Skip to main content
Open this photo in gallery:

U.S. President Donald Trump signs Phase One trade agreement with Chinese Vice Premier Liu He, in the East Room of the White House, on Jan. 15, 2020, in Washington.Evan Vucci/The Associated Press

U.S. President Donald Trump signed an initial trade deal with China on Wednesday, bringing the first chapter of a protracted and economically damaging fight with one of the world’s largest economies to a close.

The pact is intended to open Chinese markets to more U.S. companies, increase farm and energy exports, and provide greater protection for U.S. technology and trade secrets. China has committed to purchasing an additional US$200-billion worth of U.S. goods and services by 2021, and is expected to ease some of the tariffs it has placed on U.S. products.

But the agreement preserves the bulk of tariffs that Mr. Trump has placed on US$360-billion worth of Chinese goods, and maintains the threat of additional punishment if Beijing does not live up to the terms of the deal.

“Today we take a momentous step, one that has never been taken before with China, toward a future of fair and reciprocal trade with China,” Mr. Trump said at a ceremony at the White House. “Together we are righting the wrongs of the past.”

The deal caps more than two years of tense negotiations and escalating threats that, at times, seemed destined to plunge the U.S. and China into a permanent economic war. Mr. Trump, who campaigned for president in 2016 on a promise to get tough on China, pushed his negotiators to rewrite trade terms that he said had destroyed U.S. industry and jobs, and he imposed record tariffs on Chinese goods in a gamble to get Beijing to accede to his demands.

“As a candidate for president, I vowed strong action,” Mr. Trump said. “Unlike those who came before me, I kept my promise.”

The agreement is a significant turning point in U.S. trade policy and the types of free-trade agreements that the U.S. has typically supported. Rather than lowering tariffs and other economic barriers to allow for the flow of goods and services to meet market demand, this deal leaves a record level of tariffs in place and forces China to buy US$200-billion worth of specific products within two years.

To Mr. Trump and other supporters, the approach corrects for past trade deals that enabled corporate outsourcing, and led to lost jobs and industries. To critics, it is the type of managed trade approach that the U.S. has long criticized, especially with regard to China and its control over its economy.

Rather than trying to change China’s approach, it leans into it by requiring Beijing to buy set amounts of certain goods and services. The text of the agreement stipulates that “China shall ensure” purchases and imports into China meet that US$200-billion figure by 2021.

The deal also does little to resolve more pernicious structural issues surrounding China’s approach, particularly its pattern of subsidizing and supporting key industries that compete with U.S. firms, such as solar energy and steel. U.S. businesses blame those economic practices for allowing cheap Chinese goods to flood the U.S. market, putting domestic firms out of business.

Instead, like the presidents who preceded him, Mr. Trump plans to rely on allies and the World Trade Organization to try to push China to change its ways.

“A ceremony at the White House can’t hide the stark truth about the ‘phase one’ China trade deal: The deal does absolutely nothing to curtail China’s subsidies to its manufacturers,” Scott Paul, president of the Alliance for American Manufacturing, a trade group representing manufacturers and United Steelworkers, said in a tweet. “All those ‘forgotten men and women’ in U.S. factories have, once again, been forgotten.”

The President’s approach may pay off politically. He will head into a re-election campaign with a commitment from China to strengthen its intellectual-property protections, make large purchases of U.S. products and pursue other economic changes that will benefit business. Even before the deal was signed, Mr. Trump’s supporters said the President took China on and won.

At a lavish White House ceremony crowded with Cabinet members, lawmakers and executives from the country’s biggest companies, Mr. Trump seized on the signing as a counterweight to impeachment proceedings that were taking place across town, where lawmakers were about to vote to approve House prosecutors for a Senate trial.

“They have a hoax going on over there – let’s take care of it,” he said.

But the agreement has plenty of critics in both parties, who say that Mr. Trump’s tactics have been haphazard and economically damaging, and that the agreement leaves many important economic issues unresolved.

That includes cybersecurity and China’s tight controls over how companies handle data and cloud computing. China rejected U.S. demands to include promises to refrain from hacking U.S. firms in the text, insisting it was not a trade issue.

