U.S.-China Trade Deal: What It Does And What It Doesn't

The “Phase One” deal signed by the U.S. and China on January 15, 2020, calls a truce to the trade war for now, halting the imposition of additional tariffs and promising increased market access for U.S. products, services and industries. Less clear is exactly how the deal will be enforced and whether it can be sustained if one side believes the other is not abiding by its commitments. Though there is hope supply chains between the two countries can be restored, secular trends point to a technological decoupling pulling the countries apart, due to underlying national security concerns.

What the Deal Does

The 96-page Economic and Trade Agreement Between the United States of America and the People's Republic of China (the “Agreement”) represents the culmination of sustained effort by the Trump Administration to get China to change its trade practices. Highlights include:

Tariffs: The U.S. pledges not to implement new tariffs on Chinese goods and to reduce tariffs from 15% to 7.5% on $120 billion worth of goods, and expects China to exempt U.S. goods from its tariffs. The 25% tariffs on $250 billion worth of Chinese goods will remain.

Exports: Between 2020 and 2021, China commits to purchase $200 billion in U.S. goods and services above 2017 levels, including $32 billion in agricultural goods, $77.7 billion in manufactured goods, $52.4 billion in energy products and $37.9 billion in services.

Market Access: China undertakes to open up its market to previously prohibited U.S. industries, such as financial services and insurance companies, and introduce intellectual property protections.

What it Doesn't

Notwithstanding this achievement, questions remain about whether the trade deal actually addresses certain underlying issues that were the root cause of the tariffs, or that, unlike in the past, both sides will actually honor their obligations and work through their differences.

Forced Technology Transfer: Chapter 2 includes provisions that neither party, e.g., will “require or pressure” companies to transfer technology nor “support or direct” the outbound foreign investment activities of its companies in acquiring certain technology. This seems aimed squarely at U.S. concerns that China requires U.S. companies to transfer technology in exchange for market access, while sponsoring efforts to acquire U.S. technology companies.

However, the Agreement's pledge that technology transfer bebased on market terms that are voluntary and reflect mutual...