Breaking Down the Phase One Deal Between China and the US

Breaking Down the Phase One Deal Between China and the US the trade turbulence between the world’s two biggest economies didn’t materialize overnight. Years of simmering tensions finally boiled over in 2018, when the United States imposed sweeping tariffs on Chinese imports—citing unfair trade practices, intellectual property theft, and the imbalanced flow of goods. China retaliated with its own tariffs, and thus began a high-stakes economic arm-wrestle that disrupted supply chains, roiled markets, and tested the patience of global investors.

It was a tit-for-tat slugfest that cost billions, sowed uncertainty, and left businesses worldwide holding their breath. Eventually, diplomacy stepped in. The China US phase one deal was born out of necessity—a truce amidst trade turmoil.

The Anatomy of the Agreement

The China US phase one deal is no lightweight. It’s a comprehensive framework built on multiple pillars designed to reboot relations while sidestepping a full-scale economic fallout.

Tariff De-escalation

At the core of the agreement was tariff relief. The United States agreed to reduce some tariffs on $120 billion worth of Chinese goods, while China agreed to lower duties on $75 billion worth of U.S. products. However, tariffs on $250 billion of Chinese goods remained intact, serving as leverage for future negotiations.

This was not a total peace offering—it was more like calling a timeout.

Intellectual Property (IP) Commitments

One of Washington’s most pressing demands was stronger intellectual property protections. The China US phase one deal addresses this head-on.

China pledged to step up legal protections for American patents, trademarks, and copyrights. It also committed to cracking down on counterfeit products and enforcing stricter penalties for theft of trade secrets.

This signaled a major shift in tone—at least on paper.

Halting Forced Technology Transfers

The U.S. had long accused China of forcing foreign companies to hand over proprietary tech as a price of doing business in its massive market. This practice was economically and strategically unsettling.

The China US phase one deal included terms that prohibit the Chinese government from requiring such technology transfers and banned discriminatory practices during licensing processes.

While enforcement remained uncertain, the promise of reform marked a diplomatic win.

Agricultural Commitments: A Farm-Focused Boost

The deal pledged that China would increase its imports of U.S. agricultural products by $32 billion over two years. That was music to the ears of American farmers, especially those in soybean, pork, corn, and wheat sectors, who had borne the brunt of China’s retaliatory tariffs.

For rural communities hit hardest by the trade war, this was a much-needed economic salve.

Financial Services and Currency Transparency

Beyond crops and copyrights, the China US phase one deal also tackled financial barriers and currency transparency.

Opening China’s Financial Sector

The agreement included promises to open Chinese financial markets to American institutions. This gave Wall Street something to smile about.

China agreed to remove ownership limits for foreign firms in areas like securities, fund management, and insurance. It was a symbolic nod to liberalization and a pragmatic move to attract more capital and expertise.

Currency Practices

The U.S. had labeled China a currency manipulator in the heat of the trade war. As part of the deal, China committed to avoiding competitive devaluation and agreed to greater transparency in its foreign exchange operations.

This move was intended to build trust and reduce volatility in global currency markets.

The Purchase Agreement: Numbers That Matter

At the heart of the China US phase one deal was a staggering purchase commitment. Over two years, China was to buy at least $200 billion more in U.S. goods and services than it had in 2017. The targets were broken down as follows:

• Manufactured goods: $77.7 billion
• Agricultural products: $32 billion
• Energy products: $52.4 billion
• Services: $37.9 billion

It was an ambitious blueprint—one that raised eyebrows for its sheer scale.

Reality Check: Did It Work?

The pandemic hit just months after the deal was signed. That alone would’ve made any agreement hard to fulfill. Add in global logistics disruptions, rising costs, and an uncertain geopolitical climate, and the lofty numbers started to look more like wishful thinking.

By the end of 2021, China had fallen well short of the purchase targets. Independent analyses showed China met only about 57% of its commitments under the China US phase one deal.

Despite this, the deal did succeed in temporarily pausing the tariff war and injecting a dose of predictability into an unpredictable relationship.

Enforcement and Dispute Resolution

The China US phase one deal wasn’t just a handshake—it came with an enforcement mechanism. Both sides agreed to resolve disputes through bilateral consultations. If unresolved, the offended party could reimpose tariffs or take other retaliatory actions.

This clause was critical. It provided a structured way to deal with violations and held both parties accountable.

Critics vs. Supporters: A Split Verdict

Not everyone was thrilled.

Critics argued that the deal was heavy on promises and light on details. Others felt the targets were unrealistic and that the deal did little to address fundamental systemic issues in China’s economy, such as state subsidies and industrial overcapacity.

On the flip side, supporters believed the China US phase one deal was a necessary first step. It reengaged two estranged trading giants and opened the door for future, more comprehensive talks.

Geopolitical Undercurrents: More Than Just Trade

The China US phase one deal also carried a strong geopolitical signal. It was a temporary truce in a broader struggle for global economic dominance.

The United States sought to reassert its trade influence, while China was keen to stabilize external conditions amid its own economic transition. Both sides were playing a long game, using the deal as a tactical pause rather than a permanent resolution.

Impact on Global Markets

Markets welcomed the deal—briefly. Stocks rallied, volatility dipped, and business confidence improved. For multinationals relying on stable cross-border trade, the accord offered breathing room.

But as months passed and targets went unmet, optimism gave way to realism. The world realized that the China US phase one deal was a Band-Aid on a much deeper wound.

The Biden Administration and What Came Next

With the change in U.S. leadership in 2021, the deal’s future came under new scrutiny. President Biden inherited the agreement but adopted a more multilateral and strategic approach toward China.

While tariffs remained, the Biden administration emphasized working with allies to address shared concerns with Beijing, such as cybersecurity threats and climate cooperation.

The China US phase one deal wasn’t discarded, but it wasn’t celebrated either. It became a placeholder—a legacy document that still shapes today’s bilateral tone.

Lessons Learned from Phase One

This deal taught policymakers and businesses several important lessons:

• Trade agreements are only as strong as their enforcement mechanisms. Promises without follow-through are just paper.
• Economic diplomacy is slow and imperfect, especially between superpowers with divergent systems.
• Resilience matters. The pandemic highlighted the fragility of relying too heavily on singular trade lanes or export destinations.
• Negotiation never really ends. The China US phase one deal might have frozen hostilities, but the fundamental frictions persist.

What Lies Ahead: Phase Two or Farewell?

Despite occasional speculation, there was never a Phase Two.

The China US phase one deal was supposed to be the beginning of a broader, more transformative negotiation that tackled thornier issues like industrial subsidies, SOEs (state-owned enterprises), and data flows. But that never materialized.

Today, the U.S. and China continue to circle each other with caution. The deal remains in effect, but with diminished relevance. New economic flashpoints—like semiconductors, AI, and green energy—have taken center stage.

Still, the blueprint exists. The China US phase one deal may someday serve as the model—or the warning—for how to navigate economic entanglements in a multipolar world.

The China US phase one deal was historic, no doubt. But history is rarely neat. The agreement paused a damaging trade war, offered relief to certain industries, and hinted at the possibility of deeper cooperation. Yet, it fell short of delivering on its boldest promises.

Trade, especially between economic behemoths like China and the U.S., will always be more chess match than sprint. The lessons of Phase One—cautious optimism, rigorous enforcement, and strategic patience—will guide future diplomacy.

The world is watching. And the next chapter is still unwritten.