When did the US-China trade war start? During his 2016 presidential campaign, Donald Trump promised to reduce the trade deficit with China. The United States and China are the two largest economies in the world and bilateral trade between them totalled almost US$559 billion in 2019. However, that trade has been lopsided, with the US running a large and growing trade deficit with China. The US’ trade shortfall rose toUS$378 billion in 2018, up from US$103.1 billion in 2002. The US-China trade war started on July 6, 2018, when the US imposed a 25 per cent tariff on US$34 billion worth of Chinese imports, marking 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 their so-called phase-one trade deal was reached in mid-December 2019. 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 US$110 billion worth of import duties on US products. What was the phase-one trade deal? The phase-one trade deal was formally signed on January 15, 2020, by Trump and Chinese Vice-Premier Liu He, with its provisions taking effect one month later. As part of the deal, China agreed to buy an additional US$200 billion worth of American goods and services over the following two years, compared with 2017 levels. Those additional purchases were to 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 included 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, according to Trump. The deal also resulted in the US suspending a planned 15 per cent tariff on around US$162 billion worth 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. Was the phase-one trade deal a success? According to a report by the Peterson Institute for International Economics (PIIE), China bought only 57 per cent of the US exports it had committed to purchase under the phase-one trade deal with the US. “Two years ago, President Donald Trump signed what he called a ‘historical trade deal’ with China that committed China to purchase US$200 billion of additional US exports before December 31, 2021. Today, the only undisputed ‘historical’ aspect of that agreement is its failure,” said Chad Bown, a senior fellow at the PIIE, in the report. “The emergence of the Covid-19 pandemic undermined any chance of success. Public health-related lockdowns and a short economic recession were accompanied by a temporary collapse in goods trade globally, even if China’s imports were mostly spared. Restrictions on mobility also decimated US services exports like tourism and business travel.” According to the report, agriculture purchases under the phase-one trade deal reached 83 per cent of the total commitment. Pork, corn, wheat and sorghum exports all beat their targets under the deal, with corn at 1,176 per cent. ‘It’s a nightmare’: US importers’ pain as Trump-era tariffs look set to stay But, according to Bown, this was “not necessarily because of the agreement”, as an African swine fever outbreak led China to increase pork imports from the US in 2019, while corn and wheat imports increased after it began to comply with a 2019 World Trade Organization ruling. Purchases of covered manufactured goods, which were “the most economically significant part of the deal”, reached 59 per cent of the overall target. China’s purchases of US energy products reached only 37 per cent of the commitment. “In addition to the unrealistic US$200 billion target, 18 months of trade war tariff escalation designed to decouple the two economies meant US goods exporters started from a hole,” added Bown. China ended up buying none of that extra US$200 billion of US exports it had promised to purchase. In 2020–21, China fell US$13.6 billion short of reaching even the baseline level of purchases Chad Bown “They would first have to reestablish connections with Chinese buyers to climb out of the 2019 trough – US$13.6 billion lower than the agreement’s 2017 baseline level – before chipping away at the additional US$200 billion. “China ended up buying none of that extra US$200 billion of US exports it had promised to purchase. In 2020–21, China fell US$13.6 billion short of reaching even the baseline level of purchases.” What did China say about the phase-one trade deal? China called on the US to remove existing tariffs and stop threatening new levies in response to Beijing missing the targets under the phase-one trade deal. “Ever since the deal took effect, China has taken efforts to overcome the shocks of the [coronavirus] pandemic, the global economic recession and blocks in the supply chains, in implementing the deal,” commerce ministry spokesman Gao Feng said. “We hope the US removes the additional tariffs imposed on China and all sanctions and containment measures, in order to create a sound situation and conditions to expand bilateral trade cooperation.” Huo Jianguo, the former head of a think tank under China’s Ministry of Commerce, said the result was “very good”, given the impact of the pandemic. China’s ‘best efforts’ defended in trade with ‘insincere’ US He criticised the US for taking Beijing’s shortfall in its purchasing commitment as an “untenable” excuse to keep pressuring China while showing no willingness to proactively reduce the additional duties on Chinese products that Washington imposed during the trade war. “The implementation of any agreement requires both parties to cooperate with each other. The supply chain in the US is in shambles, and ports are unable to ship goods,” Huo said, noting that China’s failure to meet its commitments was due to “a variety of reasons”. “China has done its best and has imported as much as it could and should have.” Lu Xiang, a US-China expert with the Chinese Academy of Social Sciences, agreed that it was not the least bit surprising that Beijing fell short of its purchasing commitments, given the global supply-and-demand shocks in 2020 