February 1, 2025, to impose tariffs on Canada, Mexico, and China using International Emergency Economic Powers Act (IIEPA) authority. The 10 percent tariffs on all imports from China took effect on February 4, 2025. The tariffs on Canada and Mexico received a 30-day suspension and are scheduled to take effect March 4. On February 27, Trump said the tariffs on China will increase by another 10 percent beginning March 4.
• China Retaliation: China announced retaliation on about $13.9 billion worth of US exports at rates of 10 percent and 15 percent which took effect on February 10.
• Reciprocal Tariffs: President Trump signed a presidential memorandum on February 13, 2025, to develop a plan for increasing US tariffs in response to other countries’ tariffs, tax policies, and any other policies including exchange rates and unfair practices. The recommendations are due April 1, 2025.
• European Union: President Trump announced plans on February 26, 2025, to impose tariffs of 25 percent on imports from the European Union. The authority to impose these tariffs has not been specified.

Product Specific Tariffs:

• Steel and Aluminum: President Trump signed two proclamations on February 10, 2025, to expandthe existing Section 232 tariffs on steel and aluminum. The orders end all existing exemptions for the tariffs, expand the list of derivative articles, and raise the tariff rate on aluminum from 10 percent to 25 percent. The changes are scheduled to take effect March 12, 2025.
• Autos: President Trump announced on February 14, 2025, that he plans to impose tariffs on auto imports beginning on April 2, 2025. He said on February 18 the rate on autos would be “in the neighborhood of 25 percent” while the rates on semiconductors and pharmaceuticals would be “25 percent and higher.” The authority to impose these tariffs has not been specified.
• Copper: President Trump directed the Commerce Department on February 25, 2025, to begin a Section 232 national security investigation for copper imports; the findings of the report are due by November 22, 2025.
• Semiconductors and Pharmaceuticals: President Trump said on January 27, 2025, he would announce new tariffs on computer chips, semiconductors, and pharmaceuticals. On February 18 he announced the rates on semiconductors and pharmaceuticals would be “25 percent and higher.” The authority to impose these tariffs has not been specified.

2025 Trump Tariffs: Economic Effects

President Trump has imposed and threatened a variety of tariffs. We model the following policies:

• A 20 percent tariff on all imports from China and ending de minimis treatment of all imports from China.
• A 25 percent tariff on all imports from Mexico.
• A 25 percent tariff on all imports from Canada (excluding energy resources under HTS codes 2709, 2710, 2711, and 2716, which face a 10 percent tariff).
• A 25 percent tariff on all imports from the European Union.
• Expansions to the Section 232 steel and aluminum tariffs
  • Ending the country exemptions for the existing steel and steel derivatives tariffs, which increases imports subject to the tariffs from $5.5 billion to $34.6 billion (excluding interactions with tariff rate quotas)
  • Ending the country exemptions for the existing aluminum and aluminum derivatives tariffs, which increases imports subject to the tariffs from $6.1 billion to $18.5 billion (excluding interactions with tariff rate quotas)
  • Increasing the tariff rate on aluminum and aluminum derivatives from 10 percent to 25 percent
  • Expanding the steel and aluminum derivatives list to other steel and aluminum derivative articles, which increases steel imports subject to tariffs by $38.1 billion and aluminum imports by $6.2 billion
  • Excluding the expanded articles outside chapters 73 and 76 (Note: We exclude due to lack of data on the steel and aluminum content of these products. The excluded imports totaled $99.8 billion in 2023; however, the tariffs would not apply to the full import value. For example, the tariffs would apply to the metals content of tennis rackets, fishing reels, and some types of furniture.)

• A 25 percent tariff on autos, which we illustrate by applying the tariff to imports of motor vehicles and motor vehicle parts under HTS codes 8703 (valued at $224.4 billion in 2024) and 8708 (including, where possible, parts related to 8703 only, valued at $61.8 billion in 2024).
• Tax Foundation will model additional tariff proposals when more details become available.

We estimate that before accounting for any foreign retaliation, the tariffs on Canada, Mexico, China, and motor vehicles would each reduce US economic output by 0.1 percent; the tariffs on the European Union would reduce US economic output by 0.2 percent; and the expansion of the steel and aluminum tariffs would reduce US economic output by less than 0.05 percent.

China has announced it will impose retaliatory tariffs on about $13.9 billion worth of US exports effective February 10. Certain US exports of coal and liquefied natural gas (totaling $3.2 billion in 2024) will face a 15 percent tariff, while exports of oil, agricultural machinery, and large motor vehicles (totaling $10.7 billion in 2024) will face a 10 percent tariff. Because the retaliatory tariffs are currently limited, we do not model their macroeconomic or revenue effects.

If imposed on a permanent basis, the tariffs would increase tax revenue for the federal government. We have modeled each tariff in isolation; however, if tariffs are imposed together, and tariff rates stack on top of existing tariffs, the revenue raised would be lower as imports would fall by a greater amount. Revenue is lower on a dynamic basis, a reflection of the negative effect tariffs have on US economic output, which reduces incomes and resulting tax revenues. Revenue would fall more if foreign countries retaliated, as retaliation would cause US output and incomes to shrink further.

We estimate the following 10-year conventional and dynamic revenue effects:

• China Tariffs: $373.8 billion conventional, $323.1 billion dynamic
• Canada Tariffs: $470.6 billion conventional, $406.6 billion dynamic
• Mexico Tariffs: $662.6 billion conventional, $572.4 billion dynamic
• European Union Tariffs: $786.3 billion conventional, $679.2 billion dynamic
• Expanded Steel and Aluminum Tariffs: $123.9 billion conventional, $123.5 billion dynamic
• Motor Vehicle and Parts Tariffs: $404.7 billion conventional, $349.8 billion dynamic

To estimate ending de minimis treatment, we rely on Congressional Research Service (CRS) estimates that de minimis imports from China totaled nearly $45 billion in fiscal year 2021. We use CRS data to construct a baseline of de minimis imports from China and assume that most de minimis imports would face the existing Section 301 tariff rate of 7.5 percent. We assume a higher elasticity for ending de minimis (-1.5) than we do for our broader tariff modeling.

Altogether, the tariffs would reduce after-tax incomes by an average of 1.7 percent in 2026. Factoring in how incomes would shrink further on a dynamic basis as tariffs reduce US economic output, we estimate after-tax incomes would fall by 2.2 percent.

We estimate the average tariff rate on all imports would rise from its baseline level of 2.5 percent in 2024 to 13.8 percent if all the tariffs President Trump has proposed as of February 27, 2025, were imposed. The average tariff rate on all imports under Trump’s proposed tariffs would be the highest since 1939.

2024 Campaign Proposals

Tariffs featured heavily in the 2024 presidential campaign as candidate Trump proposed a new 10 percent to 20 percent universal tariff on all imports, a 60 percent tariff on all imports from China, higher tariffs on EVs from China or across the board, 25 percent tariffs on Canada and Mexico, and 10 percent tariffs on China.

We estimate Trump’s proposed 20 percent universal tariffs and an additional 50 percent tariff on China to reach 60 percent would reduce long-run economic output by 1.3 percent before any foreign retaliation. They would increase federal tax revenues by $3.8 trillion ($3.1 trillion on a dynamic basis before retaliation) from 2025 through 2034.

2018-2019 Trade War: Economic Effects of Imposed and Retaliatory Tariffs

Using the Tax Foundation’s General Equilibrium Model, we estimate the Trump-Biden Section 301 and Section 232 tariffs will reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and hours worked by 142,000 full-time equivalent jobs. The reason tariffs have no impact on pre-tax wages in our estimates is that, in the long run, the capital stock shrinks in proportion to the reduction in hours worked, so that the capital-to-labor ratio, and thus the level of wages, remains unchanged. Removing the tariffs would boost GDP and employment, as Tax Foundation estimates have shown for the Section 232 steel and aluminum tariffs.

We estimate the retaliatory tariffs stemming from Section 232 and Section 301 actions total approximately $13.2 billion in tariff revenues. Retaliatory tariffs are imposed by foreign governments on their country’s importers. While they are not direct taxes on US exports, they raise the after-tax price of US goods in foreign jurisdictions, making them less competitively priced in foreign markets. We estimate the retaliatory tariffs will reduce US GDP and the capital stock by less than 0.05 percent and reduce full-time employment by 27,000 full-time equivalent jobs. Unlike the tariffs imposed by the United States, which raise federal revenue, tariffs imposed by foreign jurisdictions raise no revenue for the US but result in lower US output.

Tariff Revenue Collections Under the Trump-Biden Tariffs

As of the end of 2024, the trade war tariffs have generated more than $264 billion of higher customs duties collected for the US government from US importers. Of that total, $89 billion, or about 34 percent, was collected during the Trump administration, while the remaining $175 billion, or about 64 percent, was collected during the Biden administration.

Before accounting for behavioral effects, the $79 billion in higher tariffs amount to an average annual tax increase on US households of $625. Based on actual revenue collections data, trade war tariffs have directly increased tax collections by $200 to $300 annually per US household, on average. The actual cost to households is higher than both the $600 estimate before behavioral effects and the $200 to $300 after, because neither accounts for lower incomes as tariffs shrink output, nor the loss in consumer choice as people switch to alternatives that do not face tariffs.

Historical Evidence: Tariffs Raise Prices and Reduce Economic Growth

Economists generally agree free trade increases the level of economic output and income, while conversely, trade barriers reduce economic output and income. Historical evidence shows tariffs raise prices and reduce available quantities of goods and services for US businesses and consumers, resulting in lower income, reduced employment, and lower economic output.

Tariffs could reduce US output through a few channels. One possibility is a tariff may be passed on to producers and consumers in the form of higher prices. Tariffs can raise the cost of parts and materials, which would raise the price of goods using those inputs and reduce private sector output. This would result in lower incomes for both owners of capital and workers. Similarly, higher consumer prices due to tariffs would reduce the after-tax value of both labor and capital income. Because higher prices would reduce the return to labor and capital, they would incentivize Americans to work and invest less, leading to lower output.

Alternatively, the US dollar may appreciate in response to tariffs, offsetting the potential price increase for US consumers. The more valuable dollar, however, would make it more difficult for exporters to sell their goods on the global market, resulting in lower revenues for exporters. This would also result in lower US output and incomes for both workers and owners of capital, reducing incentives for work and investment and leading to a smaller economy.

Many economists have evaluated the consequences of the trade war tariffs on the American economy, with results suggesting the tariffs have raised prices and lowered economic output and employment since the start of the trade war in 2018.

• A February 2018 analysis by economists Kadee Russ and Lydia Cox found that steel‐​consuming jobs outnumber steel‐​producing jobs 80 to 1, indicating greater job losses from steel tariffs than job gains.
• A March 2018 Chicago Booth survey of 43 economic experts revealed that 0 percent thought a US tariff on steel and aluminum would improve Americans’ welfare.
• An August 2018 analysis from economists at the Federal Reserve Bank of New York warned the Trump administration’s intent to use tariffs to narrow the trade deficit would reduce imports and US exports, resulting in little to no change in the trade deficit.
• A March 2019 National Bureau of Economic Research study conducted by Pablo D. Fajgelbaum and others found that the trade war tariffs did not lower the before-duties import prices of Chinese goods, resulting in US importers taking on the entire burden of import duties in the form of higher after-duty prices.
• An April 2019 University of Chicago study conducted by Aaron Flaaen, Ali Hortacsu, and Felix Tintelnot found that after the Trump administration imposed tariffs on washing machines, washer prices increased by $86 per unit and dryer prices increased by $92 per unit, due to package deals, ultimately resulting in an aggregate increase in consumer costs of over $1.5 billion.
• An April 2019 research publication from the International Monetary Fund used a range of general equilibrium models to estimate the effects of a 25 percent increase in tariffs on all trade between China and the US, and each model estimated that the higher tariffs would bring both countries significant economic losses.
• An October 2019 study by Alberto Cavallo and coauthors found tariffs on imports from China were almost fully passed through to US import prices but only partially to retail consumers, implying some businesses absorbed the higher tariffs, reducing retail margins, instead of passing them on to retail consumers.
• In December 2019, Federal Reserve economists Aaron Flaaen and Justin Pierce found a net decrease in manufacturing employment due to the tariffs, suggesting that the benefit of increased production in protected industries was outweighed by the consequences of rising input costs and retaliatory tariffs.
• A February 2020 paper from economists Kyle Handley, Fariha Kamal, and Ryan Monarch estimated the 2018–2019 import tariffs were equivalent to a 2 percent tariff on all US exports.
• A December 2021 review of the data and methods used to estimate the trade war effects through 2021, by Pablo Fajgelbaum and Amit Khandelwal, concluded that “US consumers of imported goods have borne the brunt of the tariffs through higher prices, and that the trade war has lowered aggregate real income in both the US and China, although not by large magnitudes relative to GDP.”
• A January 2022 study from the US Department of Agriculture estimated the direct export losses from the retaliatory tariffs totaled $27 billion from 2018 through the end of 2019.
• A May 2023 United States International Trade Commission report from Peter Herman and others found evidence for near complete pass-through of the steel, aluminum, and Chinese tariffs to US prices. It also found an estimated $2.8 billion production increase in industries protected by the steel and aluminum tariffs was met with a $3.4 billion production decrease in downstream industries affected by higher input prices.
• A January 2024 International Monetary Fund paper found that unexpected tariff shocks tend to reduce imports more than exports, leading to slight decreases in the trade deficit at the expense of persistent gross domestic product losses—for example, the study estimates reversing the 2018–2019 tariffs would increase US output by 4 percent over three years.
• A January 2024 study by David Autor and others concludes that the 2018–2019 tariffs failed to provide economic help to the heartland: import tariffs had “neither a sizable nor significant effect on US employment in regions with newly‐​protected sectors” and foreign retaliation “by contrast had clear negative employment impacts, particularly in agriculture.”

