Expect Chinese Retaliation to Additional US Major Entity Listings, Expert Says

U.S. companies should expect more retaliation from China if the Bureau of Industry and Security adds more major Chinese technology firms to its Entity List this year, Paul Trulio, a China and technology policy expert, said during an event last week hosted by the Center for Strategic and International Studies. Trulio and other panelists also said it’s unclear exactly how a possible second Trump administration may tweak U.S. export control policy toward Beijing, but they said it’s possible former President Donald Trump, if reelected, could significantly increase restrictions on Chinese firms through potential financial sanctions and may pressure allies to do the same.

Trulio, Albright Stonebridge Group partner for China and technology policy lead, said he works with companies that are “very worried” about Chinese government retaliation against U.S. export controls. Although he said China has so far been careful not to “overreact” to restrictions imposed by the Biden administration, he noted that Beijing last year announced a ban on certain purchases from U.S. chip company Micron (see 2305220053) a few months after BIS added top Chinese chipmaker Yangtze Memory Technologies Co. to the Entity List (see 2212150021).

“If we have more Entity Listings, for example, this year, that target other" major Chinese firms, "I would expect to see more reaction from China,” Trulio said during the CSIS event. He said China could target companies involved in the critical minerals supply chain, pointing to the country's export controls on gallium and germanium last year (see 2404020012).

“They've beefed up export controls around some of those minerals, but they haven't really pulled the trigger. It's a much more difficult thing to target companies, for example,” Trulio said. “That's a big worry of the companies that I work with, is sort of how China will retaliate to further controls as we go forward.”

China’s Ministry of Commerce in March warned the U.S. against new export controls, including on companies linked to Huawei (see 2403210021). BIS added several Chinese companies to the Entity List April 11 for procuring items to support Iranian drone programs, China’s military modernization efforts or Russia’s military (see 2404100018).

As the U.S. presidential election draws closer, Trulio said, “I hear things in Washington” about possibly making more use of the Treasury Department’s Specially Designated Nationals List to target Chinese companies. Some Republicans, including Rep. Andy Barr of Kentucky, have advocated for full blocking sanctions against Chinese companies subject to investment restrictions and other controls (see 2401180067 and 2309200052).

“Those kinds of things are being discussed in D.C.,” Trulio said. “So it could be a much more complicated world for Chinese regulators and policymakers to deal with later in the year.”

Martin Chorzempa, a senior fellow with the Peterson Institute for International Economics, said part of the reason the U.S. hasn’t placed major Chinese technology companies on the SDN List is because it “would create a lot of ill will among allies.” He said sanctioning Huawei, for example, would prevent many countries from operating their telecommunications networks.

“That would be utter chaos for everyone else,” Chorzempa said. “I think other countries will look at that and say to the U.S., ‘You have created a national security threat for me that is way more real -- in blowing up our telecom networks -- than anything that we're concerned about in terms of Huawei snooping.’”

Chorzempa said he’s concerned a possible future Trump administration may take that approach, or pursue similar measures against China that could escalate geopolitical tensions and pressure allies to do the same.

He said he wonders if a Trump administration would say: “Allies, we're sick and tired of your foot-dragging. We're going to hammer you unless you go along all the way. And China will certainly retaliate, but too bad, so sad. You’ve got to deal with it.”

Chorzempa added: “There's a lot of legitimate trepidation, because we don't really have a clear end-game of where this goes. And it would look very different in two different administrations.”

Trulio cautioned against overly strict U.S. sanctions and export controls against Chinese companies. Export restrictions helped Huawei transform from a telecom infrastructure firm “to now this sort of overall technology juggernaut that's in operating systems and [artificial intelligence] development platforms and autonomous vehicles,” he said. “Huawei has been able to reinvent itself, and that's maybe a sort of paradigm for, or an example of, what will happen in this new world, where Chinese companies will sort of reinvent themselves to adjust to these controls.”

Chorzempa said the U.S. and BIS should be careful not to bow to political pressure by imposing increasingly tough sanctions on China without a clear purpose. He said political pressure against Huawei, including from some lawmakers (see 2309150020 and 2303080024), has led to “dumb policy,” where BIS is being asked to deny licenses for U.S. exporters doing business with the technology company even though foreign competitors can ship the same products.

“Now, because there's so much political pressure to not to sell anything to Huawei, those licenses are becoming harder and harder to obtain," Chorzempa said, "so the U.S. firm loses the revenue, and Huawei still gets the thing." BIS has been trying to treat those licenses sensibly, he said, and is “getting a lot of flak that they don't deserve.”