Understanding America’s Trade with China
China’s membership in the WTO and its trade with America has been framed as a threat. Specifically, American reliance on Chinese imports for critical goods could give China economic leverage over America. Proposed solutions to the problem of Chinese trade dominance include increased defence spending, tariffs, and government investment in critical industries.
Unfortunately for the doomsayers but fortunately for America, trade with China is not a threat. China’s place in critical industries has been overstated and the mutual interdependence created by trade has been understated.
Pharmaceuticals
We have been warned about the danger we face because of the control that China has over our pharmaceuticals.
These fears are entirely out of step with reality. In 2024, America exported more pharmaceuticals ($9.5 billion) to China than it imported from China ($2.6 billion). Further, China’s second largest category of pharmaceutical exports to America was Wadding, Gauze, Bandages and Similar Articles ($685.4 million), which is not really the kind of pharmaceutical product that China could use for much leverage in its rivalry with America.
China does not even make it into the top five countries that America imports pharmaceuticals from, which are Ireland, Switzerland, Germany, Singapore, and India. China is actually the top destination for American pharmaceutical exports and America is the third largest supplier of pharmaceuticals to China, so it would actually be more proper for China to worry about the leverage America has over them in the pharmaceutical market instead of the other way around.
Steel and Aluminum
In President Trump’s first term, he imposed sweeping tariffs on steel and aluminum, and in his second term he has increased the tariffs and expanded the goods covered by them. Although the tariffs affect countries other than China, President Trump has made it clear that the tariffs are meant to undermine China.
However, China was not in the top five countries providing iron and steel to America. In 2024, Canada was the top provider by exporting $7.6 billion worth of iron and steel to America, while China only exported $537.1 million worth of iron and steel to America. China exported $14 billion of the $52.7 billion in iron and steel products that America imported (26.6% of the total). Essentially, China barely provides iron and steel to America, but is a significant provider of iron and steel products.
China was not in the top five countries exporting raw aluminum to America. In 2024, they exported $4.2 billion in aluminum to America, but total imports of aluminum were $28.3 billion, meaning they made up 14.8% of American aluminum imports. That’s clearly not a trivial share, but is far from a monopolistic hold and pales in comparison to the $11.5 billion of aluminum that America imports from Canada.
Computer Chips
Fears that China will dominate the tech sector are widespread, and there are even organizations that exist to warn the public about this perceived threat.
Competition over development of advanced computer chips is central to fears of Chinese tech dominance. Computer chips are essential for modern economies, and computer chip production is incredibly concentrated. But not in China. The majority (68%) of the world’s computer chips are manufactured in Taiwan, and around 90% of the most advanced chips are made by a single company, the Taiwan Semiconductor Manufacturing Company (TSMC).
TSMC is entirely reliant on ASML Holding, a Dutch company, for the Extreme Ultraviolet (EUV) lithography machines that make the most advanced chips because ASML Holding is the only company capable of making them.
TSMC is also just a foundry, not a chip designer. NVIDIA controls 85-90% of the market for AI chip design. American companies dominate the chip design market in general: four out of the top five chip designers are American companies.
That means that every link in the supply chain for advanced computer chips is highly concentrated, but all the market leaders are American or allied with America. NVIDIA designs the chips, TSMC makes them, and ASML Holding makes the machines that make the chips. America is reliant on foreign countries for chip production and chip fabricators, and the world is reliant on American companies to design the chips.
Modern Markets
Although America is less reliant on China for pharmaceuticals, aluminum, steel, and computer chips than fearmongers would have us believe, China is America’s second largest source of imports. Does China have economic leverage in trade over America?
Not really. The process for making almost any good today is incredibly interconnected. The network of suppliers that are needed to make products span the globe like never before. Labels that say where a good is made are actually just indicators of where final assembly takes place. Parts, components, and inputs for virtually all goods come from every corner of the globe. So even when we are reliant on imports from China, China is almost certainly reliant on other countries for inputs to that good.
Free trade promotes efficient production and mutual interdependence. Production of inputs and goods concentrates in countries where production is most efficient. Free trade allows people to specialize in certain forms of production and trade for everything else. It drives down the cost of goods and makes people wealthier.
With specialization comes interdependence. When a Vietnamese company sells a t-shirt made with American cotton and Chinese dyes on a Korean ship to Canada, everyone involved benefits. Everyone would be worse off if any one of those countries imposed trade restrictions.
Conclusion
President Trump’s liberation day tariffs are not popular. They make it easy for the average person to see how interconnected our economy is with the world by raising the price of imports and domestically produced goods that use imported goods as inputs. Free trade has made America rich and tariffs make us poorer.
The tariffs cannot be justified on economic grounds, and should not be justified on security grounds. America is not as reliant on China for critical goods like pharmaceuticals, steel, aluminum, and computer chips than protectionists claim. Trade is mutually beneficial, creates interdependence, and promotes peace. Free trade is not a security threat.
Caleb Petitt is a research associate at the Independent Institute in Oakland, Calif. @CalebDPetitt
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The author misunderstands the nature of the threat. The US imports too much from China (and the rest of the world) and does not export enough. You cannot run current account deficits forever.
What happens is that parts of your country end up being owned overseas - your shopping malls, your companies, your housing, your farmland, your mines and resources. Over a 4 year window (political time) it is nothing and even over a 20 year period it is nothing, but it accelerates through time and over 100 years you become the colony. The foreign owners become wealthy and your country becomes impoverished. Anything of value like IP is transferred back to head office.
America and the West enacted these strategies for decades, and China is on the verge of returning the favour. Again, not in 4 or 20 years, but over the long term.
What would this mean exactly, especially if we will be living in an era of abundance, for the US and say Europe to be colonies of China? Well, if anything, the norms of Chinese society will seep in to our countries. Norms such as deference and obedience to the party or to the hierarchy, will become norms in the US. Social credit structures will penalize you and your family if you disagree with the party or society at large. Even democracy, which Chinese officials would argue is inappropriate given the low knowledge and intelligence levels of the average citizen, would be at risk. Is this what you want for your descendants?
Well some of you may say that in 100 years, we will have a global system of one government, and while I am sceptical this is in the interest of western countries, if it is to be wouldn't you want it to be based on freedom and democracy ?
And still others will say they have no descendants and don't plan to so do not care one way or the other what happens in 100 years, and to those people I would have other things to say, that aren't suitable in this comment.
Thanks for some actual light in place of the usual sturm und drang.