CEPII, Recherche et Expertise sur l'economie mondiale
The ‘Phase One Deal’: a truce that creates more problems than it solves

Sébastien Jean

The trade agreement signed on the 15th of January between China and the United States is nothing more than a truce. It leaves additional tariffs on roughly two-thirds of US imports from China in place. Chinese pledges to purchase American products should help to reduce the bilateral trade deficit, but they will not necessarily bring back manufacturing industries to the US. They will, however, hurt third countries. Commitments on intellectual property rights, technology transfers and financial services will increase investment in China by American companies, if they have any significant impact at all. And China’s commitments to partially align with US practices on sanitary and phytosanitary standards, however sensitive they may be, will only have limited commercial consequences in terms of scope and will be restricted to the agricultural sector. In the absence of a dispute settlement system with credible institutions, the agreement fails to achieve lasting stability. A central problem, industrial subsidies, is not addressed, and the prospect of a ‘Phase Two’ agreement appears nebulous and uncertain. The agreement is yet another step that will destabilize the multilateral trading system, as it subjects trade relations to the bilateral political balance of power.

 Keywords : Trade deal | USA | China | WTO

 JEL : F13, F42
CEPII Policy Brief
N°2020-29,  2020

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 Fields of expertise

Trade & Globalization