2018-2019 Trade War Timeline

The Trump administration imposed several rounds of tariffs on steel, aluminum, washing machines, solar panels, and goods from China, affecting more than $380 billion worth of trade at the time of implementation and amounting to a tax increase of nearly $80 billion. The Biden administration maintained most tariffs, except for the suspension of certain tariffs on imports from the European Union, the replacement of tariffs with tariff-rate quotas (TRQs) on steel and aluminum from the European Union and United Kingdom and imports of steel from Japan, and the expiration of the tariffs on washing machines after a two-year extension. In May 2024, the Biden administration announced additional tariffs on $18 billion of Chinese goods for a tax increase of $3.6 billion.

Altogether, the trade war policies currently in place add up to $79 billion in tariffs based on trade levels at the time of tariff implementation. Note the total revenue generated will be less than our static estimate because tariffs reduce the volume of imports and are subject to evasion and avoidance (which directly lowers tariff revenues) and they reduce real income (which lowers other tax revenues).

Section 232, Steel and Aluminum

In March 2018, President Trump announced the administration would impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. The value of imported steel totaled $29.4 billion, and the value of imported aluminum totaled $17.6 billion in 2018. Based on 2018 levels, the steel tariffs would have amounted to $9 billion and the aluminum tariffs to $1.8 billion. Several countries, however, have been excluded from the tariffs.

In early 2018, the US reached agreements to permanently exclude Australia from steel and aluminum tariffs, use quotas for steel imports from Brazil and South Korea, and use quotas for steel and aluminum imports from Argentina.

In May 2019, President Trump announced that the US was lifting tariffs on steel and aluminum from Canada and Mexico.

In 2020, President Trump expanded the scope of steel and aluminum tariffs to cover certain derivative products, totaling approximately $0.8 billion based on 2018 import levels.

In August 2020, President Trump announced that the US was reimposing tariffs on aluminum imports from Canada. The US imported approximately $2.5 billion worth of non-alloyed unwrought aluminum, resulting in a $0.25 billion tax increase. About a month later, the US eliminated the 10 percent tariff on Canadian aluminum that had just been reimposed.

In 2021 and 2022, the Biden administration reached deals to replace certain steel and aluminum tariffs with tariff rate quota systems, whereby certain levels of imports will not face tariffs, but imports above the thresholds will. TRQs for the European Union took effect on January 1, 2022; TRQs for Japantook effect on April 1, 2022; and TRQs for the UK took effect on June 1, 2022. Though the agreements on steel and aluminum tariffs will reduce the cost of tariffs paid by some US businesses, a quota system similarly leads to higher prices, and further, retaining tariffs at the margin continues the negative economic impact of the previous tariff policy.

Tariffs on steel, aluminum, and derivative goods currently account for $2.7 billion of the $79 billion in tariffs, based on initial import values. Current retaliation against Section 232 steel and aluminum tariffs targets more than $6 billion worth of American products for an estimated total tax of approximately $1.6 billion.

Section 301, Chinese Products

Under the Trump administration, the United States Trade Representative began an investigation of China in August 2017, which culminated in a March 2018 report that found China was conducting unfair trade practices.

In March 2018, President Trump announced tariffs on up to $60 billion of imports from China. The administration soon published a list of about $50 billion worth of Chinese products to be subject to a new 25 percent tariff. The first tariffs began July 6, 2018, on $34 billion worth of Chinese imports, while tariffs on the remaining $16 billion went into effect August 23, 2018. These tariffs amount to a $12.5 billion tax increase.

In September 2018, the Trump administration imposed another round of Section 301 tariffs—10 percent on $200 billion worth of goods from China, amounting to a $20 billion tax increase.

In May 2019, the 10 percent tariffs increased to 25 percent, amounting to a $30 billion increase. That increase had been scheduled to take effect beginning in January 2019, but was delayed.

In August 2019, the Trump administration announced plans to impose a 10 percent tariff on approximately $300 billion worth of additional Chinese goods beginning on September 1, 2019, but soon followed with an announcement of schedule changes and certain exemptions.

In August 2019, the Trump administration decided that 4a tariffs would be 15 percent rather than the previously announced 10 percent, a $5.6 billion tax increase.

In September 2019, the Trump administration imposed “List 4a,” a 15 percent tariff on $112 billion of imports, an $11 billion tax increase. They announced plans for tariffs on the remaining $160 billion to take effect on December 15, 2019.

In December 2019, the administration reached a “Phase One” trade deal with China and agreed to postpone indefinitely the stage 4b tariffs of 15 percent on approximately $160 billion worth of goods that were scheduled to take effect December 15 and to reduce the stage 4a tariffs from 15 percent to 7.5 percent in January 2020, reducing tariff revenues by $8.4 billion.

In May 2024, the Biden administration published its required statutory review of the Section 301 tariffs, deciding to retain them and impose higher rates on $18 billion worth of goods. The new tariff rates range from 25 to 100 percent on semiconductors, steel and aluminum products, electric vehicles, batteries and battery parts, natural raphite and other critical materials, medical goods, magnets, cranes, and solar cells. Some of the tariff increases go into effect immediately, while others are scheduled for 2025 or 2026. Based on 2023 import values, the increases will add $3.6 billion in new taxes.

Section 301 tariffs on China currently account for $77 billion of the $79 billion in tariffs, based on initial import values. China has responded to the United States’ Section 301 tariffs with several rounds of tariffs on more than $106 billion worth of US goods, for an estimated tax of nearly $11.6 billion.

WTO Dispute, European Union

In October 2019, the United States won a nearly 15-year-long World Trade Organization (WTO) dispute against the European Union. The WTO ruling authorized the United States to impose tariffs of up to 100 percent on $7.5 billion worth of EU goods. Beginning October 18, 2019, tariffs of 10 percent were to be applied on aircraft and 25 percent on agricultural and other products.

In summer 2021, the Biden administration reached an agreement to suspend the tariffs on the European Union for five years.

Section 201, Solar Panels and Washing Machines

In January 2018, the Trump administration announced it would begin imposing tariffs on washing machine imports for three years and solar cell and module imports for four years as the result of a Section 201 investigation.

In 2021, the Trump administration extended the washing machine tariffs for two years through February 2023, and they have now expired.

In 2022, the Biden administration extended the solar panel tariffs for four years, though later provided temporary two-year exemptions for imports from four Southeast Asian nations beginning in 2022, which account for a significant share of solar panel imports.

In 2024, the Biden administration removed separate exemptions for bifacial solar panels from the Section 201 tariffs. Additionally, the temporary two-year exemptions expired and the Biden administration is further investigating solar panel imports from the four Southeast Asian nations for additional tariffs.

We estimate the solar cell and module tariffs amounted to a $0.2 billion tax increase based on 2018 import values and quantities, while the washing machine tariffs amounted to a $0.4 billion tax increase based on 2018 import values and quantities.

We exclude the tariffs from our tariff totals given the broad exemptions and small magnitudes.

Trade Volumes Since Tariffs Were Imposed

Since the tariffs were imposed, imports of affected goods have fallen, even before the onset of the COVID-19 pandemic. Some of the biggest drops are the result of decreased trade with China, as affected imports decreased significantly after the tariffs and still remain below their pre-trade war levels. Even though trade with China fell after the imposition of tariffs, it did not fundamentally alter the overall balance of trade, as the reduction in trade with China was diverted to increased trade with other countries.

To read the full research article as it appears on the Tax Foundation website, click here.

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Introduction

On January 20, 2025, the first day of his second term, President Donald Trump sought to delay enforcement of a 2024 law that banned distribution of the popular Chinese-owned social media app TikTok. The intent of this delay was for his administration to work out a deal by which TikTok’s Chinese parent, ByteDance, could divest the app. Regardless of the ultimate resolution of the TikTok case, restrictions on Chinese communications technologies, software, and internet-connected devices are becoming a major pillar of U.S. economic and technology policy toward Beijing, alongside tariffs and export controls. Over just the past twelve months, the United States cited potential electronic espionage as the basis for restricting the use of new Chinese cargo terminal cranes at U.S. ports, passed legislation and issued a new executive order limiting certain data transfers to China, imposed draft “Know Your Customer” (KYC) requirements on U.S. cloud services providers, published a draft rule to ban Chinese autonomous cars being sold or used on American roads, and launched a process to restrict the use of Chinese-made commercial and hobbyist drones—by far the world’s most popular—in the United States. Indeed, while public attention in January focused on Trump’s actions toward TikTok, a trade-related executive order that Trump signed his first day in office appeared to tee up an expansion of these sorts of restrictions on Chinese technologies.

Over the past decade, the United States quietly has built an increasingly extensive set of regulatory tools to regulate U.S. data flows to China and the operation of Chinese software and connected technologies in the United States. Although individual actions generally are tailored to address a specific risk, the growing sweep of regulatory authorities has the potential to dramatically change America’s economic relationship with China, restricting not only a growing array of internet-connected devices and consumer products made in China but also products made by Chinese companies in third countries. Beijing, meanwhile, is intensifying its mirror-image campaign against products made by U.S. firms, with the Chinese government imposing new security restrictions on U.S. semiconductors, computers, and other connected tech.

American officials’ desire to limit data flows to China and to restrict Chinese software and connected tech in the United States is understandable: China is America’s foremost strategic competitor, and China’s access to data and control of software and connected technology in the United States provides Beijing with potential tools to conduct espionage; influence politics; and, in extreme cases, attack critical infrastructure, commercial, and government networks inside the United States. But the central role that data, software, and connected technology play in the modern economy means that in principle restrictions could impact even anodyne-seeming trade, either because it depends on data or because even devices like toasters and thermostats increasingly connect to the internet.

Moreover, the United States and China are hardly alone in being concerned about dependence on foreign technology. A growing number of European experts and government officials would like to see the continent reduce its dependence on both Chinese and U.S. technology as a way of increasing Europe’s own strategic autonomy. Since the late 1990s, American officials generally have argued against foreign government policies that would restrict data flows or limit software or connected technologies, believing that an open internet ecosystem would advance both American values and the commercial interests of U.S. firms. If the United States is now embracing restrictions on its own tech relationship with China, American officials will need to articulate a new vision for global data flows, software, and connected devices that enable allies to address their legitimate security interests while preserving the moral, commercial, and economic benefits of the open internet.

The current U.S. regulatory regime is spread across numerous government agencies and derives from multiple legal authorities. This paper is intended to help policymakers, business, and other stakeholders develop a more strategic approach to addressing the risks of China’s access to U.S. data and control of software and connected tech. It begins by describing the three major sets of risks that need to be addressed: espionage; influence campaigns; and attacks on commercial, government, and civilian networks. It then traces the history of the emerging regulatory regime and describes its multiple constituent elements. Finally, it offers a set of recommendations to policymakers as they build out this area of work over the next several years.

The Risks of Chinese Access to Data and Control of Software and Connected Technologies

Since the late 2000s, and particularly over the past decade, three major factors have driven rising U.S. government concern about Chinese access to U.S. data and Chinese control of software and connected technology in the United States.

