Phase 2 of the US-China Trade Deal is Over – What’s Next?

Matt Snape

NDTV reports that US President Donald Trump has ruled out the second phase of the US-China trade deal, for now. He says that relations between the two countries have been severely damaged because of Beijing’s handling of the coronavirus.

Trump told reporters from Air Force One on Friday that he does not even think about the trade deal anymore.

Trade Issues Remain Unsolved

It comes as no surprise that the US-China trade deal has reached this stage. In 2016, Trump campaigned on a platform to reform Washington’s relationship with Beijing and became the first presidential candidate to highlight the difficult relationship that both nations have. America’s policy toward China has always been to encourage them to liberalize their trade with other nations, and the latter achieved this aim to a certain extent when it joined the World Trade Organization in 2001.

The Trump administration marks a turning point in US-Chinese relations. From 2018, the US President embarked on an 18-month trade war with his Chinese counterpart, Xi Jinping, which forced both leaders to engage in trade talks that led to the signing of Phase One of the US-China trade deal in January 2020.

Progress toward Phase Two of the trade pact has been complicated by numerous factors. Firstly, the Trump administration blamed China for causing COVID-19 to spread throughout the globe and it has badly affected America in particular. So far, 136,000 Americans have been killed by the pandemic.

Phase Two Was Always Going to be Complicated

Other factors have also thwarted the completion of the US-China trade agreement. The new national security law in Hong Kong has complicated relations between both countries, alongside restrictions on American journalists, the treatment of Uyghur Muslims, and security measures in Tibet.

Phase One of the trade deal slashes tariff rates on $120 billion worth of goods, but most of the higher duties — which affect $360 billion on Chinese products and more than $100 billion worth of US exports — remain in place. This means that without Phase Two of the agreement being signed, Trump is going to fail to liberalize trade between both countries before he is up for re-election in November.

As The Hill’s Nick Sargen argues, Phase Two was always going to be the most difficult stage of the deal. This is because disputes would have arisen over specific features of the agreement, especially the volume of Chinese purchases of American farm goods. Before Trump halted trade negotiations on Friday, US Trade Representative Robert Lighthizer hinted that the US could reimpose duties on China if the enforcement mechanisms that call for the two sides to settle their differences during the talks failed.

The 2008 recession caused Chinese politicians to question the model of Western economies and since Jinping was appointed as China’s President in 2012, he has been active in reinstating the state’s role in the economy. This means that Chines government subsidies of state-controlled businesses would have been another tricky situation for both sides to resolve if Phase Two proceeded as planned. Even before Friday’s announcement, Lighthizer acknowledged that Chinese concessions on this issue would have been limited.

Is Trump Concerned About Trade Anymore?

In the meantime, relations between China and the US are only likely to worsen. The coronavirus has sparked a new ‘cold war’ between both sides. Earlier this week, the US President announced that he is considering banning Chinese social media app TikTok from America. He also hinted at further measures in the future.

As long as trade tensions remain unresolved, American businesses are only likely to suffer in the future now that Trump has failed to deliver on his promise to liberalize trade. American firms are now embarking on an expensive project to reroute supply chains away from China.

It is unlikely that Trump’s failure to deliver on this key issue will affect him in November. He can conveniently blame the coronavirus for disrupting his plans for liberalized trade between the US and China. If he wins a second term, his stance toward Beijing will only harden, but after COVID-19 shattered the American economy this year, maybe voters will indeed want a president who is tough on a country that has brought its economic prospects to a grinding halt.