The U.S. government has a history of pursuing successful (and mostly sensible) trade agreements that reduce barriers to trade. However, in the case of the “Economic and Trade Agreement Between the Government of the United States of America and the Government of the People’s Republic of China,” also known as “Phase One Deal,” the U.S. government veered from any of its remaining free market ideals and arranged for an extensive purchase agreement torn out of a central planner’s manual.

The United States and China signed an agreement that went into force on Valentine’s Day of last year — February 14, 2020. The purchases are found in Chapter 6 of the agreement, ironically named “Expanding Trade.” The provisions specify that China would buy a set value of specific goods from the U.S. over a 2017 baseline value. In theory, requiring China to buy more would “expand trade,” but not in the way that free traders support. One problem is that the government cannot know how much and which goods will be purchased. Another is that the government cannot know whether the goods purchased will actually meet the demands of Americans, to say nothing of the Chinese. Additionally, if U.S. businesses were not easily able to produce the artificial new demand set by the U.S. government and China managed to make these purchases (spoiler: it did not), resources would be reallocated from elsewhere, meaning that trade would not expand and domestic production of other products could be harmed as well.

In order to truly expand efficient trade, in other words, to increase market access to promote transactions between willing buyers and sellers in different countries, government trade barriers need to be lowered to create an environment that fosters individual liberty and innovation. The government is simply incapable of knowing the constraints or demands of every business or individual, thus mandated purchases create inefficiencies in the market that prevent new efficient trade transactions.

The purchase provisions are also solely focused on increasing U.S. exports to China. While this agreement does not boast free trade, the provisions of Chapter 6 were doomed to fail because of the reliance on the faulty assumption that exports must exceed imports. In reality, imports are the primary conveyor of trade’s benefits.

The focus on exports comes from policymakers who often mistake the trade deficit for a negative economic position. If the U.S. has a trade deficit it means that the current account of the balance of payments is negative. The current account is just one side of the balance of payments, which must equal zero. Therefore, the other side of the equation, the capital account, must be positive. If the U.S. has a trade deficit, or a current account deficit, it also has a capital account surplus, which is a net positive flow of financial transactions into the U.S. In practice, this means that while the U.S. is importing more than it exports, it is also attracting investment. This allows Americans to consume more and promotes growth in U.S. capital markets. In trying to force China to purchase more exports so that the U.S. has a trade surplus with China, the U.S. is not only asking for less investment but diminishing individual liberty by trying to control who can buy and sell what.

Unsurprisingly, China was unable to meet the purchase requirements. The U.S. should be interested in expanding trade opportunities and there is only one way of doing that: trade liberalization. Removing tariffs and reducing government barriers provides greater access to goods and services and promotes innovation among incumbent firms to maintain competitiveness while igniting entrepreneurialism to create new and better options.

Trade negotiations are like courtships between governments. Each side must prepare in advance to woo the other and be willing to make concessions. If all goes well, papers are signed, and an agreement goes into force. It’s time for the U.S. to return its courtship strategy to wooing with free-market principles that reduce trade barriers instead of government purchase agreements. Government-mandated purchase agreements sound like a socialist-style economic development strategy that never has and never will work. Instead of importing Chinese economic policy, we should be seeking to liberalize trade so Americans can import Chinese goods.