China's Trade Policy and Sino-American Relations

The research on which this article is based was sponsored by The Brookings Institution. The author wishes to express his appreciation for their support and make clear that the views expressed are his own.

In June 1971, a month before Henry Kissinger's secret trip to Peking, the United States lifted the trade and payments embargo that had been in effect on the Chinese People's Republic ever since 1949. The move followed a number of lesser measures of relaxation taken from 1969 onward, and of course set the stage for the Kissinger visit and President Nixon's trip in February 1972. In the Shanghai Communiqué, the two nations agreed "to facilitate the progressive development of trade between their two countries."

Roughly four years after these dramatic events, it is a good time to take stock of the trade aspect of the Sino-American relationship. For it has followed a course few, if any, would have predicted in 1971. On the import side, to be sure, there has been the slow and gradual upward trend that seemed logical, from both political and economic standpoints, for the trade pattern as a whole. But U.S. exports to China have been a different story, rising much more rapidly in 1973 and 1974 than anyone had forecast-so much so that America became, next to Japan, China's most important supplier. Then, in the current year of 1975, exports have been dropping back so sharply that it now looks as though total trade both ways will be less than half the levels of the two previous years. As shown in Table I, these divergent export and import trends have also produced very wide fluctuations in the Sino-American trade balance, which rises from a 2:1 ratio in our favor in 1972 to almost 12:1 in 1973 and then (based on current projections) reverts to less than 2:1 in 1975.

TABLE I

U.S.-CHINA TRADE, 1971-1975

(in millions of U.S. dollars)

1971 1972 1973 1974 1975

U.S. Exports 0.0 63.5 739.7 820.5 250

U.S. Imports 4.9 32.4 63.9 114.7 150

Total Trade Turnover 4.9 95.9 803.6 935.2 400

Why these drastic fluctuations? Are we seeing here the renewed impact of political factors, especially on the Chinese side? Or are there serious disabilities, partly political and partly economic, that account for the United States being only a residual supplier of grain to China, and only a minor source for the industrial plants that China has been purchasing since 1972?