The first factor is China’s emergence as America’s primary strategic rival. Trump’s 2017 National Security Strategy stated that “China and Russia challenge American power, influence, and interests, attempting to erode American security and prosperity.” Former president Joe Biden’s 2022 National Security Strategy stated that “The People’s Republic of China harbors the intention and, increasingly, the capacity to reshape the international order in favor of one that tilts the global playing field to its benefit.” A bipartisan consensus has emerged across both Congress and executive branch officials that China presents a security and economic challenge and that Washington needs to develop policies to reduce Beijing’s ability to conduct espionage and to establish leverage over the United States.

The second trend has been the rise of Chinese companies across important global technologies. When China first emerged as an economic power following Deng Xiaoping’s economic reforms and opening in the 1980s, Chinese companies principally manufactured low-tech, comparatively low-value consumer items. Even as Western tech companies began to shift their manufacturing to China in the late 1990s and early 2000s, China’s technology manufacturing consisted largely of assembly for Western-designed and operated products. That state of affairs changed during the 2000s and 2010s as Chinese firms became technological powerhouses in their own right. By the 2010s, Huawei and ZTE held significant market positions in international telecommunications network infrastructure, and today companies such as Xiaomi hold substantial shares of global mobile handset markets. Automotive companies like BYD rank among the world’s largest electric vehicle manufacturers. Chinese heavy industry firm ZPMC manufactured 80 percent of the cranes used at American cargo ports. And during the COVID-19 pandemic, social media platform TikTok became one of America’s most popular apps, used by more than 150 million Americans monthly.

The third trend driving U.S. government concerns is China’s extensive cyber hacking, which first emerged as a significant issue in the late 2000s. China-linked hackers appeared to infiltrate the 2008 presidential campaigns of both Barack Obama and John McCain, and over the following years Beijing’s hackers targeted an ever-expanding range of U.S. corporate and government networks. U.S. government officials recently have expressed concern that Chinese hacking efforts are intended to give China the ability to disrupt computer networks, infrastructure, and business in the United States, and Chinese objectives are no longer limited to espionage activities. Although publicly reported cases of Chinese hacking generally have not relied on the cooperation of China’s own international tech companies, China’s extensive hacking efforts provide a basis for U.S. government concerns that China could exploit its companies in the future, particularly as the companies achieve greater scale in U.S. and global markets.

Against this backdrop, there are four broad categories of risk associated with China’s access to U.S. data and Chinese company control of software and connected technologies:

(1) espionage and data security risks;

(2) influence campaigns;

(3) potential cyber attacks on critical infrastructure and government operations; and

(4) potential use of connected devices to mount physical attacks inside the United States.

Espionage and data security risks: The first major category of risk is China’s ability to leverage data, software, and connected technologies for espionage purposes and to secure access to data for other purposes potentially harmful to U.S. interests. Trump administration officials, for example, cited the risk of espionage as a major rationale for restricting Huawei and other Chinese telecommunications network infrastructure companies from providing equipment for U.S. telecommunications networks. Government officials have cited espionage risks as a justification for restricting the use of Chinese-made security cameras in the United States and as a primary justification for the data security executive order that Biden signed in 2024. Chinese autonomous cars driving on U.S. roads collect substantial, detailed information about their surroundings. Even Chinese-made subway or rail cars contain sophisticated sensors that could be used for espionage. An app like TikTok collects data about its users, including their location data, that could be exploited for espionage purposes. China could use such data to train AI systems and review real-time or recorded access to the feeds of U.S. security cameras or other sensors to monitor people and goods entering and specific facilities. Beyond espionage, China could seek access to proprietary datasets, such as genetic datasets, for AI training purposes to try to obtain an edge in aspects of AI development.

Influence campaigns: The second major category of risk, which is particularly associated with Chinese control of social media apps and similar software, is the risk of covert influence over U.S. public opinion. China is an active practitioner of global influence operations: a study released in 2024, for example, found that China is increasing covert social media and publicity campaigns to influence U.S. elections. The U.S. government has highlighted this risk in legal filings related to TikTok. For instance, in a July 2024 filing, it stated that China could use TikTok’s algorithm to “illicitly interfere with our political system and political discourse, including our elections.” Other, more targeted types of influence are also possible. A Chinese-controlled smart television, for example, could disfavor ads from companies that have been critical of China, while an American company that depended on Chinese software or devices for vital parts of its own corporate information technology (IT) infrastructure could be blackmailed into staying silent on political issues important to Chinese officials.

Potential cyber attacks on critical infrastructure and government networks: A third major category or risks that U.S. officials have identified is the risk that China could leverage its control of software and connected technologies to mount cyber attacks on U.S. government networks and/or critical infrastructure in the United States. U.S. government officials are increasingly concerned that China’s hacking of critical infrastructure providers is designed to provide China with an ability to attack and disrupt networks in the United States and not simply to conduct espionage. For example, the U.S. government has warned critical infrastructure operators that recent Chinese cyber intrusions may give China the ability to disrupt U.S. critical infrastructure during a Sino-U.S. conflict, echoing long-standing concerns expressed by cybersecurity experts.

Potential use of connected devices to mount physical attacks in the United States: Finally, officials are concerned that China could use connected devices such as internet connected vehicles or drones to mount physical attacks in the United States. Former commerce secretary Gina Raimondo focused on this set of risks when announcing plans to restrict the sale of Chinese connected cars in September 2024, arguing that “in extreme situations, a foreign adversary could shut down or take control of all their vehicles operating in the United States, all at the same time, causing crashes (or) blocking roads.” While widespread attacks are unlikely outside of the context of military conflict, the government is concerned about the possibility of more targeted attacks during peacetime as well as the potential for attacks during military conflict.

U.S. officials recognize that Chinese companies provide only one vector for China to conduct espionage, influence U.S. opinion, and threaten cyberattacks. Indeed, a public compilation of major cybersecurity incidents since 2006 maintained by the Center for Strategic and International Studies (CSIS) does not appear to include a single incident that clearly involves Beijing relying on a major international Chinese tech company to enable its hacking. (That said, not all details regarding every documented hack have been made public, so it is possible that these hacks may have involved Chinese tech companies.) Moreover, Chinese companies typically assert their independence from Beijing: TikTok’s CEO, for example, testified to Congress in 2023 that TikTok’s parent company ByteDance “is not an agent of China” and that TikTok had never and would never share U.S. user data with the Chinese government. The Chinese government doubtless also is aware that relying on a major Chinese tech company to facilitate hacking would result in that company—and potentially other Chinese companies—being excluded from global markets in the future. Such considerations may make Beijing wary of actively using Chinese companies to facilitate hacking until their products and services are already deeply embedded in global networks and difficult to remove.

These issues aside, there are at least three reasons to assess that Chinese companies with direct access to U.S. data or control of software or connected technology create risks beyond the inherent risks posed by Chinese hacking of U.S. and other Western firms.

First, bulk data transfers to China or Chinese control of software or connected devices provide an opportunity for significant, low-cost data collection. Purchases of bulk data can allow China or another U.S. adversary to inexpensively procure sensitive information about millions of individuals and can provide information on their interpersonal relationships and connections. Chinese autonomous driving companies collect detailed location data and imagery via sensors mounted on their cars and reportedly have driven more than 1.8 million miles in the United States—a potentially significant source of data. TikTok has 150 million American users and could turn over substantial information about its userbase to Beijing if Beijing legally compelled it to do so.

Second, Chinese companies are subject to a set of legal regimes that could compel them to cooperate with Chinese defense and intelligence services. The legislation includes a national security law that establishes a “whole of society” approach to China’s national security, including defining broad obligations for Chinese citizens to “provid[e] convenient conditions or other kinds of assistance to national security work” and to “provid[e] the necessary support and assistance to national security bodies, public security bodies and relevant military bodies.” A 2017 cybersecurity law requires cooperation with government inspections of networks and could enable Chinese government access to stored data. Cyber vulnerability regulations from 2021 require Chinese companies to report cyber vulnerabilities to the Chinese Ministry of Industry and Information Technology within forty-eight hours of discovering them—almost certainly before patching the vulnerabilities or disclosing them to customers. This legal requirement could give Chinese hackers an opportunity to exploit the vulnerability before it is patched.

A separate 2017 National Intelligence Law obliges Chinese companies and citizens to “support, assist, and cooperate with national intelligence efforts in accordance with law, and shall protect national intelligence work secrets they are aware of,” which appears to authorize the Chinese government to compel its companies to support intelligence gathering. A 2021 Counter Espionage Law mandates that Chinese nationals cooperate with China’s national security agencies, and a 2023 update to the law widens the scope of the law to cover “documents, data, materials or items related to national security and interests.” And the growing presence of Chinese Communist Party (CCP) cells active in Chinese businesses may provide more informal ways for the Chinese government to exploit data, software, and connected devices.

The third factor driving U.S. government concerns with China’s control of software and connected tech is the potential for software and/or regular firmware and software updates from China to create particularly significant risks. The global IT meltdown that cybersecurity firm CloudStrike caused in July 2024 when it distributed a botched software update to customers around the world—an event that likely caused between $5 billion and $10 billion in damage—illustrates the potential for updates to cause widespread disruptions. Although encryption and third-party storage could help mitigate many data security risks, the potential for malware intrusions is high when a company maintains ongoing control of software—particularly when such control is combined with China’s legal ability to compel a Chinese company to cooperate with Chinese defense and national security objectives.

Chinese and Third-Country Parallels

Although this paper is focused on Washington’s growing concern about Chinese companies with access to U.S. data and control of software and connected devices, Beijing is engaged in a parallel campaign against what it perceives as the risks of U.S. firms that have access to Chinese data and that provide software and connected technologies in China.

China has a long history of excluding U.S. technology companies and products, particularly news media outlets and social media platforms such as Facebook and YouTube, over censorship concerns. In the wake of Edward Snowden’s revelations regarding American cyber espionage in 2013, China began to promote a “secure and controllable” IT sector that gradually would wean itself off foreign IT companies. Initially, China’s efforts to reduce its use of Western IT proceeded slowly, but Beijing has intensified the campaign in recent years. In 2022, the Chinese government reportedly issued an order for state-owned companies in critical sectors, including finance and energy, to replace non-Chinese software on their networks by the end of 2027. Press reports suggest that many Chinese agencies and enterprises are banning employees from bringing phones manufactured by Western companies into government office buildings. China also has targeted U.S. chipmakers: in 2023, it restricted the use of Micron chips from some domestic critical infrastructure networks, and in 2024, it announced plans to phase out Intel and AMD chips from government computers. China also has taken broader measures to address perceived data security risks, notably far-reaching national data security laws that limit the flow of Chinese data internationally. And for U.S. tech companies that remain in China, Beijing increasingly is signaling that they will have to comply with measures to mitigate risk. In mid-2024, China gave U.S. car company Tesla permission to begin testing high-end autonomous driving features, which rely on precision imaging and sensors and large volumes of data, only after Tesla entered into a partnership with Chinese tech firm Baidu to help manage the data and mapping technology. Tesla also recently passed a Chinese government data security audit that has allowed Tesla automobiles to be included on Chinese government procurement lists.

A number of other countries also have begun to take steps to reduce what they perceive as the risks associated with their reliance on both U.S. and Chinese tech companies. For example, in 2023 the European Union considered restrictions on the foreign ownership of companies providing certain cloud services in Europe, though in mid-2024 it dropped proposed ownership restrictions in favor of data labeling and localization requirements. Absent diplomatic work by Washington to reassure allies about the trustworthiness of U.S. firms, and the development of principles to differentiate the risks associated with U.S. technology from the risks of Chinese technology, this trend is likely to continue. Indeed, Trump’s initial aggressive actions toward a number of traditional U.S. allies, such as his threats of tariffs against Canada and European countries, risk elevating allied concerns that Trump could weaponize their dependence on U.S. technology against them and encouraging allies to more aggressively reduce their own use of U.S. technology. This makes proactive engagement even more important.

Historical Background

The specific risks the United States faces from China’s access to data and control of software and connected devices are a product of the twenty-first century. Before the creation of the World Wide Web in 1989, there was no meaningful public internet or readily accessible online data, and “connected devices” meant government and university computer servers attached to early U.S. government IT networks like ARPANET. It was not until the 2000s that Chinese companies became significant players in designing and manufacturing high-tech products like telecommunications network infrastructure equipment, electric vehicles, and social media platforms. Indeed, in the years following the global spread of the internet in the 1990s, U.S. officials generally argued against foreign government plans to restrict international data flows and to close markets to software and connected devices, arguing that an open internet would advance both American values and American commercial interests, given the dominant role that U.S. companies played in the tech sector.

