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WASHINGTON -- At the heart of President Donald Trump's negotiations with China is a contradiction: The United States wants to use the trade talks to encourage the country to adopt a more market-oriented economy. But a key element of a prospective deal may end up reinforcing the economic power of the Chinese state.

Negotiators are still working out deal terms, but any agreement will most likely involve China's promise to purchase hundreds of billions of dollars of American goods. For Trump, this is an essential element that will help reduce the United States' trade deficit with China and bolster farmers and other constituencies hurt by his trade war.

But those purchases will be ordered by the Chinese state and most will be carried out by state-controlled Chinese businesses, further cementing Beijing's role in managing its economy and potentially making U.S. industries even more beholden to the Chinese.

"It seems like those types of really simplistic purchasing commitment type of arrangements would actually reinforce state ownership rather than discourage it," said Rufus Yerxa, head of the National Foreign Trade Council, which represents the United States' largest exporters.

After months of talks, the two sides are inching closer to an agreement. Robert Lighthizer, Trump's top trade negotiator, and Steve Mnuchin, the Treasury secretary, discussed the remaining sticking points with their Chinese counterparts Thursday and Friday in Beijing. Mnuchin, in a tweet Friday, said the talks had been "constructive."

Both sides are trying to iron out an agreement by later this week, to coincide with a visit to Washington by Liu He, the Chinese special envoy in charge of negotiating the deal. People with knowledge of the talks in both China and the United States say the goal is to have an agreement by the end of that meeting, with a signing ceremony between Trump and President Xi Jinping of China potentially later this month.

On Sunday evening, China's finance ministry issued two statements saying that Beijing would continue to suspend tariffs it imposed last year on American cars and car parts in retaliation for Trump's tariffs on $250 billion worth of Chinese imports. Those tariffs, which were suspended while the two sides tried to reach an agreement, were supposed to resume at the end of March, but China said it would extend the suspension indefinitely as a gesture of goodwill.

The finance ministry said "we hope that the U.S. and China will work together to step up consultations and make practical efforts toward the goal of ending trade friction."

Myron Brilliant, executive vice president and head of international affairs at the U.S. Chamber of Commerce, said there was no question the United States and China were "in the endgame with regard to a deal." But he said "there are still sticking points that have to be addressed."

While the two sides are closer to an agreement than at any point in the past, it remains unclear how successful the Trump administration will be in achieving its key goals. The president's trade war was initiated in large part to try to reorient the Chinese economy and force it to become more open to American companies and investment. Using punishing tariffs as leverage, the Trump administration has pressed China to roll back its heavy hand in the economy, including asking Beijing to curtail subsidies to state-owned firms and to end its practice of forcing foreign companies doing business in China to transfer their technology to Chinese competitors.

China has not readily committed to these goals, in part because such commitments are seen as infringing on China's sovereignty and undercutting the power of the Chinese state. What the Chinese have agreed to most readily is purchasing American goods, especially commodities that can fuel their economy.

The final purchasing amount is not yet clear. In December, Mnuchin said that China had made an offer to buy more than $1.2 trillion in American goods as part of the talks. But economists and China analysts have cautioned that such a large amount could be hard for the United States to produce and export.

The United States exported just $120 billion of goods to China last year. With the American economy hovering near full employment, it lacks the productive capacity to raise exports by hundreds of billions of dollars in the short term. The United States could redirect some of the goods it sells to other countries to China instead, for instance diverting soybeans headed to Europe to China.

But a deal that would require China to buy even more from the United States is raising concerns that China could expand its leverage over the United States.

The deal could usher in a wave of new American exports if China agrees to open its markets more fully. Removing its requirements that American car makers and financial services firms team up with a Chinese entity to do business in the country, for instance, could give those firms more ability to sell goods and services to China.

But in other industries, including agriculture, energy and aviation, purchases associated with a trade deal would be made directly by state-controlled entities. And while that would mean greater revenue for American companies, skeptics say it could also increase the leverage that China has over the United States in the future.

"We are handing them the ability to coerce our companies," said Derek Scissors, a resident scholar at the American Enterprise Institute.

Business on 04/02/2019

Print Headline: Analysts warn of China buys


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