On January 15, 2020 the United States and China signed “phase one” of an agreement reached in December that eventually aims to end the punishing trade war that so far has cost American farmers, manufacturers, businesses and consumers untold billions of dollars.
What China Agreed To
A copy of the deal, which paves the way for increased sales of U.S. goods and services over the next two years, was released by the administration. The 94-page document spells out China’s future purchasing commitments in addition to provisions on intellectual property, technology transfer, agriculture, currency, and expanding trade.
- Under terms of the “phase one” trade deal China has agreed to buy an additional $200 billion in U.S. goods and services over the next two years.
- Additional purchases worth $77 billion are to be made in 2020 and $123 billion in 2021 for China to meet the goal of $200 billion.
- China purchased $186 billion worth of U.S. goods and services in 2017 (prior to effects of the trade war).
Composition of the additional $200 billion is broken down into four categories:
- Manufactured goods: $32.9 billion in 2020, $44.8 billion in 2021
- Agricultural goods: $12.5 billion in 2020, $19.5 billion in 2021
- Energy goods: $18.5 billion in 2020, $33.9 billion in 2021
- Services: $12.8 billion in 2020, $25.1 billion in 2021
Tariffs Aren’t Going Anywhere
The White House agreed not to go ahead with a new batch of tariffs in December and to reduce the rate on about US$120 billion of Chinese products as part of the deal.
However, the Trump administration is also keeping a 25% tariff in place on approximately $370 billion worth of Chinese goods and a 7.5% levy on another US$120 billion.
The present system of temporary exclusions for certain products via the USTR and Commerce Department will also remain in place.
U.S. Trade Representative Robert Lighthizer has said the remaining tariffs would only be peeled back if China agrees to make additional concessions in a phase two agreement.
Whether the president and his team have the ability or willingness to hammer out a meaningful phase two agreement involving complex structural issues remains an open question at this point.
Most experts predict the administration will take the preliminary deal as a political win for now. While discussions with Beijing may continue over the coming months, actual negotiations will likely get pushed off until after the presidential election in the fall.
The “phase one” deal enters into force on February 15, 2020. “We’ll be meeting with them soon after that to see what they’re doing,” Lighthizer said of his Chinese counterparts when speaking to reporters after the deal was signed in Washington. “We’re not going to break off and not talk.”
Need More Information?
The Office of the U.S. Trade Representative has published a series of sectoral fact sheets concerning the anticipated benefits of the “Phase One” trade agreement.
If you have any questions about how the new deal might impact your business, contact one of our trade experts to get the answers you need.