Even though the specific risks associated with China’s access to data and control of software and connected devices are new, the underlying concerns about foreign control of U.S. infrastructure and ability to influence U.S. opinion are not. More than two centuries ago, in the aftermath of the War of 1812, Congress passed a law restricting foreigners from owning ships that sailed between American ports, hoping both to strengthen U.S. industry and to ensure that foreigners could not control America’s domestic trade. At the dawn of America’s commercial aerospace industry in the 1920s, Congress extended ownership restrictions to airlines, in part out of concern that foreign companies flying aircraft over the U.S. heartland could hurt U.S. national security.

American concern about foreign ownership of communications networks and broadcast media similarly emerged during the first decades of wireless communications. In the early 1900s, the U.S. Navy became concerned that foreign spies could use the then-new medium of radio to send information abroad and to direct military attacks during a time of war. In 1912, at the Navy’s behest, Congress prohibited foreign nationals from acquiring or owning radio broadcast licenses in the United States. Many decades later, in 1985, laws restricting foreign ownership of U.S. broadcast television licenses forced Australia media baron Rupert Murdoch to become a U.S. citizen before he could buy the stations that become the foundation for his U.S. television empire.

The United States has never directly imposed foreign ownership prohibitions on print media, but there is a long history of laws trying to ensure that American print media was free of foreign influence. During World War I, the Trading with the Enemy Act required German-language newspapers to file English translations of their publications with the postal service, and the post office could refuse to mail publications it deemed to support Germany. During the 1930s, the U.S. government passed the Foreign Agent Registration Act in an attempt to require pro-German propagandists and publications to register as agents of the German government. Even today, the Committee on Foreign Investment in the United States (CFIUS), a Treasury-led process that reviews foreign acquisitions of U.S. companies for national security risks, can limit foreigners trying to buy U.S. media properties. In 2023, for example, CFIUS scrutiny contributed to the collapse of a planned buyout of Forbes magazine. Similarly, German publisher Alex Springer had to address CFIUS issues when it bought Politico in 2021.

The United States began imposing restrictions on foreign ownership of telephone networks in the 1930s. The first comprehensive U.S. communications law, the Communications Act of 1934, included provisions prohibiting foreigners from owning more than 20 percent of most U.S. “common carrier” phone and telegraph companies. The Federal Communications Commission (FCC) has for decades required companies that want to offer telecommunications services between the U.S. and foreign countries to obtain licenses.

Even when the United States liberalized its domestic telecommunications markets in the 1990s, it retained the authority to limit foreign ownership if it identified a specific national security risk. For example, the United States pledged to end most per se statutory prohibitions on foreign investment in U.S. telecommunications markets as part of its 1997 commitments to join the World Trade Organization. But the FCC simultaneously created a new government body, known as “Team Telecom,” that tapped U.S. national security agencies to review the national security risks associated with foreign investments in U.S. telecommunications and applications to provide telecom services to Americans.

Against this historical backdrop, U.S. government concerns about Chinese access to data and control of software and connected devices first seriously emerged in 2005, when a little-known Chinese computer company, Lenovo, struck a deal to acquire IBM’s legendary but low-margin PC division—a deal that would give a Chinese company control over computers and laptops used in businesses, schools, and government agencies. CFIUS ultimately approved the deal but only after imposing “mitigation measures” to address potential security risks, such as requiring the physical separation of Lenovo employees working on PCs from IBM employees who would continue to work on more sensitive servers and other products.

In the years following that 2005 case, CFIUS emerged as a major tool in U.S. government efforts to limit China’s access to U.S. data and software. Publicly reported CFIUS cases involving Chinese access to data and software over the past two decades include acquisitions of U.S. computer server companies, a U.S. health data company, LGBTQ dating app Grindr, money transmitter MoneyGram, and the insurance industry, among others. At times, CFIUS blocked takeovers or required a Chinese buyer to divest U.S. operations that a Chinese company had already acquired. At other times, as it had in 2005, CFIUS approved a transaction but required measures to mitigate risks. Though CFIUS does not publish the terms of specific deals, a review of its public annual reports over the past fifteen years indicates that mitigation measures can include limiting access to company and customer data to specific employees or to U.S. citizen employees (for example, no Chinese parent company or Chinese national access to the data); establishing security committees to limit access to sensitive technology and data; ensuring that certain products remain in the United States; and ensuring that only authorized vendors provide the U.S. company with certain products and services.

By the late 2000s and early 2010s, however, American national security officials began to encounter the limits of CFIUS. CFIUS can block a Chinese acquisition of a U.S. company that holds American data or develops software or devices, but it has no authority to block U.S. companies from selling data to China or purchasing Chinese technology, or to prevent Chinese companies from simply directly marketing their products to Americans. With Chinese companies playing an increasing role in global markets, U.S. policymakers began seeking new tools to address perceived risks.

At first, these tools focused on informal pressure on the corporate sector and on information gathering. In 2010, for example, Secretary of Commerce Gary Locke called the CEO of mobile carrier Sprint to urge that Sprint not consider a bid from Chinese national champion telecommunication company Huawei to perform extensive upgrades to Sprint’s telecommunications networks in the United States. The following year, realizing that it did not know the extent to which Chinese equipment already had been installed in U.S. telecommunications networks—particularly by smaller, rural telecommunications companies—the Obama administration used a Cold War−era law to require U.S. telecoms providers to report on Chinese networking equipment installed in U.S. networks.

After Trump was inaugurated in 2017 and identified China as America’s chief economic and strategic competitor, congressional and executive branch officials began to develop a more formal regulatory apparatus to address perceived risks posed by China’s access to data and its ability to exploit Chinese-owned software and connected devices. The initial focus was on telecommunication network infrastructure: Trump officials expressed concern about the risk that China could exploit its telecommunications gear to spy on U.S. citizens and to engage in industrial espionage in the United States. In response, the Trump administration launched domestic and international campaigns to reduce the use of Chinese equipment in telecommunications networks. The government also became increasingly concerned about the its own reliance on other types of Chinese equipment that China potentially could use to conduct espionage. In 2018, for example, Congress prohibited the use of many Chinese surveillance cameras at U.S. government facilities and directed the government to establish the Federal Acquisition Security Council (FASC) to review the security risks associated with U.S. government procurement of information communications technology software and devices.

By 2019, the government was concerned not only about telecommunications networks and the government’s infrastructure, but also about American private sector uses of Chinese-connected technologies. In May 2019, Trump signed Executive Order (E.O.) 13873, which directed the Commerce Department to set up a process to review and address risks in America’s information and communications technology supply chain (ICTS), including potentially restricting Chinese software and devices. As then commerce secretary Wilbur Ross said when the executive order was announced, the goal was to ensure that “Americans will be able to trust that our data and infrastructure are secure.” In March 2020, Congress passed the Secure and Trusted Communications Networks Act of 2019, which directed the FCC to maintain a public list of communications equipment and services that posed an unacceptable risk to U.S. national security.

The pace of rules and regulations increased during Trump’s final months in office, notably with new executive orders that sought to ban TikTok and nine other Chinese apps from being distributed in the United States. Although those bans were enjoined by courts and ultimately did not come into effect, they were a precursor for more recent actions, including Congress’s TikTok divestment law in 2024. Appendix A provides a timeline of major Trump administration actions.

Although Biden had been critical of aspects of Trump’s policy toward China while on the campaign trail in 2020, the Biden administration steadily—and in 2024 substantially—expanded the regulatory regime it inherited from Trump. In June 2021, while withdrawing the Trump administration’s court-blocked executive order attempting to ban Chinese apps, Biden issued E.O. 14034, which expanded on Trump’s ICTS executive order by directing the Commerce Department to evaluate Chinese software and connected devices for security risks and to take steps to mitigate identified risks. In November 2021, Biden signed the Secure Equipment Act of 2021, which authorized the FCC to effectively ban internet-connected products that it determined threaten U.S. national security and not simply to maintain a public list. A year later, in November 2022, Biden’s FCC used that authority to ban new security cameras made by two Chinese companies from being connected to the internet in the United States, effectively banning their sale or use.

In 2024, the Biden administration and Congress took additional steps to begin restricting data flows to China and to address the risks associated with Chinese software and connected devices. Some of these involved bureaucratic changes to support the U.S. government’s work. In early 2024, the Commerce Department hired former Microsoft executive Liz Cannon to run a newly established Office of Information and Communications Technology Services that would implement Commerce’s authorities over the ICTS supply chain. Other measures involved new restrictions on Chinese data flows, software, and connected technologies. In February 2024, Biden signed a new executive order to address cybersecurity risks at U.S. ports, and the U.S. Coast Guard issued a directive to U.S. port operators directing them to address security risks associated with their use of Chinese-manufactured cargo cranes, which U.S. defense officials previously had raised as a concern. Less than a week later, Biden signed E.O. 14117, which directed the Justice Department to establish regulations restricting data brokers from selling or transferring multiple different types of data to China and to Chinese companies in instances where doing so could impact U.S. security.

Two months later, in April, Congress passed a bill that would give ByteDance until early 2025 to divest its ownership of TikTok; failure to do so would mean that TikTok would face a ban on distribution through U.S. app stores. On January 20, 2025, Trump announced that he would seek to extend the deadline by seventy-five days to give his administration additional time to work out a deal, but Trump continues to indicate that he expects TikTok to be at least 50 percent owned by Americans. Congress’s April 2024 law also authorizes the government to impose similar divestment restrictions on other widely used Chinese social media apps, and to ban apps that do not comply with a divestment order. And as with E.O. 14117, this law included Federal Trade Commission (FTC) enforcement provisions to prohibit data brokers from selling personally identifiable information to China.

Also in 2024, the Biden administration announced plans to restrict the sale of internet connected cars manufactured in China, citing the national security risks that such cars could pose on U.S. roads, and it finalized the rules in early 2025. The Biden administration also launched a process in early 2025 that, if continued by Trump, could result in a ban on Chinese-made drones in the United States, in light of potential security risks. Appendix B provides a timeline of significant Biden administration actions to address the risks associated with Chinese access to U.S. data and Chinese software and connected devices in the United States.

Additional measures reportedly are under consideration. In a trade policy executive order that Trump signed on his second Inauguration Day, Trump directed his commerce secretary to “consider whether controls on ICTS transactions should be expanded to account for additional connected products.” Meanwhile, the leadership of the U.S. House of Representatives Select Committee on the Chinese Communist Party has urged the executive branch to examine and address security risks posed by Chinese cellular modules, Wi-Fi routers, drones, and semiconductors.

