Compelling Chinese firms to buy American could increase US vulnerabilities

Chinese Vice-Premier Liu He is in Washington today for continuing trade talks focused on Chinese purchases of American agricultural, energy and aviation goods. This comes as the world’s two largest economies seek to finalise a deal following constructive talks in China last week.

While both sides have praised the potential benefits of a deal, critics have raised concerns that compelling Chinese firms to buy from US firms could cause these American firms to become dependent on Chinese markets. This could allow China to easily coerce US companies beholden to its purchases, increasing Beijing’s future leverage over Washington.

Furthermore, such purchases would be ordered by the Chinese government and likely made by state-owned enterprises. This would represent a backslide in China’s movement toward an open market economy, potentially frustrating US attempts to increase American companies’ access to, and investment in, Chinese markets.

One likely scenario to reduce mandated purchases is that US negotiators push for Beijing’s removal of a requirement that foreign companies partner with Chinese entities to do business in the country. Such a move could pave the way for increased American exports to China, reducing the US trade deficit. Washington and Beijing have stated they are trying to reach a tentative trade deal agreement by the end of Mr. Liu’s visit, with a signing ceremony between President Trump and President Xi Jinping of China later this month.

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