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Economic

Interdependence and US
National Security
U.S. National Security Policy
Student Project
Professor: Aleksandra Jarczewska
Student: Ekaterine Makhatadze

Warsaw
2014

Economic Interdependence
between

U.S.

and

China

U.S. - China

1971 the firs steps


April 14, Nixon administration announced five
measures aimed at removing restrictions on
commerce and travel between the US and China.

24 January 1980 Congress passed a trade


agreement conferring Most Favored Nation
(MFN) status on China.
By 1984 the US had become
Chinas third-largest trading
partner, China - Americas
fourteenth-largest trade partner.

Largest economies

Geopolitical competitors

The National Security Strategy of the United States of


America

Bush administration(1989)
American direct investment in
China stood at 284 million ESD,
100000 American jobs were
dependent on export to China.
Sino-American economic
relations following the collapse of
the Soviet Union (1990-2001,
2002-2009)
Chinas rejuvenated economic
reforms, accession to the WTO;
Series of political conflicts;
The world economic downturn;
1.
Journal
of Current
The events
of Chinese
9/11. Affairs 3/2010: 165-210
2.
3.

Interdependent competition

2002

Our important trade relationship


will benefit from Chinas entry into
the World Trade Organization, which
will
create
more
export
opportunities and ultimately more
jobs for American farmers, workers,
and companies. China is our fourth
largest trading partner, with over
$100 billion in annual two-way
trade.

Wright, T., Sifting Through Interdependence, The Washington Quarterly, Fall 2013
The National Security Strategy of The United States of America, September 2002

The profound changes

experienced by both the


American and Chinese
economies

The expending economic

Sino-American
economic relations

engagement of both nations


with East Asia and the world
economy

The parallel growth of Chinese

imports and exports

The edge in commercial services


The controversial rebalancing of

the global economy and USChina relations

1. Journal of Current Chinese Affairs 3/2010: 165-210

U.S.

export

China

$110 billion worth of goods in 2012


$63 billion in 2007
$22 billion in 2002

U.S.

import

China

$425.5 billon of goods in 2012


$321 billion in 2007
$125 billion in 2002

The U.S. trade deficit with China was $315 billion in 2012, up from $258.5 billion in 2007 and
The
U.S.billion
trade in
deficit
with China was $315 billion in 2012, up from $258.5 billion in 2007 and
$103
2002.
$103 billion in 2002.

1.
2.

U.S.-China Economy and Security Review Commission, Chapter 1 The U.S-China Trade and Economic Relationship,
November 20, 2013.
Wright, T., Sifting Through Interdependence, The Washington Quarterly, Fall 2013

U.S manufactures export to


the world improved slightly in
the first half of 2013.
The only manufacturing
sector in which US registered a
substantial trade surplus with
China was transportation
equipment -

U.S. Trade Balance with China in Advanced Technology


Products,
January-June, 20122013
(U.S. millions)

automotive
aircraft
ship products
Other substantial surplus

agriculture, waste,
scrap, mineral, ores.
The US has persistent trade
deficit with China an advanced
technology products.

1.

U.S.-China Economy and Security Review Commission, Chapter 1 The U.S-China Trade and Economic Relationship,
November 20, 2013.

U.S-China Agriculture Trade

Value and Composition of U.S. Agricultural Exports to China,


20022012
US$ billions

China must feed a fifth of world


population with less than a tenth of its
arable land and potable water.
China has used nontariff barriers to
restrict imports of higher value- added
products from the United States.
.The China-U.S. Plan of Strategic
Cooperation in Agriculture(2012-2017)
signed in February 2012.

Annualized Growth of U.S. Agricultural Exports to China,


20022012
Compound Annual Growth Rate (%)

China is now the top market for U.S.


agricultural exports.
United States from China are safe.

1. U.S.-China Economic and Security Review Commission, Chapter 1; Section 4 Chinas Agriculture Policy, Food Regulation, and th
U.S.-China Agriculture Trade, November 20, 2013

Chinese investment in the United States


Chinese foreign direct investment (FDI) in the United States continues to grow
The biggest investments have been made in the oil and energy fields, which are
dominated by Chinese state-owned giants.
High-end manufacturing is another important destination of Chinas investments

Cumulative Chinese FDI in the United States, by Sector,


20002013Q2
(total deal value $27.9 billion)

Chinese technology or intellectual


property could be harmful to U.S.
national interests.
Investments made by Chinese stateowned or controlled companies can
pose economic security threats

1.

U.S.-China Economic and Security Review Commission, Chapter 1; Section 2 Trend in Chinese Investment in the United
States, November 20, 2013

What impact will interdependence have?


Interdependence will not remove the causes of
U.S.China security competition

Taiwan

Either China or the U.S. would

not abandon their positions.


