CUSEF Blog

In the historic Phase One U.S.- China trade deal, China agreed to buy hundreds of billions of dollars’ worth of products from the United States, a facet framed as a massive achievement by the Trump administration. Beijing will purchase an additional US$200 billion of American goods and services over the next two years; compared to U.S. exports of about $130 billion to China in 2017. This expansion of U.S. exports to China is unprecedented, and is estimated to provide a huge boost to the U.S. economy for several years to come. From the U.S. side, Washington has agreed to reduce tariffs on $120 billion in Chinese products from 15% to 7.5%. Total exports to China would increase to over $260 billion in 2020, and roughly $310 billion in 2021, should the deal hold.

Highly publicized is China’s pledge to purchase U.S. agricultural products, but Chinese markets will be getting much more than soybeans. According to the trade agreement, the purchase increase will come primarily from four industries: $77.7 billion worth of manufactured goods, $52.4 billion worth of U.S. energy exports, $32 billion in agriculture, and $37.2 billion in services. In addition to increasing exports and strengthening intellectual property rights protections, other achievements of this trade agreement include China’s decision to lift its bans on genetically modified U.S. farm products, and to open its financial sector to U.S. financial institutions, such as banks, insurance companies, and credit-rating agencies. The United States agreed not to impose new tariffs on the $156 billion in consumer goods that were scheduled to take effect this past Dec. 15.

In case of emergencies, the deal also possesses a clause that states the countries will consult in the event of “a natural disaster or other unforeseeable event.” As the outbreak of the coronavirus becomes increasingly serious, observers speculate that, “Chinese officials hope that the United States will negotiate and accept flexibility on some promises in the Phase One”.

If China fails to deliver, the agreement says the United States will unilaterally reimpose tariffs on Chinese goods. Economists and China’s other trading partners, such as countries in the European Union, have already raised questions about whether China will have to reduce purchases from all other trading partners in order to fulfill their new trade obligations to the United States. From the agreement, it is evident that most of the burden falls on the Chinese side. In her article ‘The Phase One U.S.-China Trade Deal Is A Serious Win For The United States’, Helen Raleigh, a fellow at the Centennial Institute raised the concerns about the challenges China will face in importing $200 billion more goods and services from the U.S. over the next two years without reducing imports. However, as noted by Robert Lighthizer, a spokesman for the U.S. Trade Representative, Washington has not received any official request from China to discuss changes in Beijing’s purchase commitments. Asked if the coronavirus will give the U.S. more leverage in the second phase of trade discussions with the Asian nation, Larry Kudlow, White House economic adviser said the outbreak is “completely separate from trade, jobs and all the rest.”