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China’s rapid growth in the 21st century has had tremendous effects on the global economy and the geo-political order. In recent years, tensions between the United States and China have introduced new challenges—especially related to economic and defense issues.

Economic issues

China is a major trading and investment partner for the United States. Policymakers must weigh many, and sometimes competing, factors when shaping this bilateral economic relationship. Additionally, federal agencies could improve how they address ongoing issues that affect this relationship.

For example:

• Tariffs. Citing national security concerns over excess global production capacity and imports of steel and aluminum products from China and other foreign countries, the President placed tariffs on some of these products in March 2018 in order to protect the domestic economy. The President also authorized the Department of Commerce (Commerce) to provide relief, or exclusion, from these tariffs in certain circumstances. Many of the "tariff exclusion requests” approved for tariff exclusion were for products from China. However, Commerce rejected thousands of these requests because companies made errors in their applications. Commerce also did not decide most of the requests within its established deadlines, which created a backlog of almost 30,000 undecided requests as of August 2020.
• Research. Research conducted at U.S. universities contributes significantly to U.S. national security and economic interests. Foreign students and scholars—nearly a third of whom are from China—have made substantial contributions to such research efforts and are involved in developing many of the nation’s leading-edge civilian and defense-related technologies. There is a risk, however, that some foreign students and scholars will "export" sensitive information they gain through research in the United States to their home countries, which may be hostile to U.S. interests. The Departments of State and Commerce share guidance with exporters, including universities, to help them comply with export control regulations and safeguard controlled data and technologies. However, this guidance doesn’t address issues most relevant to universities.

Physical Security Mechanisms Selected Universities Employ to Safeguard Export-Controlled Items

• Forced labor or service. Across the world, millions of adults and children are forced into labor or service, raising humanitarian and economic concerns. Importing products made by forced labor is banned in the United States. U.S. Customs and Border Protection (CBP) monitors and takes civil enforcement actions to prevent goods made by forced labor from entering the country. Most of the investigations and actions taken related to forced labor have focused on goods manufactured in China. And although CBP has increased enforcement efforts to address forced labor, it hasn’t determined if it has enough staff with the right skills.
• Mergers and acquisitions. The interagency Committee on Foreign Investment in the United States reviews certain foreign acquisitions, mergers, or takeovers of U.S. businesses to determine the effect of these transactions on national security. Acquisitions by Chinese-owned companies accounted for the largest number of transactionsreviewed by this committee from 2014 through 2016. Additionally, the committee reviewed over 50% more transactions in 2016 than in 2011. However, it does not know whether it has enough staff for this increased workload, which could limit its effectiveness.
• Food safety. Ensuring the safety of food has become increasingly complicated due to globalization. For example, China was the leading exporter of seafood to the United States in 2017—and farmed fish (from China and from other countries) may be treated with antibiotics and other drugs that can leave harmful residues in seafood. Federal agencies could improve how they address this issue. For example, agencies could require foreign governments to do more testing for these drug residues.
• Drug manufacturing. China was also one of the countries with the most establishments manufacturing drugs (including drugs for treating COVID-19) for the U.S. market in 2019. The Food and Drug Administration (FDA) inspects foreign and domestic drug manufacturers to ensure drug safety and effectiveness. But FDA temporarily postponed almost all inspections of foreign manufacturing establishments in March 2020 due to COVID-19. This lack of foreign inspections removed a critical source of information about the quality of drugs manufactured for the U.S. market.

Defense issues

As China continues to develop its military capabilities, it poses particular challenges to the U.S. military.

The 2018 National Defense Strategy emphasizes that a free and open Indo-Pacific region provides prosperity and security for all. However, China’s growing military capabilities may challenge U.S. access to air, space, cyberspace, and maritime domains. These capabilities can be used to deny the U.S. military’s ability to enter and conduct operations in the region. In fact, the Department of Defense’s (DOD) 2020 China Military Power Report states that China has already achieved parity with or exceeds the U.S. in several military modernization areas, including shipbuilding, land-based conventional missiles, and integrated air defense systems.

Some other defense challenges include:

• Global manufacturing. China’s dominance in global manufacturing also presents national security issues. For example, there may be concerns when parts of federal telecommunications systems, such as the State Department’s critical telecommunications equipment and services, are produced by foreign manufacturers—particularly cyber-threat nations like China.  
• Counterfeit parts. DOD is also at risk for receiving counterfeit or fake military-grade electronic parts from its large network of global suppliers, including companies from China. Counterfeit parts can seriously disrupt DOD’s supply chain, harm weapons systems, and endanger troops' lives.

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