US-China trade deal is mostly symbolic

By Kavaljit Singh

On Jan. 15, the U.S. President Donald Trump and Chinese Vice Premier Liu He signed a “phase one” trade agreement to de-escalate an 18-month trade war between the world's two biggest economies. After months of tough negotiations and retaliatory trade actions, both countries agreed to proceed with the “phase one” trade agreement.

President Trump is selling this deal as “historic” and would use it to boost his re-election bid later this year. Trump hopes that this agreement will shore up his political base ahead of the 2020 elections as rural America (a large segment of his base) was severely hit by retaliatory tariffs imposed by China on soybeans and other agricultural products.

On the other hand, the deal brings welcome relief to China. It gives breathing space to Chinese President Xi Jinping to deal with the daunting economic slowdown as well as the Hong Kong protests. In 2019, China's economy grew 6.1 percent ― the lowest since 1990.

The “phase one” agreement is not a free trade agreement by any means. Nor will it end the trade war between the U.S. and China. Under this agreement, both trading partners have decided to maintain the bulk of the tariffs that were imposed on each other's products during the trade war.

Of course, a lot would depend on the actual implementation of the agreement that will take some time, given the lack of mutual trust and intense geopolitical rivalry between the two giants.

Nothing momentous

The deal is limited in scope as it proposes modest changes in the areas of intellectual property, technology transfer, and market access to the Chinese financial sector. Further, most commitments outlined in the agreement have already been made by China unilaterally or at international forums such as G20 and the World Trade Organization (WTO).

Broadly speaking, the deal is a repackaging of previously announced commitments by China to open up its domestic markets and is in line with its move toward establishing a more market-based economy.

The “phase one” trade deal falls far short of drastic policy changes and wide-ranging deep reforms sought by the Trump administration when it launched a trade war with China in 2018.

For instance, the deal does not address issues such as dismantling of industrial subsidies and the reduced role of state-owned companies in the Chinese economy. Nor does it address cybersecurity issues ― characterized the the U.S. as “Chinese government-conducted, sponsored and tolerated cyber theft” ― a thorny issue that ostensibly triggered the trade war.

Intellectual property (IP)

The agreement proposes no substantive changes in China's current IP regime except that China has agreed to establish a mechanism for the early resolution of drug-related patent disputes and to provide patent term extensions to compensate for unreasonable delays in the patent registration or drug approval processes.

Any observer of China's IP regime would attest that over the past two decades, China has steadily strengthened the protection of IPRs in pursuit of its self-interest and has honored its international commitments under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Not only has China promulgated strict IPR laws in the last two years, but it has also strengthened the enforcement processes as the country climbs the technological ladder.

It is worth remembering that China wants to develop as a high-tech manufacturing and advanced R&D hub. China sees its future in the innovation-led economy and the creation of new high-value-added products and services, supported by a strict IPR regime. That's why China has been moving its IPR regime closer to that of other developed countries.

Technology transfer

The technology transfer chapter deals with obligations to ban forced technology transfers in China. Long before this deal, China had already undertaken legal measures to ban forced technology transfers. In March 2019, China adopted a Foreign Investment Law (FIL) that replaces three existing laws governing foreign direct investment in the country. The unified FIL explicitly bans the forced transfer of technologies through administrative means.

Expanding trade

Perhaps the biggest surprise of the “phase one” agreement is China's commitment to buy an additional $200 billion worth of U.S. goods and services over a two-year period (January 2020-December 2021). It includes $77.7 billion of manufactured goods, $32 billion of agricultural products, $52.4 billion of energy, and $37.9 billion of services.

Even though this commitment is meant to merely last for two years, it raises three key concerns. First, the numbers are highly ambitious, especially for agricultural products, and one wonders whether the U.S. exporters can deliver without diverting exports from other countries.

Furthermore, can China force its privately-owned domestic firms to buy products from the U.S. instead of other trading partners with whom it has signed free trade agreements?

Lastly, aren't such managed trade practices a violation of the WTO rules?

Financial services

Another core element of the trade agreement is China's commitment to open its financial services sector to U.S. banks, insurance companies and credit card companies, thereby allowing U.S. financial institutions to establish wholly-owned entities in the country.

Although Chinese authorities have already announced liberalization commitments in 2019, the “phase one” trade agreement has brought forward the planned opening of the Chinese financial services sector from December 2020 to April 2020 for the U.S.-based financial firms.

To conclude, the “phase one” trade agreement between the U.S. and China signals a pause in the ongoing trade war but not much more.

Kavaljit Singh (

kavaljit.singh@gmail.com) is director of Madhyam, a policy research institute, based in New Delhi.