Why Are China / US Sanctions Such a Big Issue? (Part I – General Sanctions)

Foreign Policy Brief #153 | By: Inijah Quadri | October 22, 2022

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Screen Shot 2022 11 01 at 10.25.47 AM — Trade war with China is about a lot more than economics. It’s primarily about politics, both domestically and internationally. Most Americans want the United States to be tough on the nation — and it seems they may be willing to have a slightly weaker economy to do that.

Photo taken from: Mark Wilson / Getty Images

Policy Summary

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Trade sanctions on the US imposed by China, in the last several years, are a reflection of Beijing’s desire to respond to similar sanctions imposed by America. In particular Chinese sanctions are a reaction to the effects of the trade war that the United States exacerbated during Trump’s presidency. It is essential for businesses in the US and China to have a solid understanding of the China / US sanctions conflict and the compliance repercussions associated with it, given the growing influence that these restrictions have on the global financial landscape.

What Exactly Is the Sanctions Regime Against China?

In recent years, Washington’s sanctions against China have been focused on several industries, including telecommunications, semiconductors, data security, financial services, amongst others. There has been a flurry of new US limitations on Chinese exports, imports, FDI (foreign direct investment), and financial securities, which are radically altering the economic relationship between the United States and China. Due to increasing caution and mistrust on both sides of the Pacific, cross-border business travel between the United States and China is at a standstill.

Congress has supported this US offensive by appropriating more funds to sectors seen as crucial to sustaining U.S. competitive advantages in technology, manufacturing, and defense. For example, the U.S. Senate passed the U.S. Innovation and Competition Act that increases funding for semiconductor manufacturing, hastens the rollout of 5G telecommunications capabilities, and restructures the National Science Foundation with the goal of making the US more competitive in science.

Congressional support for American industries that compete with China is expected to persist beyond 2022, with far-reaching consequences for a wide range of industries. A recent example are American sanctions on the Chinese company Huawei. The US suspected that Huawei was using its operations to spy on American technology.

The government banned Huawei products in the US asked its allies to stop using Huawei equipment in their 5G mobile networks. The American government also used export prohibitions to deprive Huawei of essential American goods and technologies.

Recently the US also has blocked deals that would have put the dating app Grindr under Chinese control and US chipmaker Qualcomm under Singaporean control (for fear of Chinese influence); it’s pressured multiple Chinese companies to leave the New York Stock Exchange; and the Trump administration attempted to ban the Chinese owned WeChat and TikTok, the latter of which is still under investigation by an interagency national security panel.

Security Huawei 1171863505 — Huawei has vigorously denied that it conducts wrongful surveillance or that it cooperates with the Chinese government by creating backdoors in its network systems in the midst of increased scrutiny from the U.S. government.

315834b4 ce45 4aff 8559 28bbc28ca804 — Despite previous plans to wean itself off foreign semi-conductor chips, China is still largely dependent on imports to keep up with the tech industry against the U.S.

Photos taken from: Str / Nikkei montage / Getty Images

What Has China’s Response Been?

The Chinese Ministry of Commerce (MOFCOM) said in 2019 that it would initiate its own foreign sanctions program. This started in 2021 with the Anti-Foreign Sanctions Law. Article 6 of this law makes provision for the Chinese government to seize and freeze movable property, real estate, and other types of property of listed individuals.

It also creates provisions to enable the government to forbid or restrict organizations or individuals in China from conducting transactions and engaging in any cooperation with listed foreign organizations or individuals. Finally, it also grants powers to remove listed persons from Chinese soil and prevent them from ever returning.

Other designations to counter foreign sanctions against China have been put in place including posting US organizations an Unreliable Entity List, as well as a new Data Security Law. These laws buttress the Anti-Foreign Sanctions Law.

Are the US/China Sanctions Working?

According to studies, sanctions can be viewed as a technique that alert parties to a problem without actually addressing it. Still, both Chinese and American governments use sanctions to show that they don’t like the policies of the other. However, many people think it’s a safe result because no one gets hurt or dies. So, what is the effect of these sanctions?

Even as the two countries have imposed sanctions on each other, they have nevertheless found alternative ways to produce their affected products. But there has been a cost: prices have increased. This is according to the International Monetary Fund. Sanctions have only served to sow seeds of distrust, and going down this line, the end result will most likely be devastating for both parties.