Updated December 16, 2022
U.S.-China Phase One Trade Deal
On January 15, 2020, then-President Donald J. Trump
late in a product cycle to prevent China from securing a
signed a trade agreement with Vice Premier Liu He of the
dominant global market position, particularly given the
People’s Republic of China (PRC or China) that sought to
broad scope and potential effect of China’s policies.
resolve some long-standing U.S. government and business
Section 301 Findings and Actions
concerns about China’s unfair trade, investment, and
In March 2018, the USTR released a report on the findings
technology practices. The negotiations sought to address
of its Section 301 investigation. The USTR concluded that
U.S. concerns and actions, including imposing tariffs, that
China engages in forced technology transfer, cyber-enabled
the U.S. government took under Section 301 of the Trade
theft of U.S. IP and trade secrets, discriminatory and
Act of 1974 (19 U.S.C. §2411). The deal is called the Phase
nonmarket licensing practices, and state-funded strategic
One agreement because it was to be the first of subsequent
acquisitions of U.S. assets. Section 301 allows for a range
agreements to address key U.S. concerns. Many experts
of counter-measures while requiring the USTR to negotiate
assess that PRC negotiators pushed most issues identified
with a country of concern. Some U.S. agencies, such as the
by the U.S. Trade Representative (USTR) to future talks,
Departments of Commerce and the Treasury, did not use
but the deal includes several PRC commitments that were
other authorities under their purview, leaving the USTR to
difficult for the USTR to secure and could help shape U.S.
leverage tariffs. Since 2018, the USTR has imposed four
trade policy toward China going forward.
rounds of tariffs at a rate of 7.5% to 25% on an estimated
Section 301 Context
$370 billion worth of U.S. imports from China. China has
In August 2017, the USTR, encouraged by many in
countered with four rounds of tariffs on $110 billion worth
Congress and some companies, invoked Section 301 in an
of U.S. products. Both sides have granted some exceptions,
effort to address China’s industrial policies whose stated
but most tariffs remain in effect. Some trade may avert U.S.
objective is to seek global commercial and technology
tariffs through de minimis trade—a practice that involves
leadership through discriminatory trade, investment, and
packaging products into low value shipments to avoid
technology practices. The USTR’s efforts reflected a U.S.
duties and one that some in Congress have sought to curtail.
government and industry view, coalesced over 15 years of
efforts in working directly with the PRC government, that it
Phase One Agreement: Select Provisions
was unwilling to acknowledge and address U.S. concerns
The deal left the resolution of many concerns about IP,
and priorities. Against this backdrop, of growing concern to
technology transfer, industrial policies, and state subsidies to
U.S. officials and firms were China’s perceived efforts to
future talks, but contains PRC commitments in these areas:
intensify these practices—including new Made in China
2025 industrial policies—and an uptick in reports of
IP. Defines confidential business information as part of trade
corporate espionage, tightening of information and data
secrets subject to protection. Misappropriation to include
controls (and pressure on U.S. firms to abide by these
electronic intrusions and unauthorized disclosure, including by
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 U.S. concerns fell in gray areas of WTO
use or favoring of a technology, including to show conformity
rules or outside the WTO’s purview. Prior experience with
with regulatory requirements or receive administrative
PRC industrial policies (e.g., steel, solar panels, and
approvals or licenses, to operate in the market, or to receive
telecom equipment) led U.S. officials to seek
any advantages.
countermeasures to address China’s industrial policy in its
early stages before an export existed, concerned that trade
remedies such as antidumping were reactive and used too
https://crsreports.congress.gov
U.S.-China Phase One Trade Deal
the USTR to lift tariffs while sustaining its practices of
Foreign investment and acquisitions: Prohibits support
concern. Some U.S. firms, Members of Congress, and parts
of outbound investment to target foreign technology and
of the Biden Administration are also pressing for the
capabilities in industries prioritized in China’s industrial plans.
