The fragile truce in the US-China economic conflict is showing signs of unravelling. In a move being keenly watched from New Delhi to Brussels, the Trump administration is investigating China’s compliance with the 2020 trade deal, specifically the landmark “Phase One” agreement signed in January. This official probe threatens to reignite a tariff war that had previously rattled global markets and disrupted supply chains worldwide.
For those following the saga, this development is not a complete surprise, but its timing is critical as it could reshape global economic policy.
What is the 2020 ‘Phase One’ US-China Trade Deal?
The Phase One agreement was designed to de-escalate a tit-for-tat trade war that saw both nations impose heavy tariffs on hundreds of billions of dollars worth of goods. The centrepiece of the deal was China‘s ambitious commitment: to purchase an additional $200 billion of US goods and services over two years (2020-2021) compared to a 2017 baseline. This included massive orders for American agricultural products like soybeans and pork, energy products like crude oil, and manufactured goods.
In return for this commitment, and for promises on strengthening intellectual property protection and opening its financial markets, Washington agreed to roll back some of the tariffs it had imposed. The deal was hailed as a significant, if incomplete, first step towards rebalancing the trade relationship.
Investigation Launched as China Falls Short on Purchase Commitments
From the outset, many analysts were sceptical that China could meet such lofty purchase targets. The situation was compounded when the COVID-19 pandemic struck, crippling the global economy. The pandemic suppressed Chinese domestic demand and severely disrupted international shipping, making the targets all but impossible to reach.
Independent trackers, such as the Peterson Institute for International Economics, have consistently shown China lagging far behind the pace required to meet its commitments. While Beijing has pointed to the unprecedented global crisis as a valid reason for the shortfall, hardliners within the Trump administration are losing patience. They see this not as a consequence of the pandemic, but as another instance of Beijing failing to honour its agreements.
The U.S. Trade Representative (USTR) is now formally collecting data to assess the extent of compliance. The results of this investigation into the 2020 trade deal could serve as the trigger for renewed economic hostilities.
Global Impact: How the Investigation Affects India and Supply Chains
For nations like India, the escalating tension between the world’s two largest economies is a double-edged sword. A renewed trade war could accelerate the “China Plus One” strategy, where global corporations seek to diversify supply chains away from China. This presents an opportunity for India’s “Make in India” initiative to attract foreign investment in key sectors like electronics and pharmaceuticals.
However, the risks are substantial. Increased global economic instability hurts emerging markets, and a full-blown trade war could depress global demand and harm Indian exports. Furthermore, it could lead to Chinese goods, shut out from the US market, being dumped in other countries at predatory prices.
This investigation is more than an economic audit; it’s a geopolitical barometer. With the US heading into a crucial election season, the pressure to appear tough on China is immense. The outcome will not only determine the future of US-China relations but will also send ripples across the entire Indo-Pacific.
