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Phase-One U.S.-China Trade Deal: What’s In It?

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By Patricia Kingswell

December 25, 2019
12:21 pm
Los Angeles, CA

The United States and China have reached an agreement on phase one of the trade deal, confirmed President Donald Trump in a tweet on December 13. “Getting VERY close to a BIG DEAL with China. They want it, and so do we!” he wrote. The announcement comes after almost 18 months of trade conflicts between the world’s two largest economies, primarily arising from concerns about the theft of intellectual property, forced technology transfers and trade imbalances. The new agreement includes commitments by China related to its currency, intellectual property and access to Chinese markets, Trump noted. “That’s going to be one of the great deals ever and it’s going to ultimately lead to the opening of China, which is something that is incredible, because that’s a whole big untapped

The United States and China have reached an agreement on phase one of the trade deal, confirmed President Donald Trump in a tweet on December 13.

“Getting VERY close to a BIG DEAL with China. They want it, and so do we!” he wrote.

The announcement comes after almost 18 months of trade conflicts between the world’s two largest economies, primarily arising from concerns about the theft of intellectual property, forced technology transfers and trade imbalances. The new agreement includes commitments by China related to its currency, intellectual property and access to Chinese markets, Trump noted.

“That’s going to be one of the great deals ever and it’s going to ultimately lead to the opening of China, which is something that is incredible, because that’s a whole big untapped market of 1.5 billion people,” said Trump.

The U.S. will continue to levy a 25 percent tariff on approximately $250 billion of imported goods from China, while slashing tariffs on $120 billion by half—to 7.5 percent, according to a statement from U.S. Trade Representative Robert Lighthizer.

“We have agreed to a very large Phase One Deal with China. They have agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more. The 25% Tariffs will remain as is, with 7 1/2% put on much of the remainder….” tweeted Trump on Friday.

The agreement also delays indefinitely the implementation of a 15 percent tariff on $156 billion in primarily consumer goods, including toys, clothes, and favourites like smart phones, laptops and other electronics. Beijing also did not go ahead with planned retaliatory tariffs, and has in recent months lowered some, including on cars imported from the U.S.

However, a critical point remains in question—agricultural purchases. The 86-page agreement initially included a commitment from China to purchase $200 billion in U.S. goods and up to $40 billion in agricultural products, according to Lighthizer, who says there would be no new tariffs as long as China negotiates in good faith. Trump then pushed to see that agricultural figure reach closer to $50 billion.

Lighthizer told Reuters that China would buy at least $16 billion more agricultural goods in 2020 and 2021, bringing purchases close to that $50 billion mark.

However many are skeptical as to whether China will keep its promise.

“That scale of purchases seems implausible and Chinese officials were reluctant to mention any specific target during their press conference,” said chief China economist Ting Lu in a note released on December 14.

“With only limited concessions, China has been able to preserve its mercantilist economic system and continue its discriminatory industrial policies at the expense of China’s trading partners and the global economy,” said Scott Kennedy, senior advisor at the Center for Strategic and International Studies, on Friday.

“Trump could reverse course and renew tariffs, but Beijing has bought itself a likely respite from the daily uncertainty for at least a few months and perhaps for the remainder of Trump’s current term,” he continued.

Lighthizer appeared on the CBS News show Face the Nation on December 15, calling the agreement “totally done” and heading for “some scrubs.”

A senior administration official said the deal included “state-of-the-art” IP commitments and a breakthrough on forced technology transfer.

Among the specific commitments USTR announced:

China says it will stop forcing or pressuring foreign companies to transfer their technology to Chinese companies as a condition for achieving administrative approvals, government advantages and market access.
China promises to provide transparency, fairness, and due process in administrative proceedings.
China commits to technology transfer and licensing taking place on market terms.

As with other U.S. trade agreements, the new China deal will include a dispute-resolution mechanism and the provision lays out a 90-day enforcement period, says Lighthizer. Complaints of either party will be brought to a U.S.-China working group, with further unresolved disputes being tackled at the ministerial level as to what actions to take, including tariffs.

Lighthizer and his counterpart Vice Premier Liu He will likely do the signing of the deal in Washington in the first week of January 2020, with commitments taking effect 30 days later.

Talks for the next phase will start very soon with a focus on digital trade, data localization, cross-border data flows and cyber intrusions, according to President Trump.