elimination, reduction, or exclusion of certain tariffs, to
Currency: Similar to Chapter 33 of the U.S.-Mexico-Canada
provide relief for U.S. consumers and firms and address
Agreement, requires market-determined exchange rates, and
inflation. Others in Congress and the Administration argue
transparency and reporting requirements.
that the tariffs provide a point of U.S. leverage and should
Negotiations: Creates a Trade Framework Group led by the
be sustained, some noting that lifting tariffs could signal a
USTR and a PRC Vice Premier to meet every six months.
lack of U.S. resolve and unwillingness to bear costs
Talks to be held on unresolved IP and agricultural issues.
associated with actions that address U.S. priorities. China
Dispute Resolution. Allows 90 days to resolve issues, after
might not reciprocate and could make new demands. There
which either side could take proportionate unspecified action.
has been little discussion about how to enforce the deal and
address issues with China that remain unresolved. Some of
Other Phase One Commitments
the issues Congress might consider include
China also made commitments in agriculture and financial
In light of how difficult it was to secure China’s
services unrelated to Section 301 concerns, possibly to
acknowledgement of its practices of concern and limited
avoid commitments related to its industrial and technology
commitments in these areas, to what extent may the
practices. In agriculture, China committed to expand access
United States reasonably expect talks with Beijing to
in rice, beef, pork, and poultry, while leaving some
achieve results that further U.S. policy objectives, when
technical issues to future talks. In financial services, China
measured against the U.S. resources and efforts
agreed to reduce some foreign equity limits, and licensed a
required? Does a focus on talks with China take U.S.
few U.S. firms. China committed to review applications
attention away from efforts to deploy or develop U.S.
from Mastercard, Visa, and American Express, but did not
trade tools and joint approaches with other countries to
commit to licensing, and still requires joint ventures in a
protect and advance U.S. economic interests?
market controlled by the state monopoly, China UnionPay.
Are other approaches and measures needed in addition
The agreement also sought to address the U.S. trade deficit
to or separate from tariffs, and if so, what are they?
with China with a two-year purchasing deal. China agreed
Should the USTR use Section 301 to address other
to purchase during 2020 and 2021 at least $200 billion
concerns, such as subsidies? What approaches with
above a 2017 baseline amount of U.S. agriculture (+$32
allies and partners could be pursued, such as efforts with
billion), energy (+$52.4 billion), manufactured goods
Europe and Japan to address non-market economic
(+$77.7 billion), and services (+$37.9 billion). China fell
distortions and subsidies and develop new rules,
short of its commitment by 60% for goods (and about 57%
inclusion of China-focused provisions in free trade
for goods and services), due in part to its efforts to diversify
agreements, stepped up efforts to reform WTO rules, or
agriculture and energy suppliers and the trade slowdown
joining and leading new plurilateral trade agreements
during the Coronavirus 2019 Disease (COVID-19)
that address gaps in WTO disciplines?
pandemic. At the same time, China hastened the return to
Should Congress require the USTR to enforce the Phase
China of empty shipping containers to boost its exports,
One provisions and actively use the Phase One dispute
likely impeding U.S. reloading and exports (Figure 1).
process? Should the USTR challenge China’s industrial
Figure 1. Phase One Trade (2020 to 2021)
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.
Could tariffs help diversify China-based supply chains
Notes: Excludes services commitments. Goods includes aircraft.
and counter China’s subsidies by raising costs vis-à-vis
Issues for Congress
U.S. and third-market products? Could tariffs on goods
tied to China’s industrial policies (e.g., solar panels,
Congress might assess the U.S. experience with the Phase
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 they violate U.S. trade
commitments and encourage others to follow suit? The
U.S. economic interests and counter China’s persistent
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 to
deepen technology supply chains in China?
year mark (2022), which the Biden Administration is now
doing. China is reportedly using this juncture to pressure
https://crsreports.congress.gov
U.S.-China Phase One Trade Deal
IF12125
Karen M. Sutter, Specialist in Asian Trade and Finance
Disclaimer
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https://crsreports.congress.gov | IF12125 · VERSION 3 · UPDATED