May 27, 2022
U.S.-China Phase One Trade Deal
On January 15, 2020, President Donald J. Trump signed a
market position, particularly given the broad scope and
trade agreement with Vice Premier Liu He of the People's
potential effect of China’s policies.
Republic of China (PRC or China) that sought to resolve
Section 301 Findings and Actions
some longstanding U.S. government and business concerns
about China’s
In March 2018, USTR released a report on the findings of
unfair trade, investment, and technology
its Section 301 investigation. USTR concluded that China
practices. The negotiations were conducted in response to
engages in forced technology transfer, cyber-enabled theft
actions, including imposing tariffs, that the U.S.
of U.S. IP and trade secrets, discriminatory and nonmarket
government took under Section 301 of the Trade Act of
licensing practices, and state-funded strategic acquisitions
1974 (19 U.S.C. §2411). The deal is called the Phase One
of U.S. assets. Section 301 allows for a range of counter-
agreement because it was to be the first of subsequent
measures while requiring the USTR to negotiate with a
agreements to address key U.S. concerns. Many experts
country of concern. Some U.S. agencies, such as the
assess that PRC negotiators pushed most issues identified
Departments of Commerce and Treasury, did not use other
by USTR to future talks, but the deal has several
authorities under their purview, leaving the USTR to
commitments from China that were difficult to secure and
leverage tariffs. USTR imposed four rounds of tariffs at a
could help shape U.S. trade policy going forward.
rate of 7.5% to 25% on an estimated $250 billion worth of
Section 301 Context
U.S. imports from China. China countered with four rounds
In August 2017, the U.S. Trade Representative (USTR),
of tariffs on $110 billion worth of imported U.S. products.
encouraged by many in Congress and some companies,
Both sides have granted some exceptions, but most tariffs
invoked Section 301 in an effort address China’s industrial
remain in effect. Some trade may be averting U.S. tariffs
policies whose stated objective is to seek global commercial
through de minimis trade—a practice that involves
and technology leadership through discriminatory trade,
packaging products into low value shipments to avoid
investment, and technology practices. USTR’s efforts
duties and one that some in Congress have sought to curtail.
reflected a U.S. government and industry view, coalesced
over 15 years of efforts in working directly with the PRC
Phase One Agreement: Select Provisions
government, that it was unwilling to acknowledge and
The deal left the resolution of many concerns about IP,
address U.S. concerns and priorities. Against this backdrop,
technology transfer, industrial policies, and state subsidies to
of growing concern to U.S. officials and firms were China’s
future talks, but contains commitments in these areas:
perceived efforts to intensify these practices—including
new Made in China 2025 industrial policies—and an uptick
IP. Defines confidential business information as part of trade
in reports of corporate espionage, tightening of information
secrets subject to protection. Misappropriation to include
and data controls (and pressure on U.S. firms to abide by
electronic intrusions and unauthorized disclosure, including by
these controls), and use of economic coercion and forced
government officials and third-parties. Burden of proof shifts
technology transfer. U.S. stakeholders assessed that China
to the accused party if a rights holder shows that the accused
was deploying a web of mutually reinforcing government
party had access or an opportunity to obtain a trade secret,
policies that offered preferences and support for PRC firms
the information used by the accused party is materially the
and some foreign firms willing to commit to certain terms,
same as that of the rights’ holder, evidence that a trade secret
such as the transfer of technology, trade secrets, and core
has been or risks being disclosed, or other misappropriation
intellectual property (IP) to PRC entities in order to operate
evidence. Requires pharmaceutical patent extensions if there
and expand in China. Also of concern was a sharp uptick in
are unreasonable delays in granting patents.
PRC firms’ acquisition (often state-funded) of foreign firms
Technology Transfer. Prohibits forced technology transfer,
in strategic sectors (e.g., aerospace and semiconductors).
an activity the PRC government had denied. Requires that
firms operate freely without pressure to transfer technology.
While the USTR had prevailed in several dispute cases or
Transfer or licensing of technology should be on market
elements of cases against China in the World Trade
terms that are voluntary and reflect mutual agreement. May
Organization (WTO), many experts assessed that most PRC
not require technology transfer in relation to acquisitions,
practices at issue were systemic and pervasive and could
joint ventures, or other transactions. May not require or
not be resolved with the WTO’s case-by-case dispute
pressure, formally or informally, technology transfer, or the
approach. Many concerns fell in gray areas of WTO rules
use or favoring of a technology, including to show conformity
or outside the WTO’s purview. Prior experience with PRC
with regulatory requirements or receive administrative
industrial policies (e.g., steel, solar panels, and telecom
approvals or licenses, to operate in the market, or to receive
equipment) led U.S. officials to seek countermeasures to
any advantages.
address China’s industrial policy in its early stages before
Foreign investment and acquisitions: Prohibits support
an export existed, concerned that trade remedies such as
of outbound investment to target foreign technology and
antidumping were reactive and used too late in a product
capabilities in industries prioritized in China’s industrial plans.
cycle to prevent China from securing a dominant global
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U.S.-China Phase One Trade Deal
pressing for the elimination, reduction, or exclusion of
Currency: Similar to Chapter 33 of the U.S.-Mexico-Canada
certain tariffs, to provide relief for U.S. consumers and
Agreement, requires market-determined exchange rates, and
firms and address inflation. Others in Congress and the
transparency and reporting requirements.
