MW China is hacking the tariff system by investing in U.S. firms - while American taxpayers foot the bill

By Andrew Rechenberg

The U.S. Treasury can and should prevent Chinese-linked firms from accessing U.S. tech subsidies

A 25% ownership threshold is the limit for foreign entities purchasing equity in a U.S. firm. But that is insufficient to block China.

It made big news recently - China's global trade surplus broke the trillion-dollar mark in 2025. Beijing happily bragged about this record of $1.2 trillion in annual trade profit. But a closer look at the data reveals something disturbing within the Chinese economy.

Rather than increase its domestic consumption, Beijing is doubling down on its export overproduction. That's helping China run even more trade surpluses. But it also means Beijing must recycle its profits abroad - including through stealth investments in the U.S. economy.

In 2025, the Trump administration levied hefty new tariffs on Chinese goods. Beijing responded by shifting more of its exports to Africa, Asean nations and the European Union. While these markets served as destination points for Chinese exports, they also became connector hubs allowing China to further "process" goods before shipping them onward to the U.S. market. And so, despite U.S. tariffs, China's global exports still rose 5.5% last year.

All of this means China is sitting on a pile of money. And in the face of Trump administration trade protections, China has decided to spend its windfall strategically - building or buying into companies located in the United States. By embedding Chinese ownership, financing and technological control within U.S.-based facilities, Beijing hopes to keep expanding its influence over key global supply chains. And that means Beijing is now bypassing U.S. tariffs and embedding Chinese control directly within U.S.-based operations.

By using clever debt structures, Chinese companies are able to purchase U.S. facilities while obscuring their true ownership.

The United States has become the largest recipient of Chinese investment in recent years. Chinese state-owned lenders are already targeting new projects and acquisitions in such key U.S. sectors as energy, gas pipelines, data centers and high-tech manufacturing. And by using clever debt structures, they're able to purchase U.S. facilities while obscuring their true ownership.

Because their equity stake remains under 25%, Chinese companies can still access U.S. taxpayer-supported funding for advanced technology development.

How has Beijing managed to do this?

Congress has legislated "Foreign Entity of Concern" (FEOC) designations for companies that may pose economic or national security risks to the United States. These rules are intended to restrict entities - often linked to China, Russia, North Korea or Iran - from accessing federal funding or tax credits for advanced industries such as electric vehicles, solar panels and battery-supply chains.

The most recent FEOC rules established a 25% ownership threshold as the limit for foreign entities purchasing equity in a U.S. firm. But we're now learning that this threshold is insufficient to block China's exploitation of U.S. subsidies. Chinese firms can strategically reduce their equity stake but maintain control through technology licensing, critical-input supply agreements, financing structures and managerial oversight.

And because their equity stake remains under 25%, these companies can still directly access U.S. taxpayer-supported funding for advanced technology development - including the Inflation Reduction Act, 45X, 48E, CHIPS Act, and related subsidies. This sleight of hand directly undermines the intended safeguards in federal law.

Fortunately, the U.S. doesn't need new legislation to halt such circumvention. It already possesses broad interpretive and enforcement authority to prevent Chinese-linked firms of concern from accessing U.S. subsidies or embedding their influence in national-security sectors.

The Treasury should immediately tighten all FEOC rules. Specifically, any Chinese entity with influence or material control - whether through technology, supply chains, financing, or management - should be disqualified from receiving federal assistance under the Inflation Reduction Act, 45X, 48E or CHIPS Act. Congress should also establish a State Department "white list" requiring approval for any foreign investment in critical national-security industries currently tied to U.S. Section 232 trade investigations.

Chinese entities are now entering critical U.S. supply chains through influence and functional control rather than formal ownership.

Without coordinated action, U.S. trade remedies are inherently limited. China has already demonstrated its ability to reroute excess production to keep its export machine running. Chinese entities are entering critical U.S. supply chains through influence and functional control rather than formal ownership. That has created hidden but powerful channels for Chinese leverage in sectors tied to national security. As a result, U.S.-based firms marketed as "domestic" can still be functionally dependent on Chinese oversight and inputs - ultimately benefiting China, not American companies.

It's time for the Trump administration to act. If Treasury enforces FEOC rules as intended, and aligns investment eligibility with Section 232 of U.S. trade law, the United States can eliminate adversarial control and dependence in key industries.

Congress is already advancing measures such as the Biosecure Act and the FIGHT China Act. The Trump administration must now take complementary action and secure control of critical industries to prevent Beijing's investment-control model from taking root in U.S. supply chains.

Doing so could unlock significant new investment, production and job creation for domestic U.S. manufacturers-and block Beijing's shadowy attempts to secure Chinese control of advanced industries.

Andrew Rechenberg is a senior economist at the Coalition for a Prosperous America.

More: Trump's misguided crypto policies threaten America's banks

Also read: How a single tech heavyweight managed to pull the rug from under gold and global markets

-Andrew Rechenberg

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 12, 2026 08:12 ET (13:12 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.