The Trade War De-Escalates (for Now): US Finalizes a Phase One Trade Deal with China
On January 15, 2020 U.S. President Trump and China's Vice Premier Liu He signed a new Phase One deal (The Economic and Trade Agreement Between The United States and The People's Republic of China) whereby, in exchange for China's agreement to purchase hundreds of billions of dollars of U.S. goods and rein in some of its uncompetitive practices, the U.S. has agreed to reduce the Section 301 tariffs on certain Chinese goods, among other promises. In particular, the U.S. is suspending the tariffs on those Chinese products covered on List 4B that were originally scheduled to take effect on December 15, 2019. It will also cut the tariffs imposed on those Chinese goods covered on List 4A from 15 percen down to 7.5 percent effective on February 14, 2020. The other 25 percent Section 301 tariffs imposed on Chinese goods listed on Lists 1, 2 and 3 will remain in place without modification. In light of this information, it is important to remember that the exclusion process for List 4A opened on October 31, 2019 and is still scheduled to close on January 31, 2020.
Phase One deal terms also included many specific provisions related to increasing U.S. agricultural trade with China, including special terms related to dairy products from the U.S., infant formula, poultry products, beef, pork, pet food, certain additives, rice and certain aquatic products. For example, under the Phase One deal, China will no longer require certification for certain low risk food products imported from the U.S., including U.S. products that are considered to be shelf-stable, highly-processed food products.
Although the U.S. and China mutually agreed to respect the other party's autonomy with respect to monetary policy, the agreement was also aimed at addressing China's use of currency manipulation. Terms included an acknowledgement that each party is bound under the IMF articles of agreement to avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments or to gain an unfair competitive advantage.
With respect to intellectual property protection, China agreed to ensure that those who misappropriate trade secrets, including through electronic intrusions, breaches of nondisclosure terms or other unauthorized disclosures of trade secrets, can be held liable. In addition, China must eventually eliminate any prerequisite of showing an actual loss prior to instigating criminal enforcement procedures against those who misappropriate trade secrets. Other terms focused on pharmaceutical intellectual property protection, measures to combat piracy and counterfeiting on e-commerce platforms, and a commitment on behalf of China to take sustained and effective action to stop the manufacture and block the distribution of pirated and counterfeited goods. China also agreed that U.S. persons shall have the right to operate openly and freely in China without any force or pressure from China to transfer their technology, including as part of a forced joint venture arrangement. In order to implement China's commitments to intellectual property protection, the deal required China to promulgate an action plan that included proposed measures and effective dates within thirty days after the effective date of the Phase One deal.
Finally, the Phase One deal, which is set to take effect 30 days from signing, contained a new structure for implementing the terms of the agreement and resolving disputes between the nations.
In sum, the Phase One deal represents a step towards resolution of the ongoing trade war between the U.S. and China. Further negotiations over the topics covered in the Phase One deal, Chinese economic practices, and U.S. and Chinese tariffs on imports are expected. Although the Phase One deal did not come with the suspension of the List 1, 2, 3 and 4A tariffs like some businesses were hoping, it is progress towards the eventual resolution of the tariff-heavy dispute between the nations.