This Day in History: January 15, 2020—Phase One Trade Deal Agreement
A SPECIALIZED RESEARCH ARTICLE BY NICOLE WEI
On January 15, 2020…
then-US President Donald Trump and China’s Vice Premier Liu He signed a “historic, enforceable agreement” termed the US-China Economic and Trade Agreement. Colloquially known as the Phase One trade deal, this agreement marked a significant development in trade relations and tensions between the two largest economies in the world.
Former US President Donald Trump and China’s Vice Premier Liu He at the White House signing ceremony on January 15, 2020 (via USTR)
Since early 2018, the US and China have been embroiled in a trade war, the collateral effects of which have reverberated throughout the global economy. Under the Trump administration, the US formally imposed tariffs on billions of dollars worth of goods imported from China. In response, the Chinese government retaliated with its own set of tariffs and cancelled orders for key American exports like soybeans. At the international level, economic uncertainty resulting from the ongoing trade war slowed GDP growth in countries and regions beyond the two feuding parties. The global implications of continued economic conflict between the US and China greatly concerned world leaders and industry experts, with lobby groups urging both countries to engage in trade talks and ease the escalation of tensions. In early 2020, after rounds of negotiations, the two sides finally arrived at a preliminary deal.
On the day of the signing ceremony, Trump issued remarks on the historical significance of the Phase One trade deal. In his speech, he spoke of the deal’s hopes for promoting “harmony” between the US and China as well as “for the whole world.” Similarly, Liu echoed statements emphasizing the importance of finding ways to best serve “the interest of both countries” due to China’s increasing economic power on the world stage. In a press conference two days after the signing ceremony, Liu added that the Chinese economy stands to benefit greatly from certain provisions in the deal, like addressing IP protection, as China looks to create a more attractive environment for investors and technological innovators. However, since the deal was primarily negotiated to address American discontent with the US-China trade deficit and Chinese trade practices, most provisions naturally aim to rebalance the bilateral trade relationship and should theoretically work in the favor of the US business community more so than that of China.
The inception of the Phase One trade deal marked the start of a tougher American policy on economic relations with China. As the text of the agreement outlined, the US expects a series of “structural reforms” regarding Chinese trade practices in seven major areas of concern: IP, technology transfer — the coercive acquisition of foreign technologies in exchange for market access — agriculture, financial services, currency, expanding trade, and dispute resolution. The order in which the aforementioned issues fell on the list potentially reflected the Trump administration’s internal prioritization of economic concerns, given the sanctions imposed on the Chinese tech giant Huawei in 2019 amid rising US-China tensions over the global 5G industry. To put it in simpler terms, China pledged to buy more “farm, energy and manufactured goods” from the US in exchange for a partial reduction of certain US tariffs, such as the one targeting $160 billion worth of Chinese-manufactured consumer electronics and clothing.
Flash forward to 2022, the Biden administration looks to increase pressure on its Chinese counterparts to meet their commitments. Both US Treasury Secretary Janet Yellen and US Trade Representative Katherine Tai spearheaded bilateral dialogue on trade relations with Liu in late 2021. However, their conversations reflected continued dissatisfaction with China’s end of the deal. Following a video call with Liu in October, Tai highlighted “outstanding issues” regarding progress on the Phase One trade deal and stressed the US discontent toward China’s “state-led, non-market policies and practices,” which disadvantaged American businesses. Given China fell short of its two-year purchase commitment by approximately 38 percent, the Biden administration kept Trump-era tariffs on Chinese imports in place.
Meanwhile, the newly-appointed Chinese Ministry of Commerce Spokesperson Shu Jueting relayed that both countries will keep their communication channels open and continue to engage in frequent dialogue regarding progress on the Phase One trade deal in a press conference earlier this month. She added the Chinese side hopes their American counterparts can allow for and promote the prospering of a “favorable atmosphere” between the two nations, suggesting a shifting of responsibility from the Chinese leadership to American politicians. China’s passive attitude toward meeting Phase One commitments might reflect the nature of the trade deal, being that the US stands to benefit more from setting clear rules of trade that would reign in Chinese economic tactics and ambitions.
Following the much-anticipated virtual summit between US President Joe Biden and Chinese President Xi Jinping in November 2021, US-China trade relations remain uncertain because both sides “made no apparent progress on trade” despite hinting at potential additional deals in the future. While the Phase One trade deal de-escalated economic conflict between the two countries to encourage bilateral dialogue and reduce miscommunication, rising US-China tensions in the Indo-Pacific region have begun to overshadow trade issues. Ultimately, any future phases of the US-China trade deal will depend on both parties’ satisfaction with their respective implementations of the Phase One trade deal. Yet, two years after signing the agreement, US-China economic relations remain tense as neither side is willing to back down on their demands as the Biden administration maintains tariff rates and the Chinese Ministry of Commerce continues to provide its domestic sectors with subsidies deemed unfair by American policymakers.