US-China trade war: phase one trade deal largely a ‘failure’, as purchases fall well short of targets

China and the US signed their phase one trade deal in January 2020, with China committing to buy US$200 billion more goods and services over the next two years

According to a report by the Peterson Institute for International Economics, US exports of phase one goods in 2020 fell more than 40 per cent short of the target

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Former US president Donald Trump and China’s Vice-Premier Liu signed the phase one trade deal in January 2020. Photo: EPA-EFE

Published: 5:30pm, 8 Feb 2021Updated: 9:22am, 10 Feb 2021

A large part of the phase one trade deal between China and the United States that entered into force almost one year ago was a “failure”, according to a new report, although “several elements are worth keeping and building upon”.

The US and China signed their long-awaited deal in January 2020, with the conditions of the agreement beginning one month later. As part of it, China committed to buying US$200 billion in additional goods and services over 2020-21 on top of 2017’s levels.

But a report released by the Peterson Institute for International Economics on Monday, US exports of phase one goods to China in 2020 fell more than 40 per cent short of the target.

China was never on pace to meet that commitment, with the economic devastation of the Covid-19 pandemic only partly to blame

Chad Bown

“The Biden administration plans to review the phase one trade agreement president Donald Trump forged with China in late 2019. Good. Much of the deal was a failure,” wrote economist Chad Bown in the report, which was based on full-year analysis of US trade data released last Friday.

“According to evidence from the deal’s first year, China was never on pace to meet that commitment, with the economic devastation of the Covid-19 pandemic only partly to blame. Attempting to manage trade – to meet Trump’s objective of reducing the bilateral trade deficit – was self-defeating from the start. It did not help that neither China nor the United States was willing to de-escalate their debilitating tariff war.”

The report said China’s imports of goods covered by the phase one deal were 13 per cent higher last year than in 2019, although this was partly down to a low base one year earlier, due to China’s retaliatory trade war tariffs on US goods.

China’s purchases of manufacturing goods covered under the deal met just 57 per cent of the target last year, with autos, trucks and parts meeting just 40 per cent and aircraft, engines and parts just 18 per cent.