Simply a number of weeks into his new time period, U.S. President Donald Trump has dramatically shifted the US’ method to financial statecraft, turning to tariffs as a device to handle an increasing array of coverage goals. His March 4 resolution to extend tariffs on Chinese language imports by an extra 10 p.c (on prime of the ten p.c tariff he imposed in February) elicited a direct response from policymakers in Beijing.
The Western media centered most of its consideration on the tit-for-tat tariffs imposed by China on U.S. agricultural merchandise and the Chinese language Overseas Ministry spokesman’s bombastic response: “If conflict is what the U.S. desires, be it a tariff conflict, a commerce conflict or another kind of conflict, we’re able to struggle until the top.” However tariffs should not the one device in China’s commerce conflict toolkit.
Left comparatively unexamined was the second a part of Beijing’s response: the addition of 10 U.S. corporations to the Unreliable Entities Record (UEL) and 15 corporations to its export management record. These measures comply with on the heels of China’s multifaceted response to U.S. tariffs introduced February 4: retaliatory tariffs on U.S. exports of power and farm tools, but in addition export licensing necessities for a number of vital minerals, further UEL listings, and the re-opening of an antitrust investigation into Google.
Sanctions, export controls and different administrative measures are more and more essential in Beijing’s efforts to push again in opposition to overseas authorities actions that China sees as detrimental to its growth, territorial claims, and nationwide dignity.
Since 2020, China has promulgated a number of new legal guidelines associated to sanctions and export controls that, on the floor, seem much like Western legal guidelines. Whereas these new financial measures could bear a passing resemblance to Western sanctions and export controls, their makes use of and objectives differ considerably from the best way wherein Western nations historically have used these instruments. Reasonably than stopping proliferation, selling world human rights or governance norms, disrupting terrorist networks, or undermining aggression, Beijing wields these instruments in opposition to what it perceives as criticism or threats in opposition to its home insurance policies – together with therapy of minorities or dissidents, financial actions, and sovereignty claims.
These measures are a part of a broader technique to increase the attain of Chinese language legislation past its borders and to bolster the legitimacy and effectiveness of China’s financial coercion instruments. Chinese language policymakers are testing the bounds of those new instruments and are starting to reveal a willingness to maneuver past signaling in favor of measures that impose actual prices on Western targets.
Adapting Overseas Fashions to Chinese language Circumstances
As China’s economic system grew by way of the early years of this century, Chinese language leaders took benefit of their newfound leverage to answer what they view as interference in China’s home affairs, sovereignty, and nationwide dignity. For the previous 20 years, Beijing’s use of financial coercion was characterised by tit-for-tat responses, typically focused at weak events with little connection to the problem at hand, utilizing instruments like commerce restrictions, “public” boycotts, official freezeouts, journey bans, regulatory actions, and fines. The actions had been typically extremely symbolic, however the prices to China and to the nations focused had been usually low. These measures had been meant, because the Chinese language saying goes, to “kill the hen to scare the monkeys,” or to make an instance of 1 entity to elicit most well-liked habits from others.
Whereas arguably efficient as political signaling, such actions got here with prices in eroding enterprise confidence and spurring more and more vocal requires diminished reliance on China. These casual measures have more and more been met with efforts on the a part of main economies (together with the G-7 with the launch of the Coordination Platform on Financial Coercion) to mitigate the impacts of Beijing’s financial restrictions on third nations.
Chinese language policymakers seem to acknowledge the weaknesses on this method and have adjusted accordingly. Starting in 2020, China intentionally and strategically started constructing out and formalizing its physique of legal guidelines and laws to create a extra structured, authorized method to financial coercion that it may apply to massive economies. With the promulgation of the Guidelines on the Record of Unreliable Entities (September 2020), Export Management Regulation (December 2020), Blocking Guidelines (January 2021), and Anti-Overseas Sanctions Regulation (June 2021), China laid the framework for a transfer away from extralegal financial coercion to a toolkit that appears acquainted to many Western financial safety practitioners. Nonetheless, appears to be like could be deceiving.
China’s Unreliable Entities Record (UEL) is designed particularly as a retaliatory measure focusing on overseas entities that undermine Beijing’s home coverage or droop regular transactions with Chinese language corporations for “non-commercial functions.” There isn’t a definition of what may represent such an offense, and the authorities could take a number of measures in opposition to these listed, together with proscribing commerce and funding, journey bans, and fines. Thus far, solely U.S. corporations have been listed or investigated for inclusion on the UEL and the quantity has greater than doubled within the first months of 2025 with 12 new UEL listings, together with for the primary time corporations like Skydio and Illumina that compete with Chinese language producers.
The Export Management Regulation marks China’s try and create an overarching authorized framework for proscribing exports of “managed gadgets” overlaying dual-use gadgets, navy and nuclear gadgets, gadgets associated to anti-proliferation, and gadgets associated to China’s nationwide safety and nationwide pursuits. Uniquely, it additionally particularly authorizes using export controls as a retaliatory measure if different nations are decided to be “abusing” export measures in opposition to China.
China’s Blocking Guidelines prohibit Chinese language entities from complying with overseas sanctions and permit Chinese language individuals or organizations to sue for compensation. It additionally authorizes unspecified countermeasures by the Chinese language authorities.