Administration argue that the tariffs provide a point of U.S.
Negotiations: Creates a Trade Framework Group led by the
leverage and should be sustained, some noting that lifting
USTR and a PRC Vice Premier to meet every six months.
tariffs could signal a lack of U.S. resolve and unwillingness
Talks to be held on unresolved IP and agricultural issues.
to bear costs associated with actions that address U.S.
Dispute Resolution. Allows 90 days to resolve issues, after
priorities. China might not reciprocate and could make new
which either side could take proportionate unspecified action.
demands. There has been little discussion about how to
enforce the deal and address issues with China that remain
China also made commitments in agriculture and financial
unresolved. Some of the issues Congress might consider in
services unrelated to Section 301 concerns possibly to avoid
both its legislative and oversight activities include:
commitments related to its industrial and technology
practices. In agriculture, China committed to expand access
In light of how difficult it was to secure China’s
in rice, beef, pork, and poultry, while some technical issues
acknowledgement of its practices of concern and
were left to future talks. In financial services, China agreed
limited commitments in these areas, to what extent may
to reduce some foreign equity limits, and licensed a few
the U.S. reasonably expect talks with Beijing to
U.S. firms. China committed to review applications from
achieve outcomes that further U.S. policy objectives,
Mastercard, Visa, and American Express, but did not
when measured against the U.S. resources and efforts
commit to licensing, and required joint ventures in a market
required? Does focusing on talks with China take U.S.
controlled by the state monopoly, China UnionPay.
focus and resources away from efforts to deploy or
develop U.S. trade tools and joint approaches with
The agreement also sought to address the U.S. trade deficit
other countries that might be required to protect and
with China with a two-year purchasing deal. China agreed
advance U.S. economic interests?
to purchase during 2020 and 2021 at least $200 billion
above a 2017 baseline amount of U.S. agriculture (+$32
Is the Executive Branch fully using its authorities to
billion), energy (+$52.4 billion), manufactured goods
address its concerns about China? Are other
(+$77.7 billion), and services (+$37.9 billion). China fell
approaches and measures needed in addition to or
short of its commitment by 60% for goods (and about 57%
separate from tariffs, and if so, what are they? Should
for goods and services), due in part to its efforts to diversify
the USTR use Section 301 to address other concerns,
agriculture and energy suppliers and the trade slowdown
such as subsidies? What approaches could be pursued,
during the Coronavirus 2019 Disease (COVID-19)
such as prior efforts with Europe and Japan to address
pandemic. At the same time, China hastened the return to
non-market economic distortions and subsidies?
China of empty shipping containers to boost its exports,
Should Congress require the USTR to enforce the
likely impeding U.S. reloading and exports (Figure 1).
Phase One provisions and actively use the Phase One
dispute process? Should the USTR challenge China’s
Figure 1. Phase One Trade (2020 to 2021)
industrial policies that appear to violate commitments
not to require technology transfer, and its efforts to set
global technology licensing and pricing terms, such as
through its courts? (See CRS Report R46767, China’s
New Semiconductor Policies: Issues for Congress and
CRS Report R46915, China’s Recent Trade Measures
and Countermeasures: Issues for Congress.)
How might Congress weigh the tariffs’ effects on U.S.
firms and consumers against issues of economic
competitiveness? To what extent are tariffs inflationary
compared to drivers such as food, energy, housing,
labor and supply chain shortages, and monetary policy?
Source: CRS with data from the U.S. Census Bureau.
Notes: Excludes services commitments. Goods includes aircraft.
Could tariffs help diversify China-based supply chains
and counter China’s subsidies by raising costs vis-a-vis
Issues for Congress
U.S. and third-market products? Could tariffs on goods
Congress might assess the U.S. experience with the Phase
tied to China’s industrial policies (e.g., solar panels,
One process as it debates the merits of the deal and how to
electric vehicles, semiconductors, and batteries) help
leverage it, the effects of the tariffs, and options to advance
level the playing field, or would this violate U.S. trade
U.S. economic interests and counter China’s persistent
commitments and encourage others to follow suit?
statist economic practices that the USTR raised in its 2018
USTR proposed but never enacted tariffs on consumer
report. Section 301 requires a review of tariffs at the four-
electronics. Could these tariffs counter China’s efforts
year mark (2022), which the Biden Administration is now
to deepen technology supply chains in China?
doing. China is reportedly using this juncture to pressure
the USTR to lift tariffs while sustaining its practices of
Karen M. Sutter, Specialist in Asian Trade and Finance
concern. Some U.S. business groups, Members of
IF12125
Congress, and parts of the Biden Administration are also
https://crsreports.congress.gov
U.S.-China Phase One Trade Deal
Disclaimer
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https://crsreports.congress.gov | IF12125 · VERSION 1 · NEW