In January 2025, amid escalating tensions with the USA, China introduced a sequence of punitive measures focusing on American corporations. On January 2, ten U.S. companies had been added to China’s Unreliable Entities Listing, adopted by seven more on January 14 and an additional four shortly thereafter.
As with earlier sanctions, these actions have been dismissed by some as largely symbolic resulting from minimal financial ties between the goal corporations and China. Moreover, as a result of these penalties had been imposed throughout the U.S. presidential transition, they’ve been interpreted as each a warning to the incoming administration and a strategic transfer to strengthen China’s bargaining position forward of potential negotiations.
Nevertheless, these actions shouldn’t be seen as a stand-alone improvement. They’re a part of China’s broader efforts to modernize its financial statecraft. Whereas the narrative of “symbolism” might have been legitimate within the early phases, it’s turning into more and more untenable as Beijing demonstrated a rising willingness and functionality to impose substantive prices.
For example, on October 10, 2024, China imposed sanctions on Skydio, the biggest U.S. drone producer, in response to its arms gross sales to Taiwan. This motion prompted a supply chain crisis for the corporate as Chinese language companies had been prohibited from offering crucial parts, and Skydio needed to scramble for various suppliers. Equally, as China tightened its controls over crucial minerals, even corporations with out direct enterprise ties to China might be impacted by these broad restrictions, as minerals like antimony, gallium, and germanium are important for modern technology production.
These instances illustrate a delicate but important transformation in China’s sanctions method, characterised by discarding symbolism and embracing substance. With the prospect of a harsher U.S. coverage towards China beneath a second Trump administration, this shift raises an intriguing query: How is China modernizing its financial statecraft, and the way would possibly it leverage these evolving coverage instruments to navigate the continuing commerce and tech wars?
Modernizing China’s Financial Statecraft
China’s reliance on economic sanctions as a overseas coverage instrument has grown over the previous twenty years, regardless of initially missing a sturdy authorized framework to help such measures. Not like its earlier casual practices, Beijing has more and more mirrored Washington’s method and formalized its punitive measures via a sequence of home laws and legal guidelines since 2019. These embrace the Unreliable Entity List, the Anti-sanctions Laws, and revised Export Controls Laws, which give a authorized foundation for Beijing to impose sanctions and limit exports.
Since then, China has additionally elevated the frequency of publicly introduced sanctions, primarily focusing on U.S. individuals and entities accused of interfering in China’s inner affairs, particularly Hong Kong, Xinjiang, and Taiwan. Sanctions towards people usually embrace asset freezes, visa bans, and enterprise restrictions, whereas measures focusing on companies embrace export and import controls, property freezes, and transactional restrictions. Nevertheless, given the restricted financial ties, such measures had been typically perceived as symbolic gestures geared toward delivering diplomatic alerts about not crossing Beijing’s pink traces, fairly than inflicting actual injury.
Nevertheless, this narrative of symbolism is not tenable. As China unified its beforehand fragmented sanctions and export management insurance policies right into a cohesive framework, China has elevated its countermeasures right into a extra systematic, credible, and impactful instrument of financial statecraft. Its latest efforts to leverage its dominance in key markets, resembling drones and demanding minerals, replicate a rising willingness to weaponize provide chains and impose financial prices on focused entities via export restrictions on important merchandise. After introducing export controls on gallium, germanium, graphite, and drones in 2023, China expanded these measures to incorporate antimony in August 2024. By December 2024, Beijing intensified its efforts by straight focusing on the U.S. and lengthening these restrictions to 3rd events. On January 2, 2025, China doubled down on these restrictions by including 28 U.S. entities to its export control list, banning the export of dual-use objects to those corporations.
These actions spotlight China’s evolving technique to exert leverage within the intensifying China-U.S. competitors. The Skydio case exemplifies how limiting entry to China’s dominant markets can impose substantial prices on focused entities. Even U.S. corporations initially thought of to have restricted financial ties with China might be impacted by these broad restrictions, as these minerals are important for modern technology production, coupled with U.S. reliance on their imports from China.
Towards a Focused and Defensive Retaliatory Method
With the prospect of a harsher China coverage, tariffs, sanctions, and export controls are anticipated to extend beneath Donald Trump’s second administration. Nevertheless, China’s adoption of those newly launched coverage instruments will doubtless stay focused and defensive, designed to reply to particular provocation fairly than provoke aggressive punishment.
From an financial perspective, refraining from retaliation could be essentially the most prudent alternative. Nevertheless, confronted with a flurry of U.S. sanctions, Chinese language policymakers are beneath each home and worldwide strain to push again and keep away from showing weak. This raises a thornier query: How ought to Beijing reply?
Up to now, Beijing has remained cautious and restrained. Given China’s ongoing reliance on U.S. capital, superior applied sciences, and world markets, the Chinese language authorities could also be cautious of the potential escalation of tit-for-tat financial confrontation that would inflict better hurt on China than on the USA. Moreover, China’s latest export controls on crucial minerals, in addition to earlier restrictions on uncommon earth parts, have inspired the U.S. and different international locations to speed up efforts to diversify their supply chains. Over time, this might diminish China’s leverage, making indiscriminate utility of such measures much less tactically or strategically viable. Thus, Beijing should steadiness bringing substantive pains and conserving the USA reliant on the Chinese language market.
The twin demand to retaliate towards U.S. sanctions whereas avoiding escalation compels China to undertake a fastidiously calibrated method to stop overplaying its hand. These measures are utilized selectively, focusing on particular entities or sectors concerned in actions China deems hostile, resembling U.S. sanctions on Chinese language companies, arms gross sales to Taiwan, and interference in its inner affairs. To reduce disruption to its personal financial stability and world provide chains, Beijing might first take a look at the efficacy of those devices and punctiliously weigh their prices and advantages earlier than contemplating broader functions.
Moreover, China’s long-standing opposition to unilateral sanctions and its continued choice for casual measures recommend that it’s unlikely to develop the usage of these instruments on a bigger scale. This restraint can also be mirrored in how China justifies its countermeasures towards the U.S., constantly framing them as retaliatory and defensive.
Conclusion
China’s latest sanctions towards the USA replicate its retaliatory method of discarding symbolism and embracing substance. Regardless of its rising arsenal of financial coverage instruments, Beijing stays cautious, in search of to keep away from escalation that would injury its economic system or alienate key buying and selling companions. Within the brief time period, China’s sanctions towards the U.S. will doubtless stay focused and defensive, specializing in particular provocations fairly than initiating broad offensive measures. This calibrated method reveals China’s balancing act: asserting its defensive place within the China-U.S. tit-for-tat sanctions dynamics whereas exercising restraint to handle the complexities of the intensifying nice energy competitors and a deeply interconnected world economic system.
