Amid escalating trade tensions with the United States, China has increasingly mirrored the U.S. approach to trade policy and sanctions. This strategic shift is designed to strengthen China’s position in the ongoing trade war that has marked relations between the two economic giants.
To that end, China’s Ministry of Commerce has already moved in surprising ways. As a result, in February the organization put PVH Group on its list of untrustworthy entities. This conglomerate owns household names such as Calvin Klein and Tommy Hilfiger. While not legally binding, most Chinese companies will view this list as a big red warning sign. If their operations contradict core national security interests, they can and should be held accountable by facing severe consequences.
In recent months, China has imposed new barriers on foreign firms. These embargoes are aimed at companies manufacturing equipment integrated with rare earth elements bought from China. All these actions play a role in implementing a larger strategy. It consolidates expanded export controls and reviews of foreign investments introduced in various acts in recent years. These kinds of measures enable China to better use its market weight to wield global influence.
At the same time, the Chinese government has been quietly developing a whole of government framework to respond to and counter U.S. trade policies. In 2018, it brought out a new wave of legislation and executive orders. These actions provide the government with more effective tools to determine and respond rapidly to emerging trade adversities. This kind of approach is a tactic we’ve seen many times before, often employed by the U.S. As I noted a while back, analysts have been struck how China’s retaliatory tactics mirror America’s so closely.
In mid-March, China added an additional ten of U.S. firms to its unreliably entity list, opening a new front its sanctions toolkit. Additionally, it included fifteen U.S. companies on its export control list, claiming that these companies “endanger China’s national security and interests.” This provocation marks the latest display of China’s readiness to take a more confrontational approach in response to U.S. actions seen as hostile.
China has practically followed U.S. precedents on the use of trade restrictive measures. Jurisdiction for violations of U.S. law now extends to foreign-made products. This latest amendment bars companies that operate or do business with China from accessing these specialized American technologies. Through these initiatives, the Chinese government intends to maintain ironclad political control over crucial nodes within important components of the global technology supply chain.
In April, China countered the move by blacklisting an additional 137 U.S. companies. They similarly announced additional export controls on key rare earth minerals, including tungsten, tellurium, bismuth, molybdenum and indium. These materials are essential for all high-tech products and industries, which makes the restrictions all the more damaging and disruptive. Foreign businesses now need approval from the central Chinese government. This requirement has a chilling effect on the export of any magnets with rare earth materials from China.
The recent Chinese trade measures leave no doubt. China is looking out for China’s best interests. Moreover, taken together, these moves show its ambition to magnify its power to shape global trade patterns. As China copies many of these same strategies stateside, observers warn about a series of miscalculations that could further heat up the rivalry.
“The dangers in such a facially balanced and fair approach are, one, what one side sees as reciprocity the other might interpret as escalation,” – Jeremy Daum
This warning highlights the opportunities that still exist if China were to recalibrate its course. Taking up U.S. trade practices may seem like a good idea on the surface. It might lead to a tit-for-tat situation where both countries respond by raising their punishment measures further.
China is in fact hard at work tightening its trade practices. It continues to be on guard to keep its competitive edge in technology and human resources. The government’s recent moves have given it the confidence to challenge the U.S. more forcefully. These moves come with serious risks that could severely destabilize bilateral relations and even greater global markets.