The Emerging U.S. Regulatory Regime

This decade-plus of U.S. government work to address the risks posed by China’s access to data and control of software and connected technologies has created a growing array of regulatory authorities. These authorities regulate Chinese software; Chinese devices, and technologies that connect to the internet; Chinese telecommunications companies that connect to the United States; and the flow of American data to China. They are spread across multiple agencies, including the Commerce Department, the Justice Department, the FCC, and the Department of Homeland Security. Some of the authorities consist of formal rules and regulations; others are voluntary standards and awareness-raising efforts by the U.S. government intended to influence private sector decisions without directly regulating them. Core elements of the existing regulatory regime include the following:

• The Commerce Department’s ICTS authorities to restrict the distribution and use of information and communications technology and software: Two executive orders, E.O. 13873 on the information and communications technology supply chain and E.O. 14034 on foreign adversary controlled apps and software, empower the Commerce Department to review and address risks associated with information and communications technology and services and/or software applications designed or developed by designated “foreign adversary” countries, which currently is defined to include China, Russia, and several other countries. These executive orders empower the department to review the risks associated with a broad range of technologies, including network infrastructure equipment, software, and devices that connect to the internet, and to impose restrictions or mitigation measures to address identified security risks. The department issued its first major restriction pursuant to these authorities in June 2024, when it banned the U.S. distribution and sale of software made by Russia cybersecurity firm Kaspersky Labs. In September 2024, the department published a draft rule restricting the sale of Chinese autonomous driving technology in the United States as well as cars using certain Chinese connectivity modules.
• The Federal Communications Commission’s “Covered List,” which effectively prevents covered items and services from connecting to U.S. communications networks or internet: The FCC maintains a “Covered List” of items or services “deemed to pose an unacceptable risk to the national security of the United States or the security and safety of United States persons.” Pursuant to the Secure Equipment Act of 2021, as of February 2023, the FCC will deny authorizations to equipment and services on the Covered List, meaning that the equipment cannot connect to U.S. telecommunications networks. This denial effectively prohibits covered devices, software, or telecommunications services from being used in the United States. The FCC does not make its own independent decisions on whether to include specific equipment or services on the Covered List, but instead takes direction from relevant national security agencies. For example, when the FCC added two Chinese telecommunications providers to the Covered List in September 2024, it stated that it did so at the request of the Department of Commerce and with the concurrence of the Department of Justice and Department of Defense. The Covered List currently restricts several types of Chinese telecommunications network infrastructure, several Chinese security cameras, Kaspersky software, and several Chinese telecommunications services.
• The Commerce Department’s “Know Your Customer” requirements for U.S. cloud services providers: In January 2024, the Commerce Department proposed a rule that would require companies providing internet infrastructure as a service—effectively, cloud services providers—to establish KYC rules that would enable them to identify their customers and the owners of their customers. The intent of the rule is to help U.S. companies and ultimately the U.S. government to better identify and cut off foreign companies and entities that use cloud services to support espionage and other malicious cyber activity.
• “Team Telecom” to prevent high-risk communications companies from operating in the United States or connecting to U.S. networks: The FCC’s “Team Telecom” process reviews applications by foreign companies to start offering communications services in the United States or to offer international communications services (such as via submarine telecommunications cables) to the United States. In recent years, it has denied authorizations to China-linked companies while also requiring a planned Google- and Meta-operated cable that had a Chinese partner to adopt measures to mitigate potential data security risks.
• The Department of Justice’s “Data Security” executive order that authorizes the department to limit bulk data transfers to China: Pursuant to E.O. 14117, the Department of Justice is drafting rules to prohibit or otherwise restrict the transfer of certain U.S. government or U.S. bulk data to China and other jurisdictions deemed to pose a threat. The department’s authority includes both the ability to regulate only arms-length sales or transfers of sensitive U.S. data to China, and to restrict vendor agreements between U.S. firms and Chinese companies that could provide the Chinese companies with access to the data, such as an agreement between a U.S. hospital chain and a Chinese firm to process U.S. patient data. The data transfer rules also effectively may limit the deployment of certain Chinese software and connected devices in the United States, given that many types of software and connected devices collect data—particularly personal information and geolocation data—that a Chinese company ordinarily would process back in China.
• The Federal Trade Commission’s enforcement of the Protecting Americans’ Data from Foreign Adversaries Act: In April 2024, Congress enacted the Protecting Americans’ Data from Foreign Adversaries Act, which prohibits data brokers from selling certain categories of U.S. individuals’ personally identifiable sensitive information to China or to Chinese companies. This law overlaps significantly with but is also distinct from and in some ways broader than Biden’s 2024 data security executive order.
• The Committee on Foreign Investment in the United States: CFIUS continues to have authority over foreign acquisitions of U.S. companies that control telecommunications or other key infrastructure or that hold sensitive U.S. data, including the authority to mandate mitigation measures and to recommend that the president block acquisitions outright. In 2018, Congress amended the CFIUS statute to increase the committee’s focus on sensitive data (among other reforms). In 2022, Biden issued an executive order directing CFIUS to increase its focus on data security risks as well as several other national security concerns.
• Congress’s divestiture requirements for Chinese-owned social media companies: In April 2024, Congress enacted legislation to prohibit app stores from distributing popular social media app TikTok starting in early 2025 unless TikTok’s Chinese parent, ByteDance, divested itself of the company. The same legislation authorized the president to impose a similar divestment requirement or distribution ban for other Chinese social media companies that have more than 1 million U.S. users and which the president determines pose a threat to U.S. national security. This requirement could impact fast-growing Chinese social media companies such as MiniMax and Hypic. (On January 17, 2025, the Supreme Court upheld the constitutionality of the law.)
• The Federal Acquisition Security Council and other federal procurement restrictions: The Office of Management and Budget (OMB) chairs the FASC, which Congress chartered in 2018. The FASC consists of key security and procurement agencies. Its mandate is to reduce cybersecurity and supply chain risks in federal procurement, including the risks posed by foreign ownership or control of an item that the government is buying. It has the authority to prohibit the federal government from purchasing specified products and, in particularly high-risk instances, to order the “rip and replace” of software and other equipment already in federal systems. Although FASC decisions are limited to restrictions on federal procurement, FASC restrictions generally also will be noticed publicly, potentially sending a signal to private sector purchasers as well.

Beyond the FASC, the government has other authorities to regulate its own procurement of high-risk products. One such example is the Department of Homeland Security’s authority to issue “Binding Operational Directives” to agencies to mitigate identified cybersecurity risks. Moreover, Defense Department procurement regulations prohibit it from purchasing goods made by Chinese companies that the department has identified as part of China’s military-industrial complex.

• Sectoral regulators: Although the United States does not have a cross-cutting cybersecurity regulator, several sectoral regulators have the potential to impose restrictions on the use of Chinese software and connected technology if they determine that such products or services threaten the integrity of networks or undermine U.S. security. For example, in February 2024 the U.S. Coast Guard, which has regulatory authority over ports and shipping, issued a maritime security directive on the security risks posed by use of Chinese-made port terminal cargo cranes and directed port operators to take steps to address these risks. Federal regulators overseeing the banking and healthcare sectors also have the authority to direct regulated companies to take steps to ensure appropriate cybersecurity protections that will restrict regulated entities from transmitting data to China and from relying on Chinese software and connected technologies. For example, in December 2024 the Consumer Financial Protection Bureau proposed rules that will prohibit data brokers from selling certain financial information in support of efforts to protect sensitive U.S. data from foreign adversaries. The U.S. Treasury Department and Federal Reserve have authorities to mandate that financial institutions impose data security measures, while the Department of Health and Human Services has some authorities to ensure the protection of U.S. health data.

Beyond these core regulatory authorities, the U.S. government has other tools at its disposal to address the risks posed by data transfers to China and by Chinese control of software and connected devices. These include awareness-raising efforts to ensure that the U.S. private sector and U.S. citizens understand relevant risks, mechanisms to leverage private sector guidance documents and standards, and the Commerce Department’s authority to restrict imports that threaten U.S. national security.

• Department of Homeland Security and law enforcement awareness-raising efforts: The Department of Homeland Security, the Federal Bureau of Investigation (FBI), and U.S. intelligence agencies possess only limited regulatory authority over the use of Chinese software and connected technology in the United States, but they do have tools to raise public and business awareness of potential risks. Earlier this year, for example, the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency issued a formal warning to companies operating critical infrastructure about the risks associated with using certain Chinese-connected devices, such as drones. FBI field offices can engage with local companies to discuss potential espionage and cybersecurity risks. And the Director of National Intelligence has published a summary document describing Chinese laws that could compel Chinese companies to cooperate with national security and intelligence work—a type of public outreach that could be expanded.
• Voluntary cybersecurity standards: The U.S. National Institute of Standards and Technology publishes a national Cybersecurity Framework that provides guidance to U.S. businesses, including small businesses, on cybersecurity best practices and ways to identify and address cybersecurity risks. Other agencies, including the Cybersecurity and Infrastructure Security Agency, promote voluntary cybersecurity standards for companies that operate critical infrastructure across a range of sectors. To date, these standards have not incorporated specific risks related to data transfers to China or use of Chinese software or connected technology, but they do provide guidance on a wide range of more general cybersecurity risks and best practices.
• The Commerce Department’s “Section 232” authorities: Section 232 of the Trade Expansion Act of 1962 authorizes the Commerce Department to regulate imports of products when the department determines that imports threaten to impair U.S. national security. The department historically has used Section 232 to protect U.S. manufacturing: Trump, for example, used Section 232 to regulate U.S. imports of steel. The Commerce Department could leverage these authorities to restrict imports of products where the product itself was determined to create a national security risk: at least one outside assessment, for example, has noted that the department could use Section 232 to impose tariffs or other import restrictions on U.S. imports of Chinese semiconductors if it determined that the semiconductors posed a threat to U.S. national security.
• Federal Trade Commission authorities: Finally, the FTC has general authority to act against unfair and deceptive trade practices, including by tech companies. In recent years, for example, the FTC has taken action against companies that do not honor the privacy commitments they make in their own terms of service, and the FTC recently warned companies against deceptively changing their terms of service to allow themselves to exploit user data to train AI models. The FTC potentially could use its authorities to penalize a Chinese company that shared information with the Chinese government without adequate user consent.

Policy Recommendations

As the history and regulatory authorities described in this paper illustrate, over the past decade—particularly since the late 2010s—the United States has developed a surprisingly complex regulatory regime to restrict data transfers to China and to address the risks posed by Chinese software and connected technology. This regime has potentially profound significance for the U.S.-China relationship, given that a growing share of U.S. imports—including even household and consumer devices like kitchen appliances and lighting systems—connect to the internet, creating security vulnerabilities and potentially subjecting them to regulation. Chinese tech startups, as well as established companies like Temu and Shein, remain focused on the United States as a potential market and almost will certainly find themselves subject to increased U.S. government scrutiny and regulatory pressure. China’s parallel regulatory regime to address the risks Beijing assesses it faces from reliance on U.S. tech will have similarly significant impacts on U.S. companies operating in the world’s second-largest economy. And, as governments around the world begin to develop their own measures to reduce data, software, and connected device risks, the United States will need to ensure that those measures address legitimate security risks posed by China without adversely impacting U.S. firms.

Pressure to use these authorities to further restrict U.S. data flows to China and the operations of Chinese software and connected devices in the United States almost certainly will increase over the coming years, driven by intense Sino-U.S. geopolitical competition and continued American concern about Chinese cyber risks to the United States. As the United States continues to develop its regulatory regime for U.S.-China data flows and for Chinese software and connected devices, policy recommendations include the following:

Embed China-focused measures within a broader set of measures to improve data privacy and cybersecurity. China’s sophisticated hacking operation has multiple avenues to exploit U.S. data, influence U.S. opinion, and breach U.S. networks without relying on Chinese companies obtaining direct access to U.S. data or controlling software or technology. The United States cannot effectively protect against China-related data, influence, and cybersecurity risks without adopting broader and more comprehensive measures to protect Americans’ data and to enhance U.S. cybersecurity. Indeed, recent events have illustrated this fact: While the United States took steps in the late 2010s to limit the use of Chinese telecommunications network infrastructure equipment in U.S. telecommunications networks, over the past several years China mounted a sophisticated hacking program into U.S. telecoms networks—providing vast and unprecedented access to Chinese spies, including to the communications of senior U.S. government officials.

A U.S. national data privacy law that limits data collection in the first place, for example, would limit the pools of sensitive American data that China potentially could hack regardless of whether they are held by U.S. or Chinese firms—not to mention the domestic privacy benefits. A national data privacy law would also have domestic privacy benefits and help align U.S. policy with allied nations that have strong privacy protections. A strong national data privacy law and cybersecurity measures should be the government’s primary focus, with measures specifically targeting data transfers to China and Chinese software and connected devices playing an important supporting role.

Publish a formal risk assessment and strategy for the government’s work. The U.S. government should publish a comprehensive assessment of the risks posed by China’s access to U.S. data and control of software and connected technologies and a strategy to address those risks, publicly including specific priority areas for U.S. government focus. In 2024, the Commerce Department published a list of priority technologies it is focused on, pursuant to authorities limiting Chinese software and connected technology in the United States, which could serve as a partial basis for a broader cross-U.S. government strategy. However, the U.S. government has not published an overarching strategy identifying specific cross-cutting technologies of concern; describing when it will seek to mitigate risks with regard to blocking data transfers, software, and connected devices; or describing cross-cutting steps that it would like to see U.S. private sector companies take to begin addressing risks on its own. A formal U.S. government risk assessment and strategy would harmonize work across agencies while providing a signal to the U.S. private sector of specific priority areas to reduce reliance on Chinese software and connected technologies.

