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US President Trump and China’s Vice-Premier and chief negotiator Liu He signed the phase one trade deal at the White House in January 2020. Photo: Xinhua

Explainer | What is the US-China trade war?

  • The trade war between the US led by Donald Trump and China and its President Xi Jinping started in July 2018, but how did it start, what is the background to the tensions?
  • The US and China signed a phase one trade deal in January 2020, with China committing to buy US$200 billion of goods and services over the next two years

A new version of this story has been published.  Click here for the latest data about the US-China trade war.  

What is the basis for the US-China trade war?

The United States and China are the two largest economies in the world. Chinese foreign trade grew rapidly after its ascension into the World Trade Organisation in 2001, with bilateral trade between the US and China almost US$559 billion in 2019.

However, that trade was lopsided, with the US running a large and growing trade deficit with China, which became a major political issue in the 2016 US presidential campaign. The US trade shortfall rose to US$375.6 billion in 2017 before the start of the trade war, from US$103.1 billion in 2002.

The deficit rose further to US$378 billion in 2018, before easing slightly to US$345.6 in 2019 after the start of the trade war, according to the Office of the US Trade Representative.

What is the US-China trade war?

The US and China imposed additional tariffs on goods imported from the other country, meaning buyers in the opposing country would need to pay higher import taxes to bring their purchases into the country.

At its peak at the end of 2019, the US had imposed tariffs on more than US$360 billion worth of Chinese goods, while China had retaliated with import duties of their own worth around US$110 billion on US products.

How did the trade war start?

Chinese President Xi Jinping and US President Donald Trump met at the G20 leaders summit in Argentina in December 2018. Photo: Reuters
US President Donald Trump promised during his 2016 presidential campaign to reduce the large trade deficit with China, which he claimed was based in large part on unfair Chinese trading practises, including intellectual property theft, forced technology transfer, lack of market access for American companies in China and an unlevel playing field caused by Beijing’s subsidies for favoured Chinese companies.

China, meanwhile, believes the US is trying to restrict its rise as a global economic power.

When did the US-China trade war start?

The US-China trade war started on 6 July 2018, when the US imposed a 25 per cent tariff on US$34 billion of Chinese imports, the first in a series of tariffs imposed during 2018 and 2019.
It continued to escalate, with the US and China imposing various import tariffs on each other’s products until an agreement in principle on a phase one trade deal was reached in mid-December 2019. The phase one trade deal was formally signed on 15 January 2020, with its provisions taking effect on 15 February 2020.

What is the phase one trade deal?

US President Trump and China’s chief negotiator, Vice-Premier Liu He, signed the phase one trade deal at the White House on 15 January 2020. As part of the deal, China agreed to buy an additional US$200 billion of American goods and services over the following two years.

Those additional purchases would be made up of around US$77 billion in manufacturing, US$52 billion in energy, US$32 billion in agricultural goods and US$38 billion in services. The latter includes tourism, financial services and cloud services.

China also pledged to remove barriers to a long list of US exports, including beef, pork, poultry, seafood, dairy, rice, infant formula, animal feed and biotechnology, Trump said.

The deal also resulted in the US suspending a new 15 per cent tariff planned for December 15 on around US$162 billion of Chinese goods, with an existing 15 per cent duty on imports worth around US$110 billion halved to 7.5 per cent. China also suspended retaliatory tariffs scheduled for that day.

What is the status of the implementation of the phase one trade deal?

The rapid spread of the coronavirus outbreak from January 2020 raised questions whether China would be able or willing to comply with the terms of the phase one trade deal.

Former Chinese officials at various points have said China would “definitely” honour its agricultural purchase commitments as part of the deal. But they conceded that the coronavirus outbreak may mean China would have to invoke a force majeure clause, referring to an unforeseeable act of God, with regard to other planned purchases.
At the end of February, US Trade Representative Robert Lighthizer and US Agriculture Secretary Sonny Perdue said China was taking numerous steps to meet the agricultural commitments.
In February, China lifted bans on some pet food products, chipping potatoes, infant formula, poultry and beef products. It also announced a series of tariff relief measures, including a process through which importers could apply for exemptions, while it also resumed buying US pork, sorghum and soybeans.

China was able to pick up its purchases of US goods in 2020, perhaps in an effort to stop things from collapsing altogether due to tensions continue to flare over issues ranging from Hong Kong to technology. This saw the US trade deficit ease to US$26.96 billion in May, compared to US$33.71 billion in June 2018, the month before the trade war began. 

But in the month before the 2020 US Presidential election, China’s trade surplus with the US was 46.5 per cent higher than the day Donald Trump took office in January 2017. In October 2020, China’s trade surplus with the US rose 18.74 per cent from a year earlier to US$31.35 billion. This was up from US$30.75 billion in September. 

And while China's purchases of US farm goods ratcheted up in the run up to the election, China is still not close to achieving its import targets for 2020.

At the end of September, it was only on track to meet 54 per cent of its purchase targets, US customs data showed.

While it ramped up imports of soybeans, corn and pork since the summer months, China is on track to meet just 65 per cent of agricultural purchase targets this year.

What is next in the US-China trade war?

When the phase one trade deal was signed, Trump insisted that negotiations on a phase two trade deal would start immediately to address issues such as Chinese government subsidies that were not addressed in the first deal. However, the chances of quick progress were immediately played down by Liu. The rapid spread of the coronavirus outbreak starting in January 2020 effectively postponed negotiations indefinitely.

President Trump has so far resisted pressure to ease the trade tariffs to offset the damage the coronavirus pandemic is doing to the global economy. With US and Chinese tariffs still in place, and phase two negotiations on hold, it is unclear how long the trade war will last.

The trade war reached its second anniversary in July 2020 with the US trade deficit with China having narrowed but wider relationship seen as being held together by the sticking plaster of a phase one deal.
But after narrowing earlier in the year, the US trade deficit with China was 9.15 per cent wider in July 2020 than May 2016, when President Donald Trump accused China of ‘raping’ the US on trade.

How will a Joe Biden presidency impact the US-China trade war?

Joe Biden’s US election victory will encourage China to try and renegotiate Trump’s trade deal, viewed in Beijing as being “twisted” in Washington’s favour, according to advisers to the Chinese government.
Advisers see the deal as being unrealistic for China to implement, and view Biden as a more “rational and multilaterally minded” leader than Trump – despite former US officials thinking there is virtually no chance of Biden giving  China a “softer” deal.

In his first address as president-elect, Biden indicated he would immediately reverse Trump’s decision to leave the Paris climate agreement and the World Health Organization, which could open the door for better cooperation with China, advisers said.

Some veteran diplomats have also urged Biden to replace US Trade Representative Lighthizer with someone well versed in China policy, calling relationship "the big enchilada".

Want to know more about the US-China trade war?

Beyond the tweets, beyond the rhetoric are the stories of real people affected by the US-China trade war. In a six-part podcast series, journalists Finbarr Bermingham and Naomi Ng investigated six objects and the stories they can tell us about the state of trade.
Also, each week political economy journalist Finbarr Bermingham wraps up the latest developments in tariffs, diplomacy and economics from reporters and editors at the South China Morning Post in the US-China trade war podcast.

Still want to know more?

And in every episode of the  Inside China podcast,we take a deep-dive into a specific topic, mixing independent reporting and exclusive interviews to bring you unique insights into an emerging potential superpower. Now, we are featuring regular updates on the coronavirus pandemic from across the country.