The Phase One Economic and Trade Agreement was signed at the White House on January 15, 2020, and if you spent the last day reading the coverage you’ve mostly learned that a big number was announced and everyone shook hands. That is roughly where the useful journalism ended. What the deal actually contains, what it means for your 25% tariffs on chemical intermediates, and why it shifts the balance of power in your next supplier negotiation are the things worth working through. Let’s do that now.
The Headline Number and Why the Maths Is Staggering
The headline commitment is $52.4 billion in Chinese purchases of US manufactured goods over 2020 and 2021, above a 2017 baseline. The baseline matters here. In 2017, China imported approximately $7.2 billion in US manufactured goods. Getting from $7.2 billion to hitting the Year 2 targets represents something close to a 600% increase over that baseline figure.
| Year | 2017 Baseline | Additional Commitment | Total Required | Implied Growth Over Baseline |
|---|---|---|---|---|
| 2020 (Year 1) | $7.2B | $32.9B above baseline | ~$40.1B | +457% |
| 2021 (Year 2) | $7.2B | $44.8B above baseline | ~$52.0B | +622% |
Some economists flagged almost immediately that US export supply chains for manufactured goods are not infinitely elastic. There may simply not be enough qualifying US product to purchase even if Beijing’s political will is genuine. That structural fragility is something you will need to track, because it affects how long the negotiating window created by this deal actually stays open.
Your Tariff Invoice Did Not Change. Here Is What Actually Did.
This is the part the headlines buried, and it is the part that matters most if you are importing chemical raw materials.
Section 301 tariffs on List 3 goods, which covers a large portion of chemical intermediates including specialty chemicals, adhesives, coatings, plasticisers, and commodity organic compounds, remain at 25%. List 4A tariffs dropped from 15% to 7.5% as part of the signing. List 3 was untouched. If you have been paying 25% on your chemical inputs, you are still paying 25% today.
The only new escalation that was suspended was the List 4B tranche, which USTR had proposed but never implemented. Suspending something that had not started yet is not a concession. It is a freeze at the status quo.
The plain-language version: Phase One froze the tariff situation roughly where it stood in mid-2019. It did not roll back the pain that accumulated since the first Section 301 actions landed in 2018. You are not getting a rebate. You are getting a pause.
The Dynamic Most People Missed: Your Suppliers Now Need You
Here is something I have not seen explained well in the trade press, so let me be direct about it. China made a binding commitment to hit those purchase numbers, and the central government will be tracking compliance quarterly. Chinese exporters, including chemical manufacturers, are now operating under institutional pressure to generate US sales volume. That is a structural change in the negotiating environment that did not exist before January 15th, and most importers have not realised it yet.
Think through what that means in practice. A supplier in Jiangsu or Zhejiang who was comfortable with 30-day payment terms and CIF pricing three months ago now has a government-level reason to be flexible with you. When your government is publicly tracking whether you are hitting export targets denominated in US dollars flowing to American buyers, your appetite for losing a US customer over payment terms changes considerably.
This does not mean every factory will drop their price 15% overnight. Margins in commodity chemical manufacturing are already thin and some suppliers are genuinely operating close to the bone. But it does mean that asking for FOB pricing with net-60 terms has a materially better chance of landing now than it did in October 2019. The structural pressure is on their side of the table for once. Use it.
What Your Landed Cost Actually Looks Like: The Calculation Done Properly
Before your next RFQ goes out, you need to know exactly where each product falls and what that means in dollars. A lot of importers are still getting this wrong, undercounting by two to four percentage points because they are applying the Section 301 rate to the FOB value rather than the CIF value. US customs duties apply to entered value, which for most ocean shipments is essentially the CIF figure.
Here is how to do the calculation correctly.
Start with your FOB price. Add freight and insurance expressed as a percentage of FOB to get the CIF value. Then apply the applicable HTS MFN duty rate plus the Section 301 additional rate to the CIF value.
Example: a specialty solvent at $2.00 per kilogram FOB Shanghai, 20,000 kg per container.
| Cost Component | Calculation | Amount |
|---|---|---|
| FOB value | 20,000 kg × $2.00/kg | $40,000 |
| Freight and insurance (+8%) | $40,000 × 0.08 | $3,200 |
| CIF value | $40,000 + $3,200 | $43,200 |
| MFN duty rate | 6.5% | included below |
| Section 301 List 3 rate | 25.0% | included below |
| Combined effective rate | 31.5% | applied to CIF |
| Total duty | $43,200 × 0.315 | $13,608 |
| Duty cost per kilogram | $13,608 ÷ 20,000 | $0.68/kg |
That is $0.68 per kilogram in duty cost alone, on top of the $2.00 purchase price. If you were running your model against FOB value instead of CIF value, you were undercounting your duty liability by around $2,000 on that container. Across a full year of volume, that error compounds into serious money.
The difference between a product on List 3 at 25% and one on List 4A at 7.5% is $87,500 per year on a $500,000 annual chemical spend. That number is too large to guess at. Pull your HTS codes, check which list they fall on, and run the calculation properly.
This Deal Has an Expiry Date Built Into It
Phase One includes quarterly review mechanisms. If China falls short of its purchase commitments in any given quarter, USTR retains the right to reimpose suspended tariffs or impose new ones. Given that the commitment represents roughly a 600% increase over the 2017 baseline, and given that some structural capacity constraints on the US export side are real, there is a legitimate question about whether these targets are achievable regardless of political will.
If compliance lapses become a political flashpoint before the end of Q2 2020, the favourable negotiating environment you are sitting in right now evaporates fast.
What to Do This Month
Start with your supplier list and categorise every product by its HTS code and the applicable Section 301 list. Confirm with your customs broker which products sit on List 3 versus List 4A. The 17.5-point difference in duty rate is not something you want to get wrong.
Then use the current political dynamic deliberately. Contact your top three Chinese chemical suppliers and schedule a review call framed around 2020 volume commitments. Ask directly whether they can improve FOB pricing or extend payment terms given the current trade environment. You do not need to explain why you are asking. They know. Let the conversation find its own level.
Track USTR announcements quarterly, particularly any mention of compliance reviews or dispute consultations. If compliance lapses get reported, move quickly. The window for renegotiating terms closes faster than it opens.
Phase One did not fix your tariff problem. It froze it, and that is a meaningful distinction. What it created is a window, probably 12 to 18 months long, during which Chinese chemical exporters have an institutional reason to win and keep US business. That is a negotiating asset you have not had since 2018, and it is worth real money if you act on it now.