and 2021, along with an ongoing labour shortage in the US. It would have been a miracle if [the target] had been achieved Lu Xiang “It would have been a miracle if [the target] had been achieved … Coupled with the fact that the US tariffs have never been adjusted, none of the aspects were conducive for China to complete the purchases,” Lu said, adding that the estimated percentage was the “result of China’s best efforts”. The purchasing targets set forth in the deal were unreasonable from the start, according to Shi Yinhong, a Beijing-based academic who advises the government on foreign policy issues. He said that the terms of the deal that China agreed to were simply beyond its capability to meet, and that the outcome was worsened by the pandemic. “Even so, China still bought a lot of American agricultural goods,” he said. He Weiwen, a senior fellow at a Beijing-based think tank, the Centre for China and Globalisation, said criticism from the US was unjustified and “irresponsible”. “China didn’t break its promises,” he said. “Purchases are just a part of the phase-one trade deal. The deal covers technology transfer, IP protection, agriculture, macro- economic policies, exchange rates and expansion of trade, to be enforced by both sides equally. “Why don’t they mention other issues? More importantly, it’s not unconditional.” China has tried its best to honour the deal, He added, by posting higher import growth from the US than from any other country. What did the US say about the phase-one trade deal? The US Commerce Department confirmed at the start of February that the US’ goods trade deficit with China rose by 14.5 per cent to US$355.3 billion in 2021, which was the biggest since the 2018 record of US$418.2 billion. Following the release of the PIIE report, US Secretary of Commerce Gina Raimondo and the US Chamber of Commerce moved quickly to ratchet up the pressure on Beijing. Raimondo said in an interview with Bloomberg the day after the report was released that Washington “is in the thick of those negotiations now”, but that “Beijing is not playing by the rules”. Drama could return in 2023, when a probable Republican Congress will push harder for legislation to curb flows of technology and capital to China Gavekal Dragonomics The US Chamber of Commerce also said that the White House was considering a new tariff probe and other options, such as taking actions with its allies, if current talks failed to persuade Beijing to meet the terms of the deal, according to Reuters. According to US media reports, Washington has listed seven other unsolved issues, including reforming China’s biotech-approval process, the acceptance of new US seafood species, and negotiations on a new health protocol that could lead to the removal of a ban on live cattle imports. What is the outlook? Gavekal Dragonomics said the day after the PIIE report was released that the outlook for US-China trade relations this year is “for incremental ratcheting-up of sanctions and possibly tariffs, but no substantive large-scale action”. “Drama could return in 2023, when a probable Republican Congress will push harder for legislation to curb flows of technology and capital to China,” the report added. Lu Xiang, a senior researcher on US studies with the Chinese Academy of Social Sciences, said that the trade deal did specify remedies and how imports were to proceed after the deal expired at the end of 2021. “If there are sound situations for negotiation, and if the US gets the pandemic under control and addresses the labour shortage, it is likely China can expand imports from the US,” Lu said. “The US has not taken China’s demands on removing tariffs seriously and has wasted time for negotiation.” Why Californian wines are bubbling back from the China-US trade war In the US Trade Representative Office’s latest annual review of China’s compliance with the WTO, US Trade Representative (USTR) Katherine Tai urged China to live up to its commitments in the phase-one trade deal, as doing so would “provide a solid foundation for future bilateral engagement”. In a break from the assessment by the Trump administration, the latest report dropped any mention of a separate “phase two” trade negotiation with China, but said that “an initial step” of the US’ strategic approach involves addressing the unresolved issues under the phase-one trade deal, although the purchasing commitments expired at the end of 2021. The USTR report also stressed that the phase-one agreement did not address the “more fundamental concerns” of the US with China, including subsidies, excess capacity, state-owned enterprises, cybersecurity and regulatory transparency. We cannot build a wall between the US and China and assume that it will address the problems posed by China USTR It said the US strategy must also focus on the long term and needs to be more flexible and sophisticated, in light of the current bilateral relations with China. “It would be appropriate to assume that the problems currently posed by China will be with us for some time, rather than expect that China will willingly make fundamental changes to its state-led, non-market approach to the economy and trade in the near-term or even the medium-term,” the report said. “At the same time, we cannot build a wall between the US and China and assume that it will address the problems posed by China. That would ignore China’s importance to, and integration in, the world economy and would only change the mode of its impact on the United States, but not the ultimate result.” The US said that it was prepared to use domestic trade tools to achieve a more level playing field with China while exploring ways to update trade tools to counter China’s so-called unfair policies and practices, according to the report.