China-U.S. Phase One Trade Deal: What’s Really Going On Behind the Scenes

• United States (USTR): Investigating compliance with Phase One terms; considering new Section 301 tariffs and restrictive measures.
• China (MOFCOM): Asserts full compliance with IP, finance, and agriculture commitments; blames U.S. export controls for destabilizing the deal.
• Global Markets: Monitoring five rounds of consultations for signs of de-escalation or renewed trade war volatility.

The U.S. Trade Representative recently announced plans to continue investigations into China’s fulfillment of the Phase One Economic and Trade Agreement—potentially triggering new tariff measures.

But there’s way more to this story than the headline suggests.

The Background: What Exactly Is the Phase One Agreement?

The China-U.S. Phase One Economic and Trade Agreement went live in early 2020.

The deal was essentially meant to be a confidence-builder between the two largest economies in the world—a step back from the trade war tensions that had been escalating since 2018.

Think of it as a handshake agreement with specific commitments on both sides.

China’s Side of the Story: What They’re Claiming

According to the Ministry of Commerce (Shangwubu 商务部), China has been holding up its end of the bargain—despite some pretty gnarly headwinds.

Here’s what China says it’s delivered on:

• Intellectual Property (zhishi chanquan 知识产权) protection: Commitments completed as scheduled.
• Financial market opening: Unlocking access to their financial sectors—finished on time.
• Agricultural Products (nongchanpin 农产品) market access: Opening doors to U.S. farm goods—completed as promised.
• Trade cooperation expansion: Fully performed, according to their official stance.

But here’s the catch—China argues they were dealing with extraordinary circumstances that made this harder than expected.

The Obstacles China Claims to Have Overcome

According to the Ministry of Commerce, China had to navigate:

• The sudden pandemic impact (remember 2020-2021?).
• Global supply chain disruptions that affected everyone.
• A worldwide economic recession.

Despite these challenges, the Chinese government says it still made the effort to uphold the “spirit of contract.”

The U.S. Counterargument: Tightening the Screws

Now here’s where things get interesting.

China is pushing back on the U.S. investigation with a pretty strong counterargument.

China’s official position is that while they’ve been meeting their commitments, the U.S. has been doing the opposite:

• Export controls: The U.S. has tightened restrictions on what tech and goods can be exported to China.
• Investment barriers: Restricting two-way investment flows between the countries.
• Escalating suppression measures: Continuously adding new economic, trade, and other restrictions.

China’s argument: These moves undermine the entire agreement and create a hostile environment for it to work.

In fact, China published a detailed white paper on April 9, 2025, called “China’s Position on Several Issues Regarding China-U.S. Economic and Trade Relations” that lays out this perspective comprehensively.

Recent Progress: Five Rounds of Talks

Before we assume this is completely broken down, there’s actually been some movement.

Since last year, China and the U.S. have held five rounds of economic and trade consultations.

These talks have produced some actual wins:

• Agreements on extending the suspension period of reciprocal tariffs.
• Progress on trade in Agricultural Products (nongchanpin 农产品).
• Discussions around export controls.
• Efforts to reduce investment restrictions.

So it’s not all doom and gloom—but it’s not exactly smooth sailing either.

China’s Official Position Moving Forward

The Ministry of Commerce has made their stance crystal clear:

China wants the U.S. to look at Phase One implementation objectively and rationally—no blame-shifting, no stirring up trouble.

Instead, China is calling for both sides to:

• Use the China-U.S. economic and trade consultation mechanism more effectively.
• Follow the consensus reached by both heads of state.
• Focus on implementing the economic and trade results already agreed upon.
• Actively explore areas where their interests actually converge.
• “Look forward” together—moving beyond past disputes.

The Warning Shot: What Happens If the U.S. Proceeds

But here’s the thing—China also made it pretty clear what happens if the U.S. doesn’t take their advice.

If the U.S. insists on continuing the Section 301 investigation and introduces restrictive measures like tariffs based on those findings, China has one message:

“China will take all necessary measures to resolutely defend its legitimate rights and interests.”

Translation: Expect retaliation.

What This Means for Investors and Founders

If you’re watching the China-U.S. relationship for business reasons, here’s what matters:

• Supply chain volatility: Trade tensions create uncertainty in supply chains. If tariffs escalate, costs go up.
• Tech restrictions: Export controls on technology could impact innovation partnerships and talent movement.
• Investment climate: Continued restrictions on two-way investment make it harder for companies to operate across borders.
• Agricultural trade: Ongoing negotiations around farm products could affect pricing and availability in both markets.

The Phase One Agreement isn’t dead, but it’s definitely under stress.

Bottom Line: Phase One Agreement Implementation Stays Contentious

Here’s what’s actually happening:

Both sides claim they’re holding up their end, but both sides are also accusing the other of violating the spirit of the deal.

There’s been some recent progress in talks, but the U.S. investigation into China’s compliance could blow that up if it results in new tariffs.

China is essentially saying: Look objectively at what we’ve done, stop adding new restrictions, and let’s work together going forward.

If the U.S. doesn’t listen, expect China to respond in kind.

For anyone involved in cross-border business, tech, or investment, this Phase One agreement dispute is definitely worth monitoring—the stakes are massive and the conversation is far from over.

References

• Ministry of Commerce of the People’s Republic of China – Ministry of Commerce (Shangwubu 商务部)
• The State Council of the People’s Republic of China – State Council (Guowuyuan 国务院)
• Financial News and Reports – East Money (Dongfang Caifu 东方财富)