On 15 January 2020, President Donald J. Trump and Chinese Vice Premier Liu He signed a “Phase One” Agreement between the United States and China, a truce halting the escalating trade tensions between the two global trading heavyweights. The Phase One Agreement follows an investigation by the Office of the United States Trade Representative (USTR) into Chinese trade practices that culminated in substantial and expansive U.S. tariffs on more than US$350 billion worth of Chinese exports to the United States. The Agreement is scheduled to become effective on 14 February 2020.
The Phase One Agreement includes commitments by China, including: (1) purchasing an additional US$200 billion in U.S. goods (manufactured, agriculture, and energy) and services, compared with baseline Chinese purchases in 2017; (2) introducing sectoral reforms, including improved intellectual property protections; (3) prohibiting forced technology transfers; (4) removing barriers to U.S. agricultural imports; and (5) liberalizing financial services. The Agreement also includes a commitment to cooperate on macroeconomic policy and exchange rates.
The Phase One Agreement addresses certain U.S. priorities, such as trade secrets, pharmaceutical patents, forced technology transfers, market access for U.S. agricultural and financial services products, and other longstanding U.S. concerns about intellectual property rights. Notwithstanding, U.S. tariffs remain in effect on more than US$350 billion worth of Chinese goods, and several systemic issues were put off for a phase two agreement. Accordingly, while potentially significant, the Phase One deal should be viewed as a short-term truce until the parties attempt to resolve more challenging systemic issues. In addition, the deal rests heavily on China’s implementation of its specific terms – in order to enforce the parties’ commitments, the deal contains an innovative “dispute settlement arrangement,” permitting either party to impose additional tariffs if consultations do not produce a solution.