On January 15, 2020, after two years of negotiations and retaliatory measures in a tariff trade war, the United States and China signed a “phase one” trade agreement that President Donald Trump called “historic” and “transformative.” In remarks during the signing ceremony, Trump said, “Today, we take a momentous step — one that has never been taken before with China — toward a future of fair and reciprocal trade, as we sign phase one of the historic trade deal between the United States and China. Together, we are righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers, and families.”
In very brief remarks to the press, Chinese Vice Premier Liu He stated that it was a “great agreement,” adding that it was “good for China, good for the United States, and good for the whole world” and “conducive to world peace and prosperity.” During the signing ceremony, Ambassador Robert Lighthizer added, “The United States and China are two great countries with two great economies, but two very different economic systems. It is imperative that we develop trade and economic rules and practices that allow us both to prosper. The alternative is not acceptable for either of us.” He noted that this “phase one” agreement is a “big step forward in writing the rules needed and developing the practices that we must have going forward.”
Intellectual Property and Technology Transfer Protections
On the two key issues that ostensibly triggered the Section 301 investigation and resulting tariffs on imports from China into the United States, critics have argued and, to some extent, USTR officials have acknowledged, that additional work on intellectual property protections and forced technology transfers remains necessary in phase two of the negotiations. However, under the agreement’s IP chapter, numerous concerns in the areas of trade secrets, patents and pharmaceutical-related intellectual property, geographical indications, trademarks, and enforcement against pirated and counterfeit goods appear to be preliminarily addressed. China must put forth an action plan that will outline the structural changes it will take to implement its obligations. Under the Technology Transfer chapter of the agreement, the parties have agreed to: (i) prohibit the forcing or pressuring of foreign companies to transfer their technology as a condition for market access, administrative approvals, or receipt of any advantages; (ii) require that any transfer or licensing of technology be based on market terms that are voluntary and reflect mutual agreement; (iii) prohibit state-directed or supported outbound investment aimed at acquiring foreign technology in sectors and industries targeted by a party’s industrial policies; and (iv) ensure that enforcement and administrative proceedings are impartial, fair, transparent, and non-discriminatory.
Financial Services Reform
The Financial Services chapter of the agreement addresses many of China’s existing trade and investment barriers that have reduced market access for and the competitiveness of U.S. companies supplying or seeking to supply financial services in China. This includes certain commitments for China — some to be initiated as soon as April 1, 2020 — in the banking, insurance, securities, and credit rating services sectors. Non-tariff trade barriers to be modified include eliminating foreign equity limitations and discriminatory regulatory requirements.
Agreements by China to Import More U.S. Goods and Agricultural Products
As a part of the agreement, China has pledged to increase imports of U.S. goods and services by at least $200 billion over the next two years. The annexes to the agreement include commitments covering a variety of U.S. manufactured goods, food, agricultural and seafood products, energy products, and services. According to a fact sheet on Expanding Trade, China has made the following commitments:
- China’s imports of U.S. manufactured goods, such as industrial machinery, electrical equipment, pharmaceutical products, aircraft, vehicles, optical and medical instruments, iron and steel, solar-grade polysilicon, hardwood lumber, and chemical products, among other goods, will total at least $120.0 billion in 2020 and at least $131.9 billion in 2021.
- China’s imports of U.S. agricultural products, such as soybeans, cotton, grains, meats, ethanol, seafood, and the full range of other agricultural products will total at least $80 billion over the next two years. China will also strive to purchase an additional $5 billion of agricultural products annually.
- China’s imports of energy products from the United States, such as liquefied natural gas, crude oil, and metallurgical coal, will total at least $30.1 billion in 2020 and at least $45.5 billion in 2021.
- China’s imports of U.S. services, such as financial services, insurance services, cloud services, and travel services, will total at least $99.9 billion in 2020 and at least $112.2 billion in 2021.
The agreement states that each party “shall respect the other party’s autonomy in monetary policy, in accordance with its domestic law.” The USTR has indicated that China under the agreement agreed to strong commitments on currency practices regarding currency devaluations and exchange rates. As a result, and as a prelude to the signing ceremony, on January 13, 2020, the Department of the Treasury released its semi-annual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. The report concluded that no major U.S. trading partner at this time meets the criteria for designation as a currency manipulation or enhanced analysis. Thus, while China has been removed from the list, it does remain on Treasury’s Monitoring List as meriting “close attention to their currency practices.”
Dispute Resolution and Enforceability
Both Trump and Lighthizer repeatedly stated that the agreement was enforceable. The Dispute Resolution chapter of the agreement ensures “the effective implementation of the agreement and [allows] the parties to resolve disputes in a fair and expeditious manner.” It calls for regular bilateral consultations at both the principal level and the working level. It establishes procedures for addressing disputes related to the agreement and allows each party to take proportionate responsive actions that it deems appropriate. This includes allowing a party to suspend obligations under the agreement or to take other remedial actions proportionate to an alleged violation, including imposing remedial tariffs if done in “good faith.” China has made a promise not to retaliate for any such remedial actions taken in good faith, but the agreement also allows a party to withdraw from the terms of the agreement if it believes an action is taken in “bad faith.” The parties may also agree, in writing, to amend the agreement.
Phase Two Negotiations and Section 301 Tariffs
While no firm date was given, Trump indicated that phase two of the negotiations would start soon, and that the Section 301 tariffs on imports from China will remain in place for now. He stated, “We’re negotiating with the tariffs. We have 25 percent on $250 billion worth of goods. And then we’re bringing the 10 percent down to 7.5 percent on $300 billion worth of goods plus [see also Trump and Trade Update on this announcement]…. but I’m leaving them on, because otherwise we have no cards to negotiate with.” It should be noted that China has not made any commitment at this time to reduce or remove any of its retaliatory tariffs.
To view the full text of the agreement and multiple fact sheets about it, click on the following links: