Biden Time
What’s next for regulatory policy on China?
“The time to move forward is now”, Joseph Biden declared shortly after being sworn in as the 46th President of the US. China, however, looks stuck in the Trump era. Under the previous administration, tensions between the rival superpowers rose to heights not seen since the Cold War, and companies on both sides of the Pacific found themselves tangled in China-focused sanctions, export controls and other regulatory restrictions. This is not about to change. The new Biden administration will keep a hard-line on China, albeit with a greater focus on human rights and some tactical adjustments; China will retaliate; and businesses will be mired in a thickening regulatory web.
Trump: Making Sanctions Great Again
Trump’s China-focused regulatory regime was driven by both national security and values-based considerations. The administration targeted a vast range of Chinese companies and organisations for alleged support of China’s defence apparatus. It also used economic penalties to advance human rights and democracy in Xinjiang and Hong Kong.
The administration deployed four broad categories of tools:
Sanctions: The Office of Foreign Assets Control (OFAC) placed dozens of mainland and Hong Kong officials on its Specially Designated Nationals list, freezing their assets and forbidding interaction with US persons.
Export controls: The US Department of Commerce’s Bureau of Industry and Security imposed export restrictions on hundreds of Chinese entities by placing them on its entity list and/or military end users list, and progressively intensified the requirements for the latter list.
Securities restrictions: The Department of Defence blacklisted dozens of what it called “Chinese Communist Military Companies”, which, under a Trump executive order, bans US investors from purchasing these companies’ securities. Ambiguities remain as to which listed firms and subsidiaries are affected.
Targeted goods restrictions. The Trump administration sought to curtail the use of Chinese technology by the US government and persons via several executive orders, and banned cotton, cotton products and tomato products from Xinjiang.
Building Back Better?
Biden’s promise to “build back better” will extend to the above regulatory regime – though the Chinese are unlikely to see it that way. The Biden administration shares many of the concerns underlying the current regime. It too views China as a strategic rival, and it will only press China harder on human rights issues. Biden will however change tactics. The administration is currently reviewing the regulatory regime, a process that should clarify any outstanding ambiguities particularly over the blacklist and technology-focused bans. It will also push for a multilateral approach, lobbying traditional allies such as the EU, UK and Canada to intensify their current Hong Kong and Xinjiang-related restrictions.
When China sees no change, it will hit back. During the Trump years, China introduced an unreliable entities list, an export control law and rules on counteracting “unjustified extra-territorial application of foreign legislation”, which respectively allow China to create its own blacklist, impose export restrictions and empower its companies to ignore US regulations. China will not hesitate to deploy these new tools, ushering in a vicious cycle in which China’s new regulatory regime clashes with the US’s opposing one.
When that happens, the two superpowers - and the world of business with them – will get plenty of that movement promised by Biden. Just not forward.