The US and China are moving ahead with the phase one trade deal, with officials from both countries speaking on the phone to review its progress. The development has eased concerns that deteriorating bilateral relations would impact the agreement and potentially ignite another trade war.

US President Donald Trump had pushed back the planned biannual talks, originally scheduled for August 15, because of his wider frustrations with China. In an election campaign speech earlier this month in Arizona, he said: “I don’t want to talk to China right now.”

Despite this, a statement published on August 24 by the US Trade Representative (USTR) following a call with Chinese authorities, reveals that both sides are seeing “progress” with regard to the deal, which went into effect in February.

The discussion took place between Chinese vice-premier Liu He, US trade representative Robert Lighthizer and US treasury secretary Steven Mnuchin.

“The parties addressed steps that China has taken to effectuate structural changes called for by the agreement that will ensure greater protection for intellectual property rights, remove impediments to American companies in the areas of financial services and agriculture, and eliminate forced technology transfer,” the USTR statement reads. “The parties also discussed the significant increases in purchases of US products by China as well as future actions needed to implement the agreement.”

Similarly, the Chinese government announced that the two sides conducted a “constructive dialogue” on strengthening bilateral co-ordination of macroeconomic policies and the trade agreement.

It adds that they agreed “to create conditions and atmosphere” to continue pushing forward the implementation of the phase one deal.


Missing targets

The agreement covers intellectual property, technology transfer, trade in food and agricultural products, financial services, macroeconomic policies and exchange rates, and the expansion of trade between the two parties, as well as annexes on dispute resolution.

As part of the deal, China agreed to expand purchases of certain US goods and services by a combined US$200bn over 2020 and 2021 from 2017 levels.

However, according to the trade deal tracker by the Peterson Institute for International Economics (PIIE), China is far from hitting the target for this year. As of July, China imported US$48.5bn-worth of US goods, less than half of what the trade deal requires by this point. Purchase promises fell behind in manufactured goods, energy and agriculture.

No doubt trade flow volumes between China and US will have been adversely impacted by the effects of the Covid-19 pandemic – the World Trade Organization expects global trade to drop by between 13% and 32% this year.


Tactical timing

Despite not yet meeting the requirements of the agreement, the timing of the latest discussion is important, as it coincides with the Republican National Convention – a crucial time for Trump in his bid to gain another presidency term. Sealing a deal with China on his terms may be favourable in the eyes of voters.

Trump has acted against China in the past year, criticising it for the pandemic, security laws imposed on Hong Kong by Beijing, and data security, causing bilateral relations to quickly fray. The current president and his supporters believe democratic candidate Joe Biden, or ‘Beijing Biden’ as they call him, would take a softer approach to China.

In April, Trump said he may seek damages from China over Covid-19, widely thought to have started in the Hubei province, and is doing some “serious investigations” into the spread of the virus, which has now killed more than 180,000 people in the US and rattled its economy.

In May, Beijing imposed national security laws on Hong Kong, ignoring warnings from Washington which threatened to revoke Hong Kong’s special trade status if the legislation was passed. Soon after, Trump said his administration would begin the process of removing Hong Kong’s preferential treatment as well as sanction the lawmakers involved.

When it comes to data security, Trump has imposed executive orders to ban the Chinese video-sharing app TikTok and social media platform WeChat over their connections to the Chinese government. TikTok’s owner ByteDance has launched a legal challenge against the decision, disputing the move, and arguing that it was driven by politics, rather than security needs.