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Why the US-China Trade War Could Re-escalate

The "phase one" trade deal between the United States and China addresses only some of the US government’s concerns, and its remaining demands will be much harder to resolve. But while both America and China have an interest in the success of the open multilateral global trading system, current US policy is undermining that goal.

WASHINGTON, DC – After nearly 18 months of tit-for-tat tariff increases, the United States and China have reached a “phase one” agreement to start de-escalating their trade war. As part of the deal, US President Donald Trump canceled further tariff increases on Chinese goods that had been scheduled to take effect on December 15, and halved a 15% tariff on $120 billion worth of imports from China. As for China, it shelved its planned retaliatory measures and committed to import some $50 billion worth of US agricultural products in each of the next two years.

But the promised de-escalation should not be overestimated. For starters, it is not clear how China could follow through on its import commitment without violating the World Trade Organization principle of non-discrimination among trading partners. Moreover, the 25% US tariff on $250 billion of Chinese imports remains in place, with further reductions linked to progress in future trade negotiations.

In fact, the current agreement addresses only some of the US government’s trade-related complaints against China, and its remaining demands will be much more challenging to resolve. Broadly speaking, the US wants the Chinese authorities to take steps to eliminate their country’s bilateral trade surplus with the US, end “currency manipulation,” cease intellectual-property (IP) theft, refrain from further forced technology transfer, halt subsidies to state-owned enterprises (SOEs), and stop acquisitions of US companies through state-sponsored investment.

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