WASHINGTON (AP) — China likes to condemn the United States for reaching too far outside its borders to make demands on non-U.S. companies. But when it tried to strike back at American interests this month, Beijing did exactly the same thing.
Expanding rare earth export rules, Beijing announced for the first time that it will require foreign companies to obtain approval from the Chinese government to export magnets containing even small amounts of rare earth materials originating in China or produced with Chinese technology.
That means a South Korean smartphone maker must ask Beijing for permission to sell the devices to Australia if the phones contain rare earth materials originating in China, said Jamieson Greer, a U.S. trade representative. “This rule gives China control over basically the entire global economy in the technology supply chain,” he said.
To anyone familiar with American trade practices, China is simply borrowing a decades-old American policy: the foreign direct product rule. It extends the reach of U.S. law to products made abroad and has been regularly used to restrict China’s access to certain U.S. technologies made outside the United States, even when they are in the hands of foreign companies.
It is the latest example of Beijing turning to American precedents for the tools it needs to confront Washington in what appears to be a protracted trade war between the world’s two largest economies.
“China is learning from the best,” said Neil Thomas, a China policy researcher at the Asia Society Policