Introduction
The United States and China, as the two largest economies in the world, hold a unique and often uneasy economic interdependence. Historically framed as a case of comparative advantage and mutual gain, the U.S.-China trade relationship has increasingly become a site of geopolitical contestation. This transformation has been marked by rising protectionism, state-directed industrial policy, and growing strategic distrust. In recent years, trade negotiations and retaliatory tariffs have become instruments of diplomacy and confrontation. This article seeks to unpack the deeper implications of these developments, focusing especially on the 2020 Phase One agreement and its aftermath.
Historical Context of U.S.-China Trade
Pre-WTO Engagement and Integration
Before China’s accession to the World Trade Organization (WTO) in 2001, U.S.-China trade relations were characterized by limited market access, human rights concerns, and strategic ambiguity. China’s economic reforms under Deng Xiaoping in the late 1970s opened avenues for limited liberalization, but major constraints on foreign investment remained. The U.S. granted China Most Favored Nation (MFN) trading status annually until Permanent Normal Trade Relations (PNTR) were established in 2000.
Post-WTO Economic Expansion and Friction
China’s WTO accession was transformative. Between 2001 and 2018, U.S.-China trade increased by over 500%, with China becoming the U.S.’s largest goods trading partner (USTR, 2020). However, concerns began to mount in Washington over systemic issues: China’s trade surplus with the U.S., non-tariff barriers, currency manipulation, and the protection of intellectual property rights (IPR).
Industries affected by offshoring and import competition, particularly in the U.S. Rust Belt, fueled a political backlash. The so-called “China Shock” literature (Autor et al., 2016) linked trade with China to job losses, social disruption, and rising populism in the U.S., contributing to a shift toward protectionist rhetoric.
The Trade War: Strategic Competition Emerges
Escalation of Tariffs
In 2018, under President Donald Trump, the United States launched a series of tariffs against Chinese goods under Section 301 of the Trade Act, citing unfair trade practices and forced technology transfers. China responded with its own counter-tariffs. By late 2019, the two countries had imposed tariffs on more than $360 billion in bilateral trade.
Diplomatic and Economic Fallout
The tariff war triggered uncertainty in global markets and disrupted supply chains. American farmers, a key political constituency, were particularly impacted by China’s retaliatory tariffs on soybeans and pork. The Trump administration provided over $28 billion in subsidies to offset losses (CRS, 2020). Meanwhile, multinational corporations began reassessing their dependence on Chinese manufacturing.
The 2020 Phase One Trade Agreement
Overview of the Agreement
On January 15, 2020, the U.S. and China signed the Economic and Trade Agreement (commonly referred to as the Phase One deal). The key terms included:
Purchases: China pledged to purchase $200 billion in additional U.S. goods and services over 2020–2021, including agricultural, energy, and manufactured goods.
Intellectual Property: China agreed to strengthen protections for patents, trademarks, and trade secrets.
Technology Transfer: The agreement prohibited forced technology transfers and guaranteed market-based licensing.
Financial Services: China committed to opening sectors such as banking and insurance to U.S. firms.
Currency Practices: Both sides agreed to avoid competitive devaluation and promote transparency.
Performance and Shortcomings
Independent evaluations, including by the Peterson Institute for International Economics (Bown, 2021), found that China purchased only about 57% of the committed U.S. exports. Contributing factors included the COVID-19 pandemic, supply disruptions, and limited demand. Structural reforms—especially those related to state subsidies and industrial policy—were left largely unaddressed.
Strategic and Geopolitical Implications
Economic Decoupling
The U.S. has increasingly pursued a strategy of selective decoupling from China in sensitive sectors such as semiconductors, AI, telecommunications, and rare earths. Export controls, such as the 2022 CHIPS and Science Act, reflect bipartisan support for reducing strategic dependencies.
Supply Chain Reconfiguration
The trade war catalyzed efforts by U.S. firms to diversify supply chains to Vietnam, India, and Mexico. However, many firms remain deeply tied to China due to its infrastructure, workforce, and manufacturing scale.
Competing Trade Blocs
China has responded by deepening its trade ties elsewhere, joining the Regional Comprehensive Economic Partnership (RCEP) and promoting the Belt and Road Initiative. Meanwhile, the U.S. has sought to strengthen trade relationships through frameworks like the Indo-Pacific Economic Framework (IPEF), although these lack the market access incentives of traditional trade deals.
Diplomatic Fallout
The trade conflict exacerbated U.S.-China tensions beyond economics, intersecting with disputes over Taiwan, the South China Sea, and human rights. Trade negotiations now function within a broader context of strategic distrust and systemic competition.
Theoretical Perspectives
Realism
From a realist lens, U.S.-China trade policy reflects the logic of relative gains. Even mutually beneficial trade is scrutinized if it enhances the strategic capabilities of a rival. The U.S. perceives China’s technological ascent as a national security threat, hence the shift to economic containment.
Liberal Institutionalism
Liberal theorists highlight the erosion of multilateralism. The WTO’s dispute settlement mechanism has been weakened by U.S. opposition to its appellate body. Bilateralism and economic coercion increasingly define trade diplomacy.
Constructivism
Constructivists argue that diverging ideologies and identities—liberal democracy versus authoritarian capitalism—shape trade behavior. The U.S.-China rivalry is thus not merely economic but civilizational, influencing policy choices through value-laden narratives.
Conclusion
The evolution of U.S.-China trade relations—from cooperative globalization to strategic rivalry—marks a turning point in international economic history. The 2020 Phase One deal, though significant symbolically, failed to reverse deeper structural antagonisms. Trade is now entangled with technology, security, and ideology. While economic interdependence once served as a stabilizing force, it now functions as both a source of leverage and vulnerability. Future U.S.-China engagement must reckon with this transformed landscape, balancing economic pragmatism with strategic caution.
References
Autor, D., Dorn, D., & Hanson, G. (2016). The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade. Annual Review of Economics, 8, 205–240.
Bown, C. P. (2021). The US-China Trade War and Phase One Agreement. Peterson Institute for International Economics.
Congressional Research Service (CRS). (2020). U.S. Farm Policy: Issues for the 117th Congress.
Evenett, S. J., & Fritz, J. (2020). Economic Sanctions and the U.S.-China Trade War: What Has Really Happened? Centre for Economic Policy Research.
Office of the United States Trade Representative (USTR). (2020). Economic and Trade Agreement Between the Government of the United States and the Government of the People’s Republic of China (Phase One).
World Bank. (2021). Global Economic Prospects.
Zhao, S. (2020). US-China Rivalry: Implications for International Order and Global Governance. International Affairs, 96(1), 1–18.
By: Donte Nelson
