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What the China-American Free Trade Agreement Could Mean for Global Commerce

On January 15, 2021, the United States and China signed the Phase One agreement of the China-American trade deal, also known as the China-U.S. Economic and Trade Agreement. This pact, negotiated over almost two years, aimed to increase trade and investment, reduce trade barriers, protect intellectual property, and address other economic disputes between the two largest economies in the world. However, the Phase One agreement only covered certain sectors, such as agriculture, energy, and financial services, and left many issues unresolved. Therefore, some experts and policymakers have advocated for a broader and deeper China-American Free Trade Agreement (CAFTA), which could have significant implications for the global economy.

What is CAFTA and why does it matter?

CAFTA would be a comprehensive free trade agreement (FTA) between China and the United States, covering all the major areas of trade, such as tariffs, non-tariff barriers, services, investment, digital economy, environment, labor, and dispute settlement. It would be the first FTA between the two countries, which together account for about 40% of the world`s GDP and trade flows. CAFTA could create new opportunities for American and Chinese businesses to expand their markets, lower their costs, and improve their competitiveness, while also promoting economic growth, job creation, and innovation. CAFTA could also signal a greater degree of cooperation and trust between the two superpowers, which have been increasingly at odds over issues ranging from human rights to national security.

What are the potential benefits of CAFTA?

Proponents of CAFTA argue that it could bring several advantages to both countries and the world. Firstly, CAFTA could eliminate most or all of the tariffs that currently hinder the bilateral trade, which amounts to hundreds of billions of dollars per year. This could increase the exports of American goods and services to China, which has a growing middle class that demands high-quality and sophisticated products. This could also lower the prices of Chinese imports to the United States, which benefits American consumers and businesses. Secondly, CAFTA could deepen the investment ties between the two countries, which have been hampered by regulatory barriers and national security concerns. This could attract more Chinese investment to the United States, which could create jobs and boost local economies. This could also provide more opportunities for American companies to invest in China, which could diversify their portfolios and benefit from China`s vast consumer market. Thirdly, CAFTA could strengthen the rules and norms that govern global trade, which have been challenged by unilateralism, protectionism, and populism. This could help restore the trust and confidence of investors, traders, and governments in the multilateral trading system, which could reduce uncertainty and instability.

What are the potential challenges of CAFTA?

Critics of CAFTA argue that it could also entail some risks and costs that need to be addressed. Firstly, CAFTA could expose some American industries and workers to more competition from China, which has lower labor and environmental standards, and subsidies for some sectors. This could lead to job losses, wage stagnation, and environmental degradation in some regions and sectors of the United States, which could generate political backlash and social unrest. This could also deepen the existing economic and social inequalities between the coastal and inland regions, and the urban and rural areas of the United States. Secondly, CAFTA could pose some security risks for the United States, which has accused China of stealing its intellectual property, influence operations, and cyber attacks. This could require stronger safeguards and monitoring mechanisms to protect American businesses and national interests. This could also affect the trust and cooperation between the two countries, which have had strategic and ideological differences. Thirdly, CAFTA could face some legal and political challenges, as it requires the approval of the Congress, which may have different views and priorities, and of the Chinese government, which may require some concessions and reciprocity. This could also take time and effort to negotiate and implement, and may face some opposition from other countries or regions that may perceive it as a threat or a disadvantage.


CAFTA is still a topic of debate and speculation, as there is no clear timeline or framework for how it could be negotiated and implemented. However, CAFTA could be a historic and transformative agreement that could shape the future of global trade and commerce. Its potential benefits and challenges are complex and multidimensional, and require careful consideration, analysis, and dialogue among stakeholders, including policymakers, businesses, workers, and civil society. While CAFTA is not a panacea for all the global challenges and uncertainties, it could be a step forward towards a more inclusive, sustainable, and resilient global economy that benefits everyone. As such, CAFTA should be viewed not as a zero-sum game between two countries, but as a positive-sum game for the world as a whole.

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