January 20, 2021


US/CHINA: Last-minute Trump actions leave Biden with tough choices

BY Gabriel Wildau

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( 6 mins)
  • The Trump administration announced a flurry of coercive policies against China in its final days, in an apparent effort to lock the Biden administration into a confrontational stance.
  • This note lists the recent actions – several of which were previously flagged – along with forecasts on whether President Joe Biden is likely to preserve, modify, or reverse them.
  • Biden may decline to roll back Trump administration actions that are largely symbolic, seeking instead to preserve political capital for more impactful moves.

In general, Biden is likely to weigh the risk that rolling back a given Trump action will invite criticism that Biden is “soft” on China against the practical benefits of rollback. But the specific forecasts below are necessarily tentative, given the complex political calculations involved and the fact that the Biden administration has probably not yet made any firm decisions. Even some Trump administration actions that Biden eventually reverses or modifies are likely to remain in force until the new administration formulates a more comprehensive China strategy. The forecasts below are for unilateral US action and do not consider concessions that Biden might offer in bilateral negotiations with Beijing.

Export and import controls

  • New export controls. The US Commerce Department added Chinese National Offshore Oil Corporation (Cnooc) to the entity list on 14 January, restricting US companies from selling to the company without a license. Commerce cited Cnooc’s role in enforcing China’s maritime claims in the South China Sea.Biden calculation: US companies do not earn significant revenue from sales to Cnooc, so Biden has little incentive to take a symbolic step that could be characterized as “soft” on China.
  • Tighter export controls on Huawei. The Commerce Department reportedly notified multiple global technology companies that the agency will deny all pending applications to sell US-origin technology to Huawei, while revoking some previously issued licenses. Some 150 license applications covering USD 120bn worth of sales to were reportedly pending as of mid-January, while an additional USD 280bn in license applications had yet to be processed.Biden calculation: The Biden administration is likely to pursue a “small yard, high fence” approach to export controls, seeking to minimize the range of products subject to export controls (“small yard”) – and thus the negative impact on US exporters – while strengthening controls on products that raise genuine national security risks (“high fence”). This approach implies greater tolerance for sale of non-5G-related technology to Huawei. Biden is unlikely to follow through with across-the-board license rejections, but some individual applications will likely still be denied.
  • Veto power over technology procurement. The Commerce Department finalized rules to implement Trump’s May 2019 executive order declaring an emergency in the US information and communications technology supply chain. The rules empower Commerce to block US technology companies from importing a wide range of hardware and software from companies in “foreign adversary” countries, including China.Biden calculation: The rules grant Commerce broad authority to veto commercial transactions, but the Biden administration has full discretion on how and whether to exercise this authority.

Human rights

  • Ban on imports from Xinjiang. U.S. Customs and Border Protection (CBP) issued a “withhold release order” on 13 January banning all US imports of cotton and tomatoes from Xinjiang, amid concerns about ethnic repression and forced labor. The latest order expands on earlier actions in September and November that banned imports from specific Xinjiang companies. The latest ban could cause significant disruption to global apparel makers, as it includes not only products shipped directly from Xinjiang, but also those manufactured using Xinjiang raw materials. US companies import around 1.5bn garments annually that contain Xinjiang cotton, representing sales of over USD 20bn, according to a watchdog group.Biden calculation: Biden promised on the campaign trail to confront China on human rights, and the moral case for banning imports of Xinjiang-linked products is strong.
  • Xinjiang “genocide.” The US State Department officially labeled the Chinese government’s treatment of Uighurs and other Muslim minorities in Xinjiang as “genocide” on 19 JanuaryBiden calculation: Biden’s nominee for secretary of state, Anthony Blinken, publicly endorsed the “genocide” assessment on 19 January.

Other measures

  • “Military companies” designation. The Department of Defense (DoD) added mobile phone maker Xiaomi and commercial aircraft manufacturer Comac to its list of “Communist Chinese military companies” on 14 January. Pursuant to Trump’s executive order in November, US persons are forbidden from investing in the publicly-traded securities of companies on this list. Relatedly, the Treasury Department issued revised guidance on 28 December to implement Trump’s executive order, clarifying that the investment ban applies to the publicly-traded securities of all subsidiaries and affiliates, even when the DoD directly names only an unlisted parent company.Biden calculation: The Xiaomi and Comac designations are dubious. Xiaomi is a consumer company, while Comac focuses exclusively on civil aviation. Neither possesses cutting-edge technology. Comac is not publicly traded, so the impact of the military designation is symbolic, but Xiaomi trades in Hong Kong and is popular among US fund managers. The Trump administration has made other dubious additions to the DoD list since August. Biden could launch a comprehensive review of the list – adding some names while deleting others – to insulate him from criticism for removing selected companies. Biden is unlikely to alter the Treasury guidance.
  • Curbing Chinese access to US science. As part of the US Justice Department’s “China Initiative,” which seeks to counteract Chinese efforts to acquire US intellectual property, the department announced criminal charges against an MIT mechanical engineering professor, Chen Gang, on 14 January. Chen, a naturalized US citizen born in China, is charged with wire fraud and tax crimes for failing to disclose research funding and personal earnings from Chinese institutions. Critics of the prosecution note that Chen’s research collaboration with a Chinese university was publicly announced on MIT’s website. They argue that Chen is effectively being targeted for clerical errors in completing grant application forms.Biden calculation: Biden’s Justice Department is likely to continue efforts to prevent illicit exfiltration of advanced research from US universities and research institutes, while taking greater care to avoid prosecutorial overreach. Prosecutors could drop some individual cases or modify them to charge defendants with lesser crimes.

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