As the United States and China escalate their trade tensions with new tariffs and export controls, both nations are vying for global economic leadership. Protective trade policies have become a battleground for influence, and China may be in for more than it anticipated.

In recent years, China’s GDP growth has slowed to an annual rate of 4.75%, a sharp drop from the 7–8% growth it experienced throughout the 2010s. Government crackdowns and demographic challenges have stifled entrepreneurial activity in the private sector, while consumer spending remains weak.

While Biden’s economic policies have diminished America’s competitive edge, Trump’s record suggests a return to strength. During his first term, the Dow Jones Industrial Average surged by 57%, unemployment hit a 50-year low of 3.5%, and policies were enacted to boost capital investment and consumer spending. Simply put, the U.S. can afford to impose tariffs—China, struggling under economic pressures, cannot sustain such financial burdens.

This disparity explains why China is eager to revive the “Phase One” trade deal. Signed and implemented in early 2020, the agreement retained some tariffs from the 2018–2019 U.S.-China trade war while reducing others and prohibiting further tariff increases. It also required China to purchase $200 billion worth of U.S. goods and services over two years.

The agreement might have been workable—if China had upheld its commitments. But it didn’t. U.S. trade officials should therefore be cautious about reinstating the deal in full. Instead, a future Trump administration should prioritize the agreement’s free-market components while holding China accountable for its trade practices.

The intent behind “Phase One” was to open China’s economy and position the U.S. to dictate trade terms. It aimed to reduce the annual bilateral trade deficit by $100 billion and increase economic opportunities while maintaining tariffs on two-thirds of bilateral imports. However, China’s manipulation of its currency and regulatory barriers resulted in the country fulfilling only 57% of its $200 billion purchase commitment. Beijing did not adhere to the spirit of the deal.

The COVID-19 pandemic further complicated the agreement’s implementation. Disruptions in global markets slowed trade between the U.S. and China, and Beijing ultimately met only 59% of its commitments on covered manufactured goods. Agricultural commitments fared better—China fulfilled 83%—but that success was largely unrelated to the trade deal itself. In 2019, before the pandemic, China had already increased its pork imports from the U.S. due to an African swine fever outbreak, and rising corn and wheat imports stemmed from a separate 2019 World Trade Organization ruling on tariff rate quotas.

Many external factors undercut “Phase One,” but the most damaging was China’s deliberate circumvention of its obligations. A former Chinese Ministry of Commerce official diagnosed the trade relationship as a “stalemate,” but in truth, Beijing likely saw the deal as unrealistic from the outset and quietly withdrew. Chinese exporters exploited loopholes to evade the deal’s costs, using transshipment, product reclassification, and falsified invoices.

The results are telling. In the three years following the agreement, China’s exports to Thailand, Vietnam, and Cambodia surged by $111 billion—an increase of 97%. Those same countries, in turn, saw their exports to the U.S. rise by $102 billion (a 126% jump). The near dollar-for-dollar increase suggests China successfully used third-party nations to sidestep trade restrictions while maintaining its exports. “Phase One” failed to close these gaps.

Yet, despite the agreement’s shortcomings, the U.S. upheld its commitments. America maintained tariff exclusions until 2022, keeping bilateral tariffs at record highs. A 2023 National Retail Federation study found that these tariffs disproportionately hurt lower-income Americans, minority-headed households, and non-college-educated workers. The U.S. played fair—even at great cost. China, on the other hand, never engaged with the deal in good faith.

Still, while the agreement is flawed, it should not be discarded entirely. Its most effective free-market principles should be retained as the foundation for future negotiations.

One area where “Phase One” delivered was intellectual property (IP) protection. The deal introduced stronger penalties for IP violations and redefined confidential business dealings as “trade secrets,” bringing them in line with U.S. legal standards. This framework increased accountability by holding companies and government actors responsible for misusing sensitive business information.

However, enforcement remains a significant challenge. Mark Cohen, a Distinguished Senior Fellow and Director at the Asia IP Project, notes that foreign-related cases account for less than 10% of China’s national IP docket, and only about half of all cases are published. This presents an opportunity for a future Trump administration to push for greater transparency and advocate for regulatory reforms, particularly in areas like data protection for pharmaceuticals.

Before “Phase One,” China frequently forced foreign companies to transfer technology to Chinese firms. The agreement formally prohibited such practices, restricting Beijing from leveraging industrial acquisitions to undermine global competition. Since then, China has significantly expanded its investments in clean energy and advanced manufacturing abroad. While not outright threats, these developments warrant close scrutiny. The U.S. and its allies should utilize the WTO to monitor China’s industrial policies, ensuring they do not monopolize emerging technologies or hinder fair competition.

Dr. Alexander Elder once remarked, “The role of a successful trader is to make the best trades. Money is secondary.” For the U.S., success in trade policy must go beyond simple revenue generation. It requires a dynamic, principled approach—one that learns from the shortcomings of “Phase One” while leveraging free-market strategies to counter China’s economic ambitions.