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?

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.

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Trade War: US and China sign breakthrough ‘phase one’ deal

Trade War: US and China sign breakthrough ‘phase one’ deal

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?

“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.

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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.

“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 … 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?

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”.

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.”

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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.

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.

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.