What Is the Phase One Trade Agreement

Other agricultural products such as maize, pork, cotton, wheat and sorghum are on or even above the targets of the first phase. Nevertheless, some of these export successes may have little to do with purchase obligations. For example, after losing the World Trade Organization`s disputes over its policies on corn and wheat, China increased its imports of these products from the rest of the world, not just U.S. farmers. Similarly, the Outbreak of African Swine Fever in China has devastated its domestic pig herd, leading China to significantly increase pork imports from farmers outside the United States. U.S. industrial exports are the most important economic component of Phase One agreement, accounting for 70 % of the goods covered. Nevertheless, U.S. exports of industrial products accounted for only 60 % of the proportional sales target from January 2020 to October 2021 (Figure 2).

The decision to insist on China complying with the deal was announced by U.S. Trade Representative Katherine Tai on Oct. 4, along with the administration`s intention to maintain U.S. tariffs on hundreds of billions of dollars of imports from China for the time being. Anyone seeking a radical change in policy towards China from the last government will find no evidence of this. The United States and China have reached a historic and enforceable agreement on a Phase One trade agreement that requires structural reforms and other changes to China`s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, currency and currency. The Phase One agreement also includes a commitment by China to make significant additional purchases of U.S. goods and services in the coming years.

It is important that the agreement establishes a robust dispute settlement system that ensures swift and effective implementation and enforcement. The United States has agreed to substantially amend its tariff measures under Article 301. The agreement includes enhanced Chinese legal protection for patents, trademarks and copyrights, including improving criminal and civil procedures to combat online infringements, pirated copies and counterfeit products. Today, the world`s two most powerful economies have begun to re-establish a positive and mutually beneficial trading relationship. However, progress in industrial goods, energy and services has been modest at best. Manufactured exports to China remain below 2017 levels and currently stand at just over half of the 2021 target (figures in the table include some aviation products that were not included in last year`s mail). Energy exports have almost doubled from their 2017 levels, supported by significantly higher prices, but ended up being about 60 % below the 2020 target and are currently about two-thirds below the 2021 target. After all, services exports have simply collapsed, with the latest data for the first half of 2021 (at an annual rate) being one-third below 2017 levels and half the 2021 target.

Exports from the U.S. aviation sector since January 2020 represent only 19 % of the proportional sales expected under the commitments of the first phase. The Boeing 737 MAX crashes in late 2018 and 2019 didn`t help. The model was grounded around the world, Boeing stopped production for nearly five months, and like many buyers, China canceled its orders. Yet in September 2021, Biden`s Commerce Secretary Gina Raimondo blamed the government in part for the failure to pick up sales, saying, “There are tens of billions of dollars of planes that Chinese airlines want to buy, but the Chinese government is standing in the way.” So far, U.S. exports in the first phase are $20 billion behind the pace of 2017 and $37 billion behind the estimated target. However, aircraft are the only part of the legal text of the agreement that allows for credit for “orders and deliveries” (emphasis added) – opening up the possibility for China to compensate for this shortcoming by placing orders for future deliveries before the end of December 2021. Tai also warned that the Biden administration “maintains serious concerns about China`s state-centered, non-market trade practices that were not addressed in the Phase One deal.” In fact, China has not accepted any commitments in Phase One regarding its subsidies or state-owned enterprises.

Worse still, because the Phase One agreement did not negotiate the lifting of China`s retaliatory tariffs, the Chinese government introduced an exclusion process in which it decides which U.S. exports to buy from China, thereby strengthening the role of the Chinese state and state-owned enterprises in the Chinese economy. Still, Tai gave no details, nor did he say the government had plans for “second phase” negotiations with China. How do these arguments resist now ? The authors of the previous article discussed the issues of trade creation versus trade diversion and feedback on the commodity market : there would be no impact on the United States. Growth if “additional” exports to China were simply offset by a decline in exports to other countries or a decline in sales in the U.S. market, which could lead to an increase in imports from other countries. The benefits to U.S. commodity producers would also be mitigated if Chinese demand for U.S. energy products led to an increase in supply from other producers, which would lead to lower prices. The United States and China signed a historic and enforceable agreement on a Phase One trade agreement on January 15, 2020. The agreement requires structural reforms and other changes to China`s economic and trade regime. Finally, despite the recovery in agriculture, it is worth remembering that the Trump administration wanted China to buy an additional $10 billion of U.S.

agricultural products that it could not include in the deal. Annex 6.1, footnote b, of the Legal Agreement states (emphasis added) : “At the request of the United States, China shall seek to purchase and import $5 billion per year of U.S. agricultural products covered by this Chapter, in addition to the minimum quantities set out in this Chapter. (Including the additional $10 billion, U.S. exports would account for only 71 percent, not 83 percent of the target.) As of October 2021, China was buying only 60 % of the U.S. products expected at that time for the deal for the period from January 1, 2020 to December 30, 2021 (Figure 1). In other words, China is lagging behind by about $124 billion in its planned purchases of U.S. products. U.S.

exports to China rose again after the trade war, but are only slightly above the 2017 level. After spending much of 2020 examining the legacy of former President Donald Trump`s trade war with China, the Biden administration has decided to keep its feet in the fire in at least one important aspect of this confrontation. The government will continue to implement the so-called “phase one agreement” that China signed in early 2020, including its commitment to buy U.S. products that it has not yet fulfilled. In January 2020, President Donald Trump signed the Phase One Agreement between the United States and China. The deal required China to buy an additional $200 billion in U.S. goods and services — compared to 2017 — with prescribed amounts spread between 2020 and 2021. The agreement follows two years of trade war and tariff escalation between the two countries in 2018 and 2019. For U.S.

goods exports, the deal is expected to cover products that accounted for $95.1 billion, or 73 percent of total U.S. goods exports to China ($129.8 billion) in 2017. Of the total exports of the subject products in 2017, exports worth $20.9 billion were made by agriculture, $66.5 billion by manufacturing and $7.6 billion by energy. Products that are not covered by the agreement and therefore do not have targets for 2020 accounted for 27 percent ($34.7 billion) of total U.S. goods exports to China in 2017. So, with this data in the background, what should we do with the Phase One agreement ? The authors of last summer`s blog argued that with the U.S. operating so far below its growth potential due to the pandemic, an exogenous increase in demand from China would likely have a greater impact than most economists expected when the deal was signed. The following graph puts these numbers in a longer temporal perspective. The box on the left shows that U.S. exports of industrial and energy goods to China have barely changed from historical levels : the recovery that began last year has essentially made up for lost ground during the trade conflict. In contrast, agricultural products have recovered well above historical standards.

At this point, however, it is too early to know if these gains will continue. The box on the right of the graph compares the total exports of goods to China sought under the Phase One agreement with the same set of goods to the rest of the world, with the exception of China (which are not subject to targets). Goods destined for China experienced a significant decline during the trade conflict, which was not reflected in data from the rest of the world. Today, both data sets have recovered strongly, with China`s growth being faster thanks to strong agricultural exports, but the level of U.S. exports for both datasets remains below the trend lines before the trade conflict. So far, such factors do not seem to appear in the data. While it is true that exports to China have grown faster than to the rest of the world, most of the U.S. trading partners have been slow to recover from the pandemic, and this is probably the main reason why exports of the goods covered have been somewhat more moderate than to China. In addition, commodity prices have risen significantly to the benefit of U.S. commodity exporters.

After all, increases in exports to China have so far been too small to lead to trade diversions or effects on commodity supply. .

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