Develop clear guidelines for assessing risks: Different government agencies and authorities have established overlapping but also somewhat different criteria for evaluating the risks posed by China’s access to data and its control of software and connected technologies. Some tools, such as the FCC’s Covered List, do not appear to be guided by published risk criteria at all. As part of its published risk assessment and strategy, the government should publish a clear set of the criteria it uses and recommends that private entities use these criteria to assess the risks associated with data transfers to China and use of Chinese software and connected technology. Such criteria could include the following elements:

• Data sensitivity and volume
• Ownership or control of companies with access to data and control of software and connected devices
• Whether software or a device is intended to be used to for sensitive applications, such as critical infrastructure
• The scale of use or dependency—for instance, is it widely used, or is it one of several similar products that also are being used and could be substituted if necessary?
• The potential for software or a connected device to be used to mount attacks or facilitate influence campaigns
• The ease of replacing software or devices—for instance, the difficulty of “rip and replace” if subsequent risks are identified
• The ability to provide software updates not subject to oversight, including whether malware could be inserted
• The extent of involvement of trusted parties in the development and distribution of the software or connected device, such as whether a third party can monitor for potential malicious activity
• The availability of mitigation options such as encryption, data localization, technical reviews of code, and independent monitoring and oversight

These criteria should be updated as risk perceptions evolve.

Develop clear principles to guide the development and deployment of software and connected device restrictions: While the United States has a compelling interest in imposing sensible restrictions on the use of high-risk Chinese software and connected devices, it also has a compelling interest in both avoiding broader-than-necessary restrictions and in avoiding setting a precedent that foreign governments skeptical of U.S. technology firms could use to impose their own national restrictions on the use of U.S. technology. The United States can balance these interests by developing and publishing a clear set of principles to guide the deployment and development of restrictions on Chinese software and connected devices. Articulating clear principles can help limit the potential overuse of restrictions by U.S. agencies as well as providing a framework for international cooperation with allies and partner nations.

Improve information disclosure and monitoring. Although U.S. government officials have spoken publicly about the risks of data flows to China and Chinese control of software and connected technology, they generally have not disclosed specific instances of China’s use of its software or connected devices for harmful purposes. Moreover, the U.S. government appears to have little systematic information regarding the extent of data transfers to China or the prevalence of Chinese software and connected technology in the United States beyond high-profile examples such as TikTok and Chinese automobiles. Closing this information gap will be essential to effective policymaking. The Commerce Department could, for example, conduct a survey of various U.S. critical infrastructure companies to determine the extent to which they are using Chinese software or connected devices in their networks. It also could require Chinese companies selling certain types of technology in the United States to file a notice with the U.S. government so that the government understands their role in the market. The U.S. government may also consider expanding the KYC requirements that currently apply to cloud services providers to app store providers to ensure that major software distributors (and their customers) in the United States know if they are distributing Chinese technology.

Develop standards for mitigation measures. Mitigation measures likely will play an important role in addressing China-related data security, software, and connected device risks. A Chinese-designed home vacuum cleaner robot, for example, might be able to collect substantial sensitive information, including interior maps of the homes of government officials and corporate executives. Those risks, however, could be mitigated with technical solutions that prevent customer data from traveling to China and third-party auditing of software to ensure that malicious code is not inserted. Over more than three decades, the CFIUS process has developed a set of mitigation measures that can reduce the risks associated with a foreign takeover of a U.S. company, with CFIUS blocking transactions only in particularly high-risk scenarios. The United States should develop and promote mitigation measures to reduce the risks of less risky Chinese products, while reserving bans for higher-risk products and applications.

Codify the executive branch’s authorities. Both the Trump and Biden administrations have relied heavily on a 1970s statute, the International Emergency Economic Powers Act (IEEPA), as the legal basis for limiting certain data flows to China for regulating certain Chinese software and connected devices in the United States. IEEPA, for example, forms the basis of both Trump’s ICTS executive order and Biden’s software executive order. IEEPA, however, was drafted before the internet existed and does not, for example, clearly authorize the government to impose all of the mitigation measures that policymakers might want to pursue. Moreover, there are limits to IEEPA’s reach: in 2020, when the Trump administration sought to use IEEPA to ban TikTok, U.S. courts concluded that IEEPA did not grant the executive branch the authority to impose such a ban. Given recent U.S. court rulings holding that major policies should be clearly authorized by Congress, Congress should codify authorities to regulate in this area both to provide a sound statutory basis and to provide appropriate oversight of executive branch policymaking.

Develop international standards with like-minded allies: The United States has both an interest and an opportunity to collaborate with like-minded allies in the development of shared approaches to the regulation of Chinese access to data and control of software and connected devices. Shared approaches to standards will reduce the risks that U.S. allies and partners will find themselves dependent on Chinese software and connected devices and that U.S. allies, concerned about their own vulnerabilities, will impose restrictions of their own on both Chinese and U.S. firms. Moreover, key allies appear to be interested in joint approaches: Japan has been promoting its “data free from with trust” framework for several years, while both U.S. and European Union officials are developing labeling programs to label connected devices that meet cybersecurity standards. The United States should launch a new initiative to cooperate with allies to establish joint approaches to addressing the risks of data flows to China and of Chinese-controlled software and connected devices.

Conclusion

In 2000, as China was embarking on a multidecade process to crack down on domestic internet usage, then president Bill Clinton jokingly wished Beijing well. “Good luck,” he quipped. “That’s sort of like trying to nail Jell-O to the wall.” But over the ensuing decades, China did largely succeed in regulating its domestic internet economy, developing systematic censorship, building national champion enterprises, and restricting many major Western firms from entering its market. The United States, meanwhile, remained open to China, not just for information from and about China—openness that the United States should always value—but also open to a growing array of cross-border data flows, Chinese software, and connected devices.

The United States should not follow in China’s model: its open society is a national strength. Moreover, unduly broad restrictions on Chinese companies’ access to data and on Chinese software and connected technology in the United States could have adverse unintended consequences: disrupting ordinary commercial trade that depends on data flows, for example, or reducing beneficial innovation because U.S. firms are not exposed to competition from Chinese competitors. But in today’s era of strategic competition, United States policymakers need to address the data security, disruption, and influence risks that come from cross-border data flows, Chinese software, and connected devices. Since the 2010s, they have begun to do so, with dozens of actions involving myriad government agencies. Now, government policymakers need to develop a more systematic and comprehensive framework for managing the relationship going forward.

To read the paper as it was published on the Carnegie Endowment for International Peace website, click here.

To read the full PDF as it was published by the Carnegie Endowment for International Peace, click here.

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Most of these products are already subject to high duties or extensive trade-remedy measures, so the amount of imports from China covered by the new tariffs, including EVs, is small at $18 billion. In fact, the US imports essentially no EVs from China. However, it is a sector of great concern to the European Union, which in October 2023 opened an anti-subsidy investigation into Chinese EVs, which may trigger countervailing duties. The US move may therefore have implications for the pending EU decision on countervailing duties on China.

An extraordinary decision, driven by domestic politics

The US decision on Chinese EVs is extraordinary in four respects:

• First, the 100 percent tariff is prohibitive. Ostensibly justified by China’s own subsidies, it would imply that half of the cost of Chinese EVs is paid for by government funds, far beyond the range of other estimates.
• Second, unlike previous protection episodes, such as when the US was responding to the threat of Japanese car manufacturers, there are virtually no Chinese car imports today, and US manufacturers, especially General Motors, already have large footprints in China, whereas they were marginal in Japan. Though GM sales in China have declined recently, for more than a decade until 2023, China was a profit engine and the company’s top sales market.
• Third, the EV tariffs depart from the US emphasis on national security to adopt anti-China measures (unless one believes that EVs are meandering Chinese spies), suggesting that all sectors are now in play.
• Fourth, the measure runs counter to the Biden Administration’s green transition goals, which include large tax breaks for EVs, intended to lower the cost for consumers of green alternatives.

The decision on EVs and its timing are strictly political and reflect the extraordinary power of the United Auto Workers union in swing states in the run-up to the US presidential election. The decision is nevertheless a surprise in the light of recent efforts at China-US rapprochement, including exchanges at senior military level, and talks on AI and climate change. China will be affronted and many China-dependent US firms, which had hoped for tariff reductions, will be disappointed. The decision is, however, consistent with US Trade Representative Katherine Tai’s “Worker Centric” trade policy which claims to place workers’ interests ahead of those of firms.

Global impact

The immediate economic impact of the tariffs will be minimal at the macro level, whether on quantities, prices, or exchange rates; $18 billion is tiny relative to the size of the two economies, and even the $500 billion that China exported to the US in 2023. Even so, they will hurt some Chinese companies and US importers. The effect on US consumers and prices will be minimal and take the form of lost future opportunities rather than immediate cost, especially in relation to EVs.

China’s retaliation (it always retaliates) will be proportionate and limited. If the past is a guide, retaliation will affect mainly some US agricultural exports, which can be sourced easily elsewhere, and US exporters will be compensated for their losses in China. But even if the Chinese government does not retaliate against US car exports and investments in China (which it continues to court), the Chinese consumer is unlikely to respond well to America’s extreme measure on EVs when he or she chooses the next car to buy.

Perhaps more worrying is the further escalation of tensions with China that the tariffs represent – a dangerous trend with many repercussions. It may undermine any Chinese willingness to play a moderating influence on the war in Ukraine. The tariffs also quash any notion that the US intends to abide by World Trade Organisation rules. These two considerations, by themselves, increase policy uncertainty globally and are bound to have a dampening effect on international trade and investment.

The US approach diverges from that of the EU, which is building a case for countervailing duties under WTO rules. Although the outcome may also be new tariffs, in the EU there will have been due process based on evidence. But politically, prohibitive US tariffs place enormous pressure on the EU to apply its own. Even though there is no immediate threat of trade diversion, EU firms such as Stellantis, and unions that lobby for tariffs, will argue that Chinese EV exporters, cut off from the US market, will focus on the huge EU market instead. Though EU firms are still the largest exporters of EVs from China to the EU by a wide margin, the share of Chinese indigenous manufacturers is rising rapidly.

The adverse effect on trade relations of the new tariffs will extend beyond trade under the WTO to encompass trade under regional agreements. This is because US politicians are determined to avoid China-sourced products coming in through the back door – strict rules of origin are already there to prevent that – and to prevent the products of Chinese-invested companies from entering. In their view, even if batteries, EVs and semiconductors are manufactured by a Chinese-invested company in a US trading partner, and are entitled to tariff-free treatment under a regional agreement, they should be discouraged. This also applies to Chinese companies producing in the US. Mexico and Morocco are two examples of US regional trade agreement (RTA) partners that host Chinese manufacturers of batteries and soon of EVs, where frictions are bound to rise.

Even though the EU remains more open to Chinese producers on its territory than the US (eg BYD in Hungary, CATL in Germany and Hungary), it will face a similar challenge with its RTA partners if, as expected, it applies its own tariffs on Chinese EVs. These tensions among parties to RTAs, together with China’s retaliation against EU and US EV tariffs, is likely to mark this episode as a classic example of protectionist contagion.

A separation of Chinese and US value chains?

The EV value chain is destined to increase greatly in importance to mitigate climate change. From the standpoint of US industrial policy, a big question raised by the prohibitive tariffs on Chinese EVs and by the accompanying resistance against hosting Chinese producers is whether a US EV/battery value chain entirely separate from China is sustainable and realistic. The US is undoubtedly capable of developing such a chain, but can it do so at reasonable cost and without falling behind in quality and efficiency? On the answer to this question rests the calculation of long-term consumer losses from the tariffs against the counterfactual, the speed of the US green transition, the burden on government finance from the possibility of more subsidies, and even the solvency of US car companies.

Even a cursory examination of China’s current competitive advantage in EVs suggests that the answer to the question is no. China produces almost twice as many EVs as the EU and US combined, the share of EVs in new car registrations is rising rapidly, and it has reportedly moved ahead at the combined quality/price/technology frontier. The latest BYD Model, the Seagull, sells in China at slightly less than $10,000, and has been highlighted as an illustration of China’s competitiveness. Tesla founder Elon Musk has been openly pessimistic about the West’s ability to compete with Chinese cars.

China’s cost advantage arises from a combination of scale, advanced and lower-cost battery technology, availability of IT and AI expertise, lower labour costs, and intense competition in the Chinese market, with dozens of domestic and foreign producers active. Central and provincial government subsidies still play a role, and their extent is what the EU investigation will evaluate. The only available and presumably reliable numbers on subsidies received are those declared by Chinese publicly traded companies such as BYD, and are small relative to turnover or value added.

