Stopping China-Russia Trade Still a ‘Work in Progress,’ US Official Says

The Biden administration is having “a lot” of conversations with China to try to convince the country to stop shipping certain dual-use goods to Russia, and some of those conversations appear to be working, said Jay Shambaugh, the Treasury Department’s undersecretary for international affairs. But Shambaugh also said the U.S. wants Beijing to do more, and the administration is analyzing whether its current trade and financial restrictions are strong enough.

“It's something that we certainly constantly evaluate, whether the tools we're using are working,” Shambaugh said during an event this week hosted by the Council on Foreign Relations. “If we have to sanction Chinese firms, we do.”

Shambaugh said the administration has “tried to constantly evolve our tools” to stop Russia from circumventing export controls and sanctions. He specifically mentioned a December executive order that gave the Treasury Department the ability to sanction foreign banks and other financial institutions that are helping to facilitate transactions of dual-use exports to Russia (see 2401120051 and 2312220023).

Administration officials have had “extensive conversations” with Chinese banks to make sure they understand those new rules, Shambaugh said, and are “starting to see some impact there.” But limiting dual-use trade between China and Russia is still “a work in progress,” he said. “We continue to spend a huge amount of time within Treasury” on this issue, he said. “We really view it as an essential part of our effort in this war.”

He said U.S. officials have told their Chinese counterparts and industry officials that “you can't just monitor whether you're shipping guns and bullets. It's the components that lead to weapons that are just as important.” Shambaugh acknowledged that those parts are “a harder thing to monitor. It's something that we're working very closely with the Chinese on.”

Shambaugh also said he has stressed to Chinese officials that its trade restrictions aren’t specifically aimed at China. “We're not passing China-specific rules,” he said. “We're passing rules that relate to how any country engages with Russia.” But because China is a major manufacturer of dual-use parts, “it becomes the most important country in terms of dual-use goods that could flow to Russia,” he said.

“We are trying to convey to the Chinese that we are not targeting them. We are targeting Russia,” Shambaugh said. “But Chinese behavior has to change.”

Senior U.S. sanctions and export control officials have also warned American CEOs to specifically do more due diligence on their semiconductor shipments, telling them Chinese suppliers are frequently sending their products to Russia (see 2406270049).

Shambaugh also touched on Treasury’s recently released proposed outbound investment rule, which could set prohibitions and notification requirements for certain American investments in China’s quantum, semiconductor and artificial intelligence industries (see 2407030009). Asked what kind of feedback the agency has gotten from U.S. companies, Shambaugh said “there are always going to be concerns.” He said Treasury had “tried to do a ton of outreach” with companies, and it believes the rule is narrow and transparent. He also encouraged forms to submit comments before the Aug. 4 deadline.

Treasury takes “these comments seriously,” he said. “We didn't just write the rule in a day. This has been a long and hard process, because we're trying to make sure we hit that balance correctly.”