Lastly, the Anti-Overseas Sanctions Regulation (AFSL) authorizes the Ministry of Overseas Affairs (MFA) to impose sanctions on these concerned in drafting, decision-making, or implementing sanctions, in addition to those that “intervene in China’s inside affairs” or have interaction in any conduct that threatens China’s “sovereignty, safety, or growth pursuits.”
China’s New Strategy to Financial Coercion
For the reason that adoption of those insurance policies, Chinese language authorities have primarily used these new instruments to ship political messages associated to home coverage issues. Preliminary targets of those measures had been primarily authorities officers, human rights advocates, and corporations within the protection, intelligence, and aerospace sectors who had criticized China’s insurance policies or supplied navy tools to Taiwan. Most of those actions had symbolic somewhat than sensible results – in spite of everything, these focused had been unlikely to journey to China and had few belongings or enterprise pursuits there. The shortage of great sensible penalties for many targets, maybe mixed with a Western reluctance to criticize authorized mechanisms, meant that the nations focused responded minimally.
Nonetheless, for the reason that fall of 2024, we’ve seen a shift in how China is utilizing these instruments to ship warnings to U.S. (and different) policymakers and corporations. Beijing has begun utilizing its authorized measures as instruments for uneven retaliation, along with its continued use of sanctions in opposition to targets straight tied to protection commerce with Taiwan and human rights defenders.
In October 2024, China’s Ministry of Commerce (MOFCOM) introduced that it was investigating the U.S. clothes firm PVH for inclusion on the UEL for refusing to import items made with Xinjiang cotton – the primary time a non-defense firm was focused for the UEL. Days later, China’s MFA introduced a number one U.S. drone producer, Skydio, and its CEO Adam Bry, together with a number of different U.S. corporations, would face countermeasures beneath the AFSL. Skydio’s reliance on Chinese language suppliers for batteries made it weak and it’s price noting that Bry was a frequent public critic of Chinese language drone producers’ enterprise practices, warning Congress of extreme U.S. reliance on Chinese language drones.
In early December 2024, MOFCOM introduced new country-specific restrictions on exports of vital minerals, together with antimony, gallium, and germanium, to the US. MOFCOM spokespeople indicated that these restrictions had been imposed as a reciprocal measure in opposition to the US following U.S. restrictions on exports of high-end semiconductors to China. China’s State Administration for Market Regulation (SAMR) additionally introduced an investigation into Nvidia for unspecified anti-monopoly violations.
In response to U.S. tariffs imposed on Chinese language exports in February and March, China responded with its personal tariffs, but in addition introduced export licensing necessities for added vital minerals, reopening of a long-suspended antitrust investigation into Google, and extra UEL and export management listings, together with including PVH and biotech firm Illumina to its UEL. Like PVH, Illumina has no connection to the protection trade however has been a serious participant in China’s genetic sequencing market. Lastly, MOFCOM additionally introduced March 4 it was launching an antidumping circumvention investigation into U.S. exporters of optical fiber, together with Corning, OFS Fitel and Draka Communications. The timing isn’t a coincidence.
These latest examples of China utilizing its commerce, sanctions and export management authorities to answer U.S. export controls and tariffs transcend conventional tit-for-tat retaliation in opposition to corporations or individuals straight concerned in protection commerce or human rights promotion. It’s more and more obvious that Beijing is keen to make use of uneven responses to each sign and impose prices, notably in opposition to corporations that function in strategic industries. Avoiding touch upon human rights points or direct gross sales to Taiwan protection consumers is not going to defend Western corporations from the influence of China’s potential sanctions and export controls. Mockingly, the formal nature of those designations makes it extra possible that Chinese language authorities will preserve them, no matter future commerce offers.
Observe Makes Good
China’s work to develop its personal framework of legal guidelines associated to sanctions and export controls is a part of a broader effort to increase its use of worldwide legislation and to institutionalize its coercive toolkit. Regardless of some similarities to the normal approach Western sanctions and export management authorities have been used, China’s authorized measures should not primarily used to cease proliferation, undermine assist for terrorism, disrupt navy aggression, or implement world norms associated to corruption and human rights, however somewhat to intimidate, retaliate and punish those that violate particular Communist Get together redlines – together with Taiwan protection gross sales or China’s financial growth – or those that query or criticize delicate home insurance policies.
The speedy tempo of bulletins since late 2024 is clearly meant to ship a message to the brand new U.S. administration, particularly, that China is rising extra comfy with using these instruments and can use them extra regularly in ways in which adversely have an effect on a variety of Western pursuits. Whereas China’s use of authorized measures for uneven retaliation have thus far simply focused the US, there isn’t a motive to imagine Chinese language officers wouldn’t use these measures to focus on different states for retaliation sooner or later.
As policymakers in Beijing develop extra assured in wielding these instruments, Western nations should collaborate to determine dangers to world provide chains and cut back dependence on Chinese language sources in vital sectors to safeguard their financial and nationwide safety. Western corporations in any sector may see their entry to Chinese language provide chains restricted in response to commerce or different tensions. Even those that don’t commerce in navy or twin use items should be conscious that their publicity to China-based manufacturing, commodities, or markets carries growing danger. In an ever extra unpredictable coverage atmosphere, overreliance on Chinese language inputs or gross sales will result in extra sleepless nights for Western CEOs.
