New Chinese tariffs on a range of U.S. goods went into effect Monday, following U.S. President Donald Trump’s decision to impose a 10% tariff on Chinese products last week. Tariffs of 25% on steel and aluminum are next.
Despite the tariffs and rising tensions, both sides seem reluctant to launch into a full-on trade war, analysts say.
Beijing has its plate full battling its own internal economic struggles, and for now President Trump has deferred most of his promised tariffs on the world’s second-largest economy.
Last week, The Wall Street Journal reported that Beijing is preparing to offer to return to a so-called “Phase 1” trade deal that was signed during Trump’s first term.
The Trump administration has sent its own signals as well.
Trump has called for the Office of the United States Trade Representative to review the first phase of the U.S.-China trade agreement and determine whether Beijing has fulfilled its commitments in the contract.
Last week, Jamieson Greer, Trump’s nominee for U.S. trade representative, said he would assess China’s compliance with the first phase of the agreement quickly upon his appointment to ensure the implementation of the deal. Greer also said he would use it as a starting point in relations with China.
What is the Phase 1 deal?
On January 15, 2020, Trump and Chinese Vice Premier Liu He signed the Phase 1 agreement, which laid out several terms for trade between the world’s two biggest economies. The deal called on the United States to cut some of its imposed tariffs on China and included a commitment from Beijing to buy more U.S. products and implement certain reforms.
The 96-page agreement, divided into eight sections, placed a big emphasis on reducing the U.S. trade deficit with China, and protecting domestic industries by cracking down on Chinese trade practices, such as nontariff trade barriers, intellectual property violations and the forced transfer of technology without adequate compensation.
The agreement mandated that China purchase at least $200 billion in U.S. products and services over a two-year period from January 1, 2020, to December 31, 2021. It also required that Beijing stop subsidizing strategic sectors and give fairer treatment to American companies in terms of regulation.
Despite those commitments from China, data from a report published in 2022 by the Peterson Institute for International Economics in Washington showed that Beijing did not reach its purchase target.
The report also showed that Beijing has completed 57% of the spending laid out in the agreement, a total that is lower than the level of China’s purchase of goods from the United States before the U.S.-China trade war.
Although China was not expected to fully meet its commitments, the agreement did have some benefits for Washington, as it helped decrease Washington’s trade deficit with Beijing.
Starting point
Analysts say the agreement may be revisited as a starting point for new trade discussions.
“The two sides need to start somewhere. Phase 1 may at least provide some common language that both sides will be familiar with so as to get that ball rolling,” Chad Brown, senior fellow at the Peterson Institute for International Economics, explained to VOA in an emailed response Friday.
Denny Roy, a senior fellow at the East-West Center in Hawaii, says the Phase 1 agreement has two advantages for acting as a foundation for U.S.-China trade discussions.
“First, the two sides reached a similar agreement before, so they know it’s feasible,” he told VOA in an emailed response on Friday.
He also explained that using the agreement “suits both sides’ interests.”
“Trump wants to claim he has resolved the bilateral trade imbalance, which he sees as his primary measure of success,” he explained, noting that this agreement supports that narrative.
He added that the deal benefits Beijing by allowing China to avoid making significant structural reforms.
Roy, however, adds that several factors make an agreement between Washington and Beijing difficult.
“A major bilateral economic deal would depend on avoiding a strategic crisis, which might occur over Taiwan or the South China Sea, or an encounter between U.S. and Chinese ships or aircraft that escalates, or something like the spy balloon incident,” he said.
Early in 2023, the discovery of a Chinese spy balloon floating through U.S. airspace delayed a U.S. diplomatic visit to the country by then-Secretary of State Antony Blinken. The ballon was eventually shot down.
