During times of strong economic growth and full

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During times of strong economic growth and full employment, the U.S. economy has seen grow- ing trade deficits, since capital inflow from overseas is required to finance increased domestic investment and consumption. In addition, the trade deficit has decreased during periods of economic contraction and rising unemployment. Notably, as Figure 2 demonstrates, there is actually a strong correlation between increases in the U.S. trade deficit and employment. Figure 2. Correlation between rising employment and negative trade balance with China TOTAL NONFARM PAYROLLS (MILLIONS) 120 125 130 135 140 145 150 155 Total US employment (left axis) 2018 2015 2010 2005 2000 0 -$100B -$200B -$300B -$400B US-China trade balance (right axis) Source: FRED, Bureau of Economic Analysis
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The US-China economic relationship: A comprehensive approach 11 Focusing on the growth and size of the U.S. bilateral trade deficit also fails to account for the in- vestment dimension of the relationship. Including the activities of affiliates of U.S. and Chinese companies in each respective market reveals a more balanced bilateral economic relationship as U.S. businesses have become significant investors in China and serve the Chinese market though sales of their affiliates. In contrast, Chinese businesses tend to rely more on exports to reach the U.S. market. Thus, as is demonstrated in Figure 3, including sales made through majority and minority owned investments in each other’s country shows the U.S. selling more to China than China sells to the U.S. Figure 3. Bilateral trade and business activities of affiliates of U.S. and Chinese companies in each other’s markets $100B $200B $300B $400B $500B $600B $700B China U.S. Goods $506B (89%) Goods $130B (20%) Services $58B (9%) Majority-owned $345B (53%) Minority-owned $118B (18%) Services $17B (3%) Majority-owned $34B (6%) Minority-owned $11B (2%) Sales of U.S. affiliates in China Exports of goods and services Exports of goods and services Sales of Chinese affiliates in U.S. Source: Bureau of Economic Analysis Note: Sales data is from 2016.
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The US-China economic relationship: A comprehensive approach 12 Nevertheless, Chinese economic practices are now increasingly targeting the heart of the U.S. service and knowledge economy. IP theft, forced technology transfer, and other Chinese unfair trade practices now threaten high-wage jobs and high-value added manufacturing in the United States. U.S. concerns with China’s economic practices are particularly focused now on Chinese efforts to acquire U.S. technology and IP. According to one estimate, trade in counterfeit goods, pirated software, and trade secrets in China costs the U.S. between $225-$600 billion annual- ly—with the large range reflecting significant uncertainty as to the cost of trade secret theft for the U.S. economy. 35 These figures do not take into account most costs of patent infringements as well as second order effects from IP theft, such as additional costs to companies of protecting IP, disincentives for investment, reduced innovation, and employment effects on U.S.
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