China’s EV exports increased by over 60 percent in 2023 to reach 1.2 million units, directed mainly at Europe, Mexico and several emerging markets in Asia. Since the biggest Chinese EV manufacturers and their battery suppliers have developed distinctive assets (brand, technology and design), they are new able to set up manufacturing and distribution channels overseas, in markets including Thailand, Indonesia, Australia, Morocco, Mexico and Hungary. Chinese EV manufacturers are also rapidly gaining market share in China, where competitors are increasingly struggling.

As EVs become even more established worldwide, the scale advantage of the most successful Chinese producers over US-based producers will only increase, as will their capacity to target individual markets with customized products on a common platform. Finally, it is important to note that the largest US car companies, Ford and General Motors, are not in the best shape to compete in the intensifying EV market. Standard and Poor’s rates Ford’s and GM’s long-term debt at BB+ and BBB respectively, just below and just above investment-grade. The market capitalisations of BYD and Xiaomi, the two largest Chinese EV producers, are $86 billion and $62 billion respectively, while those of GM and Ford are both around $50 billion.

The EU’s strategy

Should the EU adjust its policies in the light of the new Biden tariffs, and if so, how? Note that since there will be no surge of Chinese EVs diverted from the US market, it is not a given that the EU needs to alter its course.

The EU’s trade strategy on EVs must pursue six main objectives: 1) a fair deal for EU manufacturers insofar as they are affected by China’s subsidies in excess of subsidies they receive at home, and one that is in line with WTO rules; 2) stand up for the interests of EU car exporters and manufacturers in China, which are also recipients of various subsidies; 3) the long-run health and competitiveness of the EU car industry; 4) protect the interests of consumers, especially those with low incomes, who would benefit greatly from cheaper cars; 5) ensure the speed of the green transition; 6) maintain a cooperative and constructive relationship with China for both economic and geopolitical reasons. To progress towards all six objectives simultaneously is a challenge, but can be done:

• The EU’s stated objective should be to arrive at competitive neutrality in the EV sector, enhancing and not preventing fair competition that will promote productivity growth and innovation. Accordingly, the countervailing duty margin on Chinese EVs should be computed objectively and realistically; it should be defined and documented in a way that is entirely robust to legal challenge at the WTO. It should also take account of subsidies at home to reduce the EU’s vulnerability to a Chinese counter: if the net subsidy is found to be zero, the countervailing duty margin should be zero, and the countervailing duty, if any, should be set at the minimum level consistent with the findings. The duty should be accompanied by a proposal to set up a China-EU working party with a mission to identify and monitor EV subsidies, and to reduce them with a view to eliminating the duty margin over a defined period.
• To ensure the long-term vibrancy and competitiveness of its car industry, to safeguard the interests of its consumers, to sustain the green transition, and to maintain good relations with China, the EU should adopt an open-door policy on Chinese inward investment in its EV and battery sectors, while insisting on continued fair treatment of its firms that have already established footholds in the Chinese market. The EU may need to prepare, ultimately, to confront US restrictions on China-invested cars produced in Europe, such as Geely-owned Volvos.
• It is possible that, once embarked on this course, the EU may nevertheless face an excessively rapid penetration of imported Chinese EVs sometime in the future. Should that happen, the EU may resort to a WTO-compatible safeguard measure. The advantage of the safeguard course is that the increase in tariffs would be time bound (three years). Safeguard tariffs must, however, apply to all imports, not only those from China.

Uri Dadush is a Non-resident fellow at Bruegel, based in Washington DC, and a Research Professor at the School of Public Policy at the University of Maryland where he teaches courses on trade policy and on macroeconomic analysis and policy.

To read the full analysis as published by the Bruegel, click here.

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The US is mulling an end to the de minimis provision that allows shipments valued under US$800 to enter the world’s largest consumer market, a move largely aimed at Chinese exports. Such a move would escalate a raft of trade controls Washington has already placed against China, including controls on semiconductor technology and outbound investment.

In many ways, a key piece of legislation impelling the momentum is the US Uyghur Forced Labor Prevention Act (UFLPA). Passed in late 2021, the ambition of the UFLPA is far more comprehensive than the “small yard, high fence” scope of containment policies, as it seeks to restrict imports in toto from an entire region inextricably linked to global supply chains. Growing political pressure and technical know-how within the retooled oversight agencies portend much more robust UFLPA enforcement across a growing category of goods.

This is likely to be one of the more conspicuous developments in the US’ international trade posture in 2024. The Biden administration signaled last week that it may escalate controls on China’s access to sophisticated semiconductor technologies, as Commerce Secretary Gina Raimondo vowed “we will do whatever it takes.” Alongside these tech controls, Washington has existing policy weapons it could use to target the extent to which Xinjiang is embedded in global supply chains, including in strategic industries suffused with Chinese overcapacity. Early signs of enhanced enforcement action suggest a particular focus on the automotive sector.

Henry Storey is a senior analyst at Dragoman, a Melbourne-based political risk consultancy. He is also a regular contributor of The Interpreter published by The Lowy Institute.

To read the full article published by the Hinrich Foundation, click here.

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Since its accession to the World Trade Organization in 2001, the CCP has pursued a multidecade campaign of economic aggression against the United States and its allies in the name of strategically decoupling the People’s Republic of China (PRC) from the global economy, making the PRC less dependent on the United States in critical sectors, while making the United States more dependent on the PRC. In response, the United States must now chart a new path that puts its national security, economic security, and values at the core of the U.S.-PRC relationship.

The House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party (Select Committee) has studied the PRC’s pattern of aggression and economic manipulation and recommends the following strategy for economic and technological competition with the PRC.

The strategy that follows is guided by three pillars:

First, the United States must reset the terms of our economic relationship with the PRC and recognize the serious risks of economically relying on a strategic competitor that harnesses the power of the Party-State to compete economically. While economic exchange with the PRC will continue, the United States government and the private sector can no longer ignore the systemic risks associated with doing business in the PRC or allow companies’ pursuit of profit in the PRC to come at the expense of U.S. national security and economic resilience. For over two decades, the U.S. government and businesses have sought access to the PRC as a market for consumer goods, a source of low-cost production, and a recipient of U.S. investment. In that time, the PRC has failed to live up to its trade promises, tightly controlled access to its markets, stolen hundreds of billions of dollars a year in technology and IP, and employed subsidies and unfair trade practices to squeeze out American competitors. These are not merely an assortment of separate moves made by individual actors but a feature of Beijing’s long-term strategy to harness the scale of its domestic market to achieve global dominance for PRC firms in critical technology and products and to make foreign countries, including the United States, dependent upon the PRC and subject to its coercion.

Second, the United States must immediately stem the flow of U.S. technology and capital that is fueling the PRC’s military modernization and human rights abuses. General Secretary Xi has made plain his intent to “resolutely win the battle of key and core technologies” and build the People’s Liberation Army (PLA) into a “great wall of steel.” At present, U.S. capital, technology, and expertise aid that effort. They support the PLA’s modernization, the CCP’s predatory technological goals, and genocide. The United States must change course. To quote Dr. Eric Schmidt’s remarks at the Select Committee’s hearing, “Leveling the Playing Field,” “it’s never too late to stop digging our own grave.”

Third, the United States must invest in technological leadership and build collective economic resilience in concert with its allies. The best defense against the CCP’s predatory economic practices will fail if not paired with a proactive strategy to invest in America and increase economic and technological collaboration with likeminded partners. The United States must bolster its unique advantages in technological development by funding research, incentivizing innovation, and attracting global talent in critical areas. In addition, the United States needs to invest in workers, who must remain competitive for jobs of the future, including by helping workers acquire skills-based training and adapt to technological transitions.

Consecutive U.S. presidential administrations have sounded the alarm on growing U.S. dependence on the PRC for critical goods, including rare earth minerals, components and chemicals used in U.S. weapon systems, and pharmaceutical products and precursors. The PRC has already demonstrated its willingness to weaponize these dependencies to coerce the United States and its allies and seek to constrain our policy options. The PRC’s growing leadership in key critical and emerging technologies vital to long-term competitiveness heightens the risks. 

The strategy presented here includes sets of findings and recommendations for each pillar. Taken together, they would level the economic playing field, reduce the PRC’s hold on U.S. and allied critical supply chains, and invest in a future of continued economic and technological leadership for the United States and its likeminded allies and partners.

To read the full committee report, click here

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Introduction

Since 2018, the United States and China have been embroiled in a trade war. The trade war stems from US President Donald Trump’s decision to impose tariffs on several products and commodities imported from China. In response to the policy, China also imposed tariffs on several products and commodities imported from the US. Research conducted by Chad P. Bown (2022) from the Peterson Institute forInternational Economics shows that as of July 2018, the average US tariff on imports from China was still 3.8%. However, tariffs on imports from China gradually increased until they peaked at 21% in September 2019 and then dropped to 19.3% in February 2020.

Meanwhile, on the Chinese side, in July 2018, the average tariff on imports from the US was at 7.8% and then gradually increased to 21.8% in September 2019. As of February 2020, Chinese tariffs on imports from the US decreased to 21.3% and reached a low of 21.2% on July 2020. Furthermore, based on the impact of tariffs on the percentage of trade, around 66.4% of US imports from China and 58.3% of Chinese imports from the US in June 2022 are still affected by tariffs set against each other.

There are efforts between the US and China to defuse the trade war through the Phase One agreement, which was agreed upon in December 2019. The two countries agreed on structural reforms to China’s economic and trade regime, particularly in intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange. In the deal, China also committed to increasing the imports of goods and services from the US. Furthermore, a dispute resolution system was established with immediate and effective implementation and enforcement. Finally, the US agreed to modify Section 301 of the Trade Act of 1974. Despite these efforts, as shown from the data in the previous paragraph, the tariffs that the US and China imposed on each other remained relatively high.

The US put several Chinese companies on the Entity List as the trade war escalated between the two countries. The US Bureau of Industry and Security (2022) reported on August 23rd, 2022, that about 600 Chinese companies were already included on the list, with 110 companies included during President Joe Biden’s tenure. In practice, companies on the Entity List will have restrictions on access to commodities, software, and technology from the US. However, US entities may export, re-export, and transfer such matters to companies on the Entity List with a license from the US Bureau of Industry and Security.

The conflict between the US and China is not limited to political economy issues but also security politics. China’s claim to much of the South China Sea, known as the nine-dashed line, is contrary to the principles of the US freedom of navigation. This situation leads to freedom of navigation operations (FONOPS) by the US Navy in those waters that China regards as part of its territories as opposed to its claims. The existence of Taiwan also creates issues between the two countries. Although since 1972, it has recognized the communists in Beijing as the sole representative of China, the US maintains its ties with nationalists in Taipei and ensures their independence from Beijing. China’s growing economic and military power over the past two decades allows the country to become increasingly assertive of Taiwan. This raises tensions with the US as Taiwan’s ally and security guarantor.

The conflict between the US and China prompted the two countries to reduce their dependence on each other. US manufacturing imports from China have decreased, while Asian countries categorized as low-cost countries, have increased. At the same time, the issue of reshoring US companies’ operations in China arose. A survey conducted by A.T. Kearney (2022) found that about 47% of executives of US manufacturing companies operating in China have moved part of their operations back to the US in the past three years. 29% said they would restore parts of their operations in the next three years, and 16%said they had considered reshoring but are yet to make a decision. In the survey, US company executives also outlined that their options also include Mexico, Canada, and Central American countries (nearshoring), not limited to reshoring to the US. This decision coincides with the trend of automation by US companies; instead of looking for cheap labor, they are replacing them with robots. The process creates challenges for countries that host part of US companies’ operations characterized by the labor-intensive and technology-laden process.

From the Chinese side, the disruption caused by the conflict with the US encourages them to become more economically self-sufficient. Such efforts to achieve self-sufficiency are made through the dual circulation model, which includes changing the growth model from export-based to domestic consumption and reducing dependence on imports. Concerning the second element, according to the Economist Intelligence Unit (2020), China focuses on three sectors. First, technology with a priority towards semiconductors. China provides fiscal incentives and subsidies, and encourages cooperation between industries and universities to reduce dependence on US semiconductor companies or companies from other countries that use US technology. China also provides fiscal incentives and subsidies, and encourages cooperation between industries and universities. The second sector is energy. China does not rely on the US or its allies for energy supplies, however, shipping oil and gas by sea is vulnerable to a blockade or interception. The threat of a blockade prompted China to increase its renewable energy sector investment. The third sector is food. China’s agricultural sector is labor-intensive, but they experience labor shortage and are dependent on imports of seed and technology. This limitation prompted a policy of agriculture modernization from labor-intensive to technology-intensive.

