Regulatory intelligence for US exporters

China's Use of Sanctions, Export Controls 'Just the Beginning,' Former US Officials Say

As the U.S. increasingly relies on sanctions, export controls and trade restrictions as foreign policy tools, it should expect China to follow its example, former U.S. government officials said. While other countries are beginning to mimic U.S. trade strategies, the policies are most notably taking hold in China, the officials said, which recently rolled out an export control regime (see 2010190033), has increased threats of sanctions for foreign interference in Hong Kong and Taiwan (see 2012100022 and 2010260017) and issued regulations for its unreliable entity list (see 2009210017).

“This has been in some ways the Chinese beginning to flirt more aggressively with their economic and commercial power,” said Juan Zarate, former deputy assistant to President George W. Bush, speaking during a Dec. 17 event hosted by the Center for a New American Security. “I think this is just the beginning of a greater challenge from China in the use of these kinds of tools.”

Zarate, a managing partner with the compliance firm K2 Integrity, said the U.S. should expect China to more heavily rely on sanctions and export controls. China seems to be copying many of the U.S.’s main coercive economic tools, said Adam Szubin, a former senior Treasury Department official who is now a national security lawyer, pointing to China’s export control list as an example. “They very much look like the way the U.S. has used these authorities in a list-based way,” he said.

Zarate said China may be able to capitalize on these new restrictions because its state-owned companies have an “expansive global footprint.” China “wants to force a decision to be made,” Zarate said, referencing other countries being forced to choose to abide by U.S. or Chinese sanctions. Countries have also been forced to choose whether to reject telecommunication equipment from Huawei, which would earn the applause of the Trump administration but risk retaliation from China (see 2012070036).

“They're not only defending their law, but they're challenging how U.S. sanctions, Western sanctions get applied in their backyard,” Zarate said. “I think we're going to see more of this over time.”

While the U.S. should expect China to continue “flexing its muscles,” Theodore Kassinger, the former deputy secretary of the Commerce Department, doubts whether China’s tools can rival the impact of U.S. restrictions. He said Chinese financial sanctions and export controls on technology don’t compare to U.S. actions.

“There's not a lot of technology that [China is] going to be denying somebody that wants it,” said Kassinger, a trade and investment lawyer. “Travel, financial arrangements -- all those things are not going to be affected by blocking statutes in China in the same way they are here.”

China also does not have the relationships and allies to pursue multilateral sanctions in the same way the U.S. does, Szubin said. He said China’s alliances are “tremendously weaker” than the U.S.'s. “When you look at the treatment of the Uighurs, when you look at Hong Kong, when you look at the South China Sea, China stands alone,” Szubin said. “So where we have the ability to greatly outcompete China in the use of this leverage is in our alliances.”