Background

A new think tank report calls the U.S.-China Phase 1 trade deal a “failure” because it “did little to change China’s economic policymaking” and yielded none of the additional U.S. exports to China to which Beijing committed.

The Peterson Institute for International Economics report found that the agreement did not yield the benefits to U.S. exporters that had been anticipated to offset the harm done by the U.S.-China trade war to U.S. consumers and companies relying on imported inputs. The report said that by the end of 2021 China had bought only 57 percent of the U.S. exports it committed to purchase under the agreement; in other words, “China bought none of the additional $200 billion of exports [the] deal had promised.” Further, data suggests that cumulative U.S. goods and services exports to China would have been 19 percent higher if not for “the trade war and phase one agreement.”

As a result, the report concluded, “nearly four years later, the main lesson of the phase one agreement is that different terms for the trade relationship are still needed.” What that may look like remains unclear because the White House appears to still be working on a comprehensive China trade policy.

In the meantime, the report’s findings could provide cover for the White House to impose additional tariffs, new export controls, or other punitive actions against China (which could be particularly attractive ahead of this fall’s midterm elections) for not meeting the terms of the agreement. Or it could point to the previous deal’s failures as reason to negotiate a new agreement with stronger enforcement measures.

According to press sources, a USTR spokesperson offered some clues by saying that the U.S. will make efforts to “shape the environment around China by building resilience and competitiveness at home, diversifying markets, limiting the impact of Beijing’s harmful practices, working with allies and partners, and using the full range of tools we have to defend American economic interests.”

The report could also spur Congress into passing legislation to improve U.S. competitiveness with respect to China. The Senate passed its version last summer and the House is moving quickly to approve a bill of its own. A conference to resolve differences in the two measures is expected, with hopes of getting a final bill to the president for his signature before the March 1 State of the Union address.

For more information on U.S. trade policy toward China, please contact Nicole Bivens Collinson at (202) 730-4956 or via email.

Copyright © 2022 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.

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