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U.S.-China Trade Agreement: Phase 1 And Done (For Now)

The U.S. and China have now signed the so-called “Phase 1” trade agreement, bringing at least a temporary pull-back in the 18-month trade tussle between the two economic powers. The full text was only made available at the time of signing – which is unusual – with only a one-page Fact Sheet having been previously circulated.

Rather than being a true trade agreement, the Phase 1 Agreement is considered an executive contract which President Trump signed using his power under Section 301 of the Trade Act of 1974. (Section 301 authorizes the President to address unfair trade practices that hamper U.S. exports.) Consequently, the agreement was signed without Congressional approval unlike, for example, the US-Mexico-Canada Agreement.

The approximately 90-page agreement is relatively modest and short on detail in several areas. (By comparison the USMCA is about 1,000 pages in length with another 1,000+ pages of schedules, annexes and side letters.) The Phase 1 deal does include a chapter relating to the protection of trade secrets, patents, trademarks and other intellectual property. It also includes China’s agreement to increase by $200 billion – from a 2017 baseline of $190 billion – the purchase of certain manufactured goods, agricultural goods, energy products, and financial and other services.

The Phase 1 agreement does not address tariffs. This means that roughly two-thirds of Chinese imports will remain covered by President Trump’s tariffs. The U.S. has, however, dropped plans to impose tariffs on an additional $160 billion in China imports, and it cut existing tariffs in half on another $110 billion of China imports.

Conspicuously, the agreement also does not address key concerns that the U.S. had raised at the outset: mainly, China’s elimination of unfair government subsidies and industrial espionage such as cybertheft. Those matters are to be taken up in Phase 2 and perhaps Phase 3 negotiations. The devil will definitely be in the details when attempting to resolve these issues, which is not expected to begin until after the 2020 election. As one former trade official stated: “I wouldn’t wait by the phone.” In the meantime the Phase 1 agreement creates an economic cease-fire and is encouraging if for no other reason than it represents the parties’ willingness to meet regularly in an effort to ease trade tension.