US Opens Trade Probe Into China’s Phase One Commitments Before Trump-Xi Talks

U.S. Trade Representative Jamieson Greer announced moments ago that the U.S. has initiated a Section 301 investigation into China’s implementation of the Phase One trade deal, a deal that has been out of public focus since President Trump’s first term. This development comes less than one week before Trump and Chinese President Xi Jinping are scheduled to meet on the sidelines of the Asia-Pacific Economic Cooperation summit to ease trade tensions. The flurry of recent trade-related headlines, from rare earths to soybeans to jet engines, suggests that both economic superpowers are attempting to build leverage ahead of trade talks.

“President Trump made history in his first term when he stood up for the American worker and brokered the Phase One Agreement, establishing a more fair and reciprocal trade relationship with China,” Ambassador Greer stated.

Greer wrote in a statement, adding, “The initiation of this investigation underscores the Trump Administration’s resolve to hold China to its Phase One Agreement commitments, protect American farmers, ranchers, workers, and innovators, and establish a more reciprocal trade relationship with China for the benefit of the American people.”

USTR provided additional context on the Phase One trade deal reached in December 2019, which required China to implement structural reforms in areas such as intellectual property, technology transfer, agriculture, and financial services, and to significantly increase purchases of U.S. goods and services. Beijing’s shift toward sourcing agricultural products from the U.S. to Brazil has inflicted pain across America’s Midwest farm belt, and is likely one key reason this probe was opened. 

Five years after the agreement was signed, China has not fulfilled its commitments, particularly regarding non-tariff barriers, market access, and purchase targets. Ahead of next week’s Trump-Xi meeting at APEC, Greer will investigate whether China’s failure to comply with the Phase One deal violates U.S. trade rights under Section 301.

Despite the probe, President Trump said on Thursday, “I think we’re going to come out very well and everyone’s going to be very happy.”

The Trump-Xi meeting also comes just before a trade truce between Washington and Beijing is set to expire on November 10. Trump has threatened to impose an additional 100% tariff on Chinese products on November 1 if Beijing does not ease shipments of rare earth minerals to the U.S. Trump said this week that upcoming talks with Xi will produce a “good deal” on “everything” related to trade.

Market attention now turns to any weekend statements from both sides. So far, the market reaction has been muted across equities, bonds, and FX, as a cooler CPI print in the U.S. has pushed main equity indexes to around noontime.