Tariffs imposed by the United States and China on imports from each other have decimated bilateral trade in 2018 and 2019. The Trump administration negotiated the legal text of the Phase 1 agreement to force China to buy an additional $200 billion of U.S. goods and services in addition to 2017 (not 2019) if bilateral trade was more robust.2 The legal evaluation of the agreement therefore requires a comparison of 2020 with 2017. The dependence of the Phase 1 agreement on China`s massive purchase commitments could be its biggest mistake. These commitments often generate press releases on large sales, but the agreement did not do enough for what was really needed: lower tariffs and other trade barriers to allow producers to compete in the Chinese market. If trade liberalization had been at the heart of the agreement, and not just the smallest part, the long-term results might have been better. It is therefore not surprising that the agreement leaves many deep-rooted issues unresolved. Among them is China`s position on industrial subsidies. While the 15 December tariffs have been suspended, current tariffs are being maintained despite some withdrawals. On January 15, 2020, the United States and China signed a historic and binding agreement on a Phase 1 trade agreement. The agreement requires structural reforms and other changes to China`s economic and trade regime.

The Phase 1 Economic and Trade Agreement contains a chapter on intellectual property that strengthens the protection and application of intellectual property in China. The first phase agreement will permanently reduce tensions between China and the United States in the short term and may even boost U.S. exporters in some sectors. However, the unintended consequences of China`s handling of its new commitments, the way other trading partners will treat China in the future, and international efforts to rewrite WTO rules on trade relations, market competition and government subsidies will determine whether the trade agreement was worth it. The agreement prohibits the United States and China from manipulating exchange rates or interest rates in order to devalue their currencies. China has also agreed to disclose its foreign exchange reserves and quarterly imports of goods and services. Last year, the Trump administration called China a currency manipulator and argued that China had deliberately repressed the value of its currency to give its exports a competitive advantage; this label was discontinued shortly before the signing of the Phase 1 trade agreement. For their part, Chinese companies, particularly in the technology sector, have been subjected to enough sanctions to have confidence that they can freely access U.S. markets or source uninterrupted supplies to the United States. As a result, the trade war has shaken existing global trade relations to forge new partnerships and refocus on finding alternative markets and suppliers in emerging countries. On January 15, 2020, the United States and China signed the much-anticipated first phase trade agreement (The United States of China) in Washington DC.