The administration has said it will address some of these changes in Phase Two of the negotiations and is keeping tariffs in place in part to maintain leverage for the next round of talks. Mr. Trump said if the two sides could reach agreement on the next phase, all of the tariffs he has placed on China would come off.

“I will agree to take those tariffs off if we’re able to do Phase Two,” he said.

But Mr. Trump has already kicked the deadline for another agreement past the November election, and there is deep skepticism that the two countries will reach another trade deal any time soon.

In the interim, the remaining tariffs will continue to inflict financial pain on U.S. businesses that rely on Chinese imports and the consumers who buy their products.

As part of the deal, Mr. Trump agreed to reduce the rate on tariffs imposed in September and forgo additional import taxes in the future. But the U.S. will continue to maintain tariffs covering 65 per cent of U.S. imports from China, according to tracking by Chad Bown, a senior fellow at the Peterson Institute of International Economics. That leaves the U.S. with an overall tariff rate higher than that of any other advanced country, as well as China, India and Turkey.

China will still tax 57 per cent of imports from the U.S. in retaliation, according to Mr. Brown, although it’s possible some of those levies may be waived in coming weeks.

Before the deal was signed Wednesday, it was already under fire from top Democrats. Senator Chuck Schumer, the minority leader from New York, criticized the agreement for failing to address China’s state-owned enterprises and industrial subsidies. He suggested that President Xi Jinping was privately laughing at the U.S. over the weakness of the deal and that China has “taken President Trump to the cleaners.”

“This Phase One deal is an extreme disappointment to me, and to millions and millions of Americans, who want to see us make China play fair,” Mr. Schumer said on the Senate floor. “President Trump’s Phase One trade deal with China is a historic blunder.”

The trade deal contains a variety of wins for American industry, including opening up markets for financial services, pharmaceuticals, beef and poultry.

The text outlines what China will buy from the U.S. during the next two years. That includes substantial purchases from American farmers, who have been hit hard by the trade war.

Of the US$200-billion, just US$32-billion, or 16 per cent, of the purchases will be of farm products, such as oilseeds, meat and cotton. Banks, drug companies and the energy industry are also big beneficiaries.

China has also committed to refrain from forcing U.S. companies to hand over their technology as a condition of doing business there, under penalty of further tariffs. Beijing has also promised to refrain from devaluing its currency, the yuan, to gain an advantage in export markets, among other pledges.

Those terms appear likely to benefit U.S. companies and increase exports in coming months, potentially narrowing the trade deficit with China, which has become a focal point for Mr. Trump.

The President trumpeted many of China’s concessions during the signing ceremony, singling out audience members who will benefit from the trade deal. He called out a litany of Wall Street executives, many of whom have been pressing for greater access to China’s financial services market, including Stephen A. Schwarzman, chief executive of private equity firm Blackstone Group; Kenneth C. Griffin, billionaire founder of hedge fund Citadel; and the heads of Citibank, Visa, Fidelity Investments and American International Group.

Referring to the energy purchases in the agreement, Mr. Trump called on Senator Joni Ernst, saying, “You got ethanol so you can’t be complaining.”

But those wins have come at a heavy price. The uncertainty created by Mr. Trump’s tariff threats and approach to trade has weighed on the economy, raising prices for businesses, delaying corporate investments and slowing growth around the globe. Businesses with exposure to China, such as Deere & Co. and Caterpillar, have cut some workers and lowered revenue expectations, in part citing the trade war.

And although Mr. Trump claims that China is paying for his tariffs, studies show that U.S. companies are bearing much of the cost. Since July 6, 2018, when the first tariffs went into effect, companies have paid more than US$42-billion in tariffs related to the trade war with China.

Clete Willems, a partner at Akin Gump who left the White House last year, said the deal was important for proving that the U.S. and China could solve problems with each other despite disagreements and heightened tensions.

“We didn’t fix every single problem with China in this agreement, there is no question about that,” Mr. Willems said. “But what was done is really significant.”

Your Globe

Build your personal news feed

Follow topics related to this article:

Check Following for new articles