Alfin Febrian Basundorois a graduate student at the Strategic and Defence Studies Centre, Australian National University, Canberra, Australia.

Muhammad Irsyad Abraris a graduate student at the Department of International Relations, Universitas Gadjah Mada (UGM), Yogyakarta, Indonesia.

Trystantois an undergraduate student of international relations at Universitas Gadjah Mada (UGM), Yogyakarta, Indonesia.

To read the abstract as it was originally posted by the Journal of World Trade Studies, click here.

To read the full research article, click here.

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Trade wars are usually bad for the countries involved. After the U.S. and China launched tit-for-tat tariffs on imports from each other in 2018, prices rose for American consumers, jobs were lost and corporate profits fell. Economic growth in both countries slowed. 

There was also some fear that the Trump administration’s tariffs, which hit other U.S. trading partners, would suppress global exchange and lead to a new period of protectionism. 

But for countries not in the middle of the trade war, research suggests, the opposite happened. 

In a working paper, UCLA’s Pablo Fajgelbaum, Yale’s Pinelopi Goldberg, UC Berkeley’s Patrick Kennedy, Yale’s Amit Khandelwal and the World Bank’s Daria Taglioni describe how “bystander countries” — those on the sidelines of the U.S.-China dispute — increased their exports of products subject to the tariffs to both the U.S. and to the rest of the world. (Exports to China were mostly unchanged.) 

The findings suggest that these countries didn’t just shift goods from their existing trading partners to fill a gap caused by the higher tariffs. Instead, they were able to boost production and increase exports of targeted goods into new and expanded markets. Overall, bystander countries increased their exports of taxed items an average of 6.7% during the period studied, compared with nontaxed products.

Winners and Losers 

“The trade war created net trade opportunities rather than simply shifting trade across destinations,” the authors write. 

Not all countries benefited, though. Some — notably Vietnam, Thailand, Korea and Mexico — were able to boost exports significantly, in part by providing substitutes for goods subject to the U.S.-China tariffs. Others, such as Ukraine and Colombia, saw a decline, largely because their exports complemented goods hit by the tariffs. 

The U.S.-China trade war began in mid-2018 when then-President Donald Trump hit China with a series of rising tariffs on a variety of imported goods and China retaliated by raising duties on U.S. products. (At the same time, the Trump administration also imposed duties on steel, aluminum and machinery imports from other trading partners.) The U.S. tariffs affected about $350 billion in imports from China, or about 18% of the total, while China’s tariffs covered about $100 billion, or about 11%, of goods imported from the U.S. 

Although trade tensions eased in 2020 when the two countries agreed to put a freeze on plans for additional trade duties, the existing tariffs remain in place.

Tariffs Caused a Huge Shift in Trade

The tariffs quickly had an impact. An analysis by the Peterson Institute for International Economics found that in 2022, Chinese imports subject to the highest U.S. tariffs — including semiconductors, furniture and some consumer electronics — were about 25% below their levels before the start of the trade war. The decline wasn’t due to a larger economic slowdown — Chinese imports that weren’t covered by added duties, such as laptops and computer monitors, increased by 42%.

But what about the rest of the world? To see how the trade war affected exports from bystander countries, the authors examined data from the United Nations’ Comtrade database about the trading patterns of the 48 largest exporting countries, (excluding oil exporters) between 2014 and 2019. 

They found that bystanders increased exports to the U.S. for products with high tariffs, but not to China. Shipments to the rest of the world increased for products subject to both U.S. and Chinese tariffs. Not only was there considerable variance among exporting countries, but also the most successful were those that were able to increase exports to the rest of the world, not just to the U.S. 

Two factors seem to explain the difference. For one, successful exporters tended to ship goods that were substitutes for Chinese imports. So when U.S. customers looked for a replacement for, say, smartphones made in China, countries like Vietnam that made phones were poised to benefit.  

What’s more, they were able to scale up production and achieve economies of scale so that the unit costs of their goods fell. This meant that the countries not only could compete successfully with the higher cost of taxed items, but their products became more competitive in markets that weren’t subject to the tariffs. 

Vietnam, for instance, was one of the biggest winners from the trade war, increasing its exports of tires, sweatshirts and vacuum cleaners to both the U.S. and the rest of the world. 

The study also suggests that successful countries weren’t just lucky enough to already specialize in products that would increase in demand after the trade-war tariffs hit. Instead, country-specific factors — such as a strong labor market or preexisting trade agreements — likely accounted for all the variation among countries.

Michael Totty is a freelance reporter and editor. Previously, he was a news editor with the Wall Street Journal in charge of assigning and editing Journal reports on technology, energy, health care, management and other topics. Totty works from Berkeley, California.

To read the full research brief, please click here. 

To read the full report as it was originally published by the National Bureau of Economic Research, click here.

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The relationship between the United States and China is destined to be increasingly fractious. The two countries occupy geopolitical tectonic plates, the movement of one unavoidably generating friction with the other. It is an open question as to how much the world economy, where the market has largely determined trade flows to date, will be reshaped to reflect geopolitical forces.

Global trade figures in gross terms do not reflect the growing geopolitical rivalry.

Despite being strong allies of the United States, for Germany, Japan, and Korea, China is the largest trading partner. In this still undivided world economy, the US, EU, Japan, and the Republic of Korea accounted for 42% of Chinese merchandise exports in 2021. In 2022, the EU, Taiwan, the Republic of Korea, Japan, and US supplied 43% of Chinese imports. Not even the invasion of Ukraine by China’s closest friend, Russia, has caused the trading system to divide into two camps – one led by Beijing and the other by Washington.

The overall numbers tell only part of the story. While the volume of trade between the US and China remains high, bilateral strategic decoupling is proceeding. This is a US-China bilateral phenomenon. It is reflected in the trade of others only selectively. For America’s allies, the US-China trade war had been a spectator event only. Two exceptions began to occur – one for supplying geostrategic-relevant goods, services and technology, and a second the result of identifying sources of geostrategic relevant supplies. Where the US pressed Japan and the Netherlands to join in restricting exports to China of semiconductor production equipment, they have done so. Separately, learning from the European experience with excess dependency on Russia for fossil fuels, Western capitals have begun planning the diversification of sourcing of critical minerals, to avoid dependency on a single country, particularly China.

Any decoupling that does occur between China and the West will likely be substantially “made-in-China”, that is caused by China’s own policies. US preaching in favor of supply chain resilience would fall on deaf ears were there no concerns generated by China with respect to its reliability as a supplier of critical materials.

The general trade policies of the two rivals will also shape trade flows. China is aggressively moving to lower barriers to its trade with others, first through RCEP and then applying to join CPTPP. The United States has moved in the opposite direction, failing to deepen economic relationships with even its avowed friends. In fact, through its recent trade measures it has tended to alienate these trading partners.

Other factors, not traditionally the subject of trade agreements, will contribute to fragmenting the trading world. The contest over global standards has yet to play out – setting standards regarding 5G telecommunications, internet protocols, privacy, AI, electric vehicles and other products at the frontiers of technology may divide markets. Potential effects on trade can be expected as a result of the debt owed to China by the beneficiaries of the Belt and Road Initiative (BRI) and China’s other development programs. For example, the need to repay debt has enabled privileged Chinese access to raw materials, a phenomenon just beginning to be witnessed. The exponential growth of Chinese overseas investment, which will affect trade, is likewise at an early stage. Another factor is the RMB perhaps taking on a more central role as a global currency. All of these economic and financial variables may play a part in shaping world trade. 

None of the aforementioned influences may prove to be as consequential for world trade as the deterioration of the multilateral trading system itself. The immense increase in global economic prosperity made possible by international trade over the last three-quarters of a century has depended in very large part on the certainty provided by the rule of law. As the two largest trading countries begin to ignore the existing structure of rules, this could become a tipping point, seen in retrospect as the end of an era and the beginning of another, a darker one. If the rules are increasingly ignored, the new age would more likely than not be characterized by slower economic growth and fragmented trade.

This is not to suggest that either of the two contesting powers have a conscious plan to discard the current trading system. Neither appears to have reached the conclusion that an end to the multilateral trading system would be in its interest. It is possible that neither is fully conscious of the spreading damage caused by their acting at cross purposes with the current rules. But their conduct is telling. In the case of the US, the departure from the international rule of law is demonstrated by ending binding WTO dispute settlement by blocking Appellate Body appointments, applying tariffs at odds with its contractual commitments (tariffs on trade with China in general and embracing a national security rationale to restrict steel and aluminum imports from all sources), and unapologetically subsidizing domestic industries without regard to any international rules. China’s departure from the rules is at one and the same time more overt and more opaque. China uses trade measures for purposes of coercion and denies that market forces must govern competitive outcomes as it increases the role of the state and the Communist party in its economy.

Neither Washington nor Beijing has declared an end to its adherence to the WTO-administered multilateral trading system. The reverse is the case. Perhaps current conduct at odds with the system is an aberration. US officials state that there is no general policy of decoupling from the Chinese economy. China’s policy of working towards “dual circulation” has not been accompanied by it announcing a retreat from global trade. What is clear is that each wishes to be less reliant on trading with the other. The world has seen nothing like this in inter-hemispheric trade since US measures toward the Empire of Japan in 1940-41, and no analogy with the past is a sufficient guide to the future.

The game changers for the global trading system consist of the adoption by the United States and China, for domestic reasons, of economic nationalism as a controlling factor in formulating their foreign economic policies. In the US the Trump Administration embraced economic nationalism primarily with rhetoric. The Biden Administration made the rhetoric reality in its major economic legislative initiatives. For China, nationalist policies were evident in its statements about achieving dominance in key industries of the future and the episodic deployment of trade measures for purposes of coercion. China’s domestic concerns for regime stability and its contest with the United States led it to support Russia during its invasion of Ukraine. Its priorities blinded it to the inevitable Western reaction. Neither nation has room in its current world view for actively supporting multilateralism.

Most other countries continue to steer an uncertain, non-aligned course, which may increasingly be governed by ad hoc determinations of self-interest. The world’s largest trading bloc, the European Union, has called for a policy of “strategic autonomy”. Whatever this turns out to be, it is not a vote to join Beijing or Washington in a trading bloc, nor is it a declaration in favor of the multilateral trading system. As for some of the others, one would not expect to hear from India nor South Africa that adherence to the existing multilateral trading system is a national priority. Neither are there any indications whatsoever of any country, including these two, aspiring to join a trade bloc.

The bottom line: world trade is not at present coalescing into two trading blocs, but the center, the multilateral trading system, is under stress. The question increasingly asked in academic symposia is whether it will hold.

Alan Wm. Wolff is a distinguished visiting fellow at the Peterson Institute for International Economics. He was Deputy Director-General of the World Trade Organization, Deputy US Special Representative for Trade Negotiations (USTR), and USTR General Counsel. He was a principal draftsman for the administration of the Trade Act of 1974, which provided the basic US negotiating mandate for future US trade negotiations. His book, Revitalizing the World Trading System (Cambridge University Press), is being published this month.

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Furthermore, more recent developments, and in particular the U.S.-China Economic and Trade Agreement concluded in February 2020, require attention as their protectionist nature can be regarded as a factor limiting the further development of China-U.S. trade relations. This could also affect their WTO trade partners. These historical as well as more recent events set the stage for viewing the effects of COVID-19 on China-U.S. trade relations. 

This chapter, both in its theoretical and empirical layers, mainly applies the analyticaldescriptive method, but also uses the normative when the author shares his conclusions and opinions. Comparative analysis was used in commenting on the historical path of China’s development, its long term economic relations with the U.S. economy and their implications for the global economy. This was done bearing in mind political factors and the changing geopolitical environment. 

The focus of the analytical section is predominantly on trade in goods, as this plays a key role in the build-up of China’s export surplus, which consequently leads to a widening of the international payment disequilibrium. Therefore, the bilateral trade balance and the factors shaping it in the long term are analysed. It is argued that its growing imbalance in favour of China has substantially contributed to international imbalances of payments and consequently to the P.R.C.-USA trade war. 

While theoretically and methodologically the chapter is located in the area of international economics, application of an interdisciplinary approach and analysing how changing patterns of global political relations increasingly affect international economic relations is the key contribution of this chapter. In this context, the author builds on prior research on the opening mechanism of the Chinese economy, the specifics of its market transformation, theoretical and practical aspects of international payment imbalances as well as factors and determinants of China-U.S. economic relations within the changing pattern of the world economy and global political environment.

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