Washington and Beijing could miscalculate by
assuming that the other side is more
commercially minded than they are.

Trade - a Positive Form of Interdependence


Chinese holdings of U.S. debt a Negative Form of bilateral
interdependence
(reached record levels in May 2013)

1.

Wright, T., Sifting Through Interdependence, The Washington Quarterly, Fall 2013

Two scenarios which could destabilize U.S.


China relations
1)

A real political crisis between the United


States and China

2) If world markets lose confidence in U.S.


treasuries and began to offload them.

Asymmetry of the interdependence

Interdependence

China Problems
The US takes China as a
reformer/improver

1.
2.

Wright, T., Sifting Through Interdependence, The Washington Quarterly, Fall 2013
Zhongying, P.., A New Type of Great Power Relationship between China and US, July 2, 2013,
http://www.chinausfocus.com/foreign-policy/

Summit in Sunnylands, California


June 8-9/2013
U.S. - China
President Xi and President Obama touched the bilateral economic and
trade ties.
The financial tsunami is changing the so-called balance of financial terror
between the two countries
China is moving toward a more consumption-driven economy, while the
U.S. is focusing on financial de-leveraging, and the revival of its
manufacturing industry.
China-U.S.
and Economic Dialogue (S&ED)
The new type of great
powerStrategic
relationship
July 11-12/2013

strategic track and a similar number on the economic


track
New working group - an International Economic Affairs
Consultation
two Cs Cooperation and Competition
1. Shambaugh, D., A big step forward in U.S.- China relations, http://www.chinausfocus.com/, July 19, 2013
2. Liwei, Q. China and US Forge A New Type of Economic Relationship, http://www.chinausfocus.com/f, June 13, 2013
3. U.S. Department of State, 2013 U.S.-China Strategic and Economic Dialogue,
http://www.state.gov/e/eb/tpp/bta/sed/2013/index.htm last seen: 3 May, 2014

References:
1.Journal of Current Chinese Affairs 3/2010: 165-210

http://journals.sub.uni-hamburg.de/giga/files/journals/3/articles/307/public/307-311-1-PB.pdf
Slide 14, 15
2.Wright, T., Sifting Through Interdependence, The Washington Quarterly, Fall 2013
http://csis.org/files/publication/TWQ_2013Winter_Wright.pdf
Slide 14, 16, 18, 21
3.The National Security Strategy of The United States of America, September 2002
http://www.state.gov/documents/organization/63562.pdf
Slide 14
4.U.S.-China Economy and Security Review Commission, Chapter 1 The U.S-China Trade and Economic Relationship, November 20, 2013.
http://origin.www.uscc.gov/sites/default/files/Annual_Report/Chapters/%3Cem%3EEdit%20Annual%20Report%3C/em%3E%202012%2
0Annual%20Report%20to%20Congress/Chapter%201%20The%20U.S.-China%20Trade%20and%20Economic%20Relationship.pdf
Slide 16, 17
5.U.S.-China Economic and Security Review Commission, Chapter 1; Section 4 Chinas Agriculture Policy, Food Regulation, and the U.S.-

China Agriculture Trade, November 20, 2013


http://origin.www.uscc.gov/sites/default/files/Annual_Report/Chapters/Chapter%201%3B%20Section%204%20China%27s%20Agricult
ure%20Policy%2C%20Food%20Regulation%2C%20and%20the%20U.S.-China%20Agriculture%20Trade.pdf
Slide 19
6.U.S.-China Economic and Security Review Commission, Chapter 1; Section 2 Trend in Chinese Investment in the United States,

November 20, 2013


http://origin.www.uscc.gov/sites/default/files/Annual_Report/Chapters/Chapter%201%3B%20Section%202%20Trends%20in%20Chinese
%20Investment%20in%20the%20United%20States.pdf
Slide

20

7. Shambaugh, D., A big step forward in U.S.- China relations, July 19, 2013

http://www.chinausfocus.com/foreign-policy/a-big-step-forward-in-u-s-china-relations/
Slide 21
8. Liwei, Q. China and US Forge A New Type of Economic Relationship, http://www.chinausfocus.com/f, June 13, 2013
http://www.chinausfocus.com/finance-economy/china-and-us-forge-a-new-type-of-economic-relationship/
Slide
21
9. U.S. Department of State, 2013 U.S.-China Strategic and Economic Dialogue, last seen: 3 May, 2014
http://www.state.gov/e/eb/tpp/bta/sed/2013/index.htm
Slide 21
10.Zhongying, P.., A New Type of Great Power Relationship between China and US, July 2, 2013,
http://www.chinausfocus.com/foreign-policy/a-new-type-of-great-power-relationship-between-china-and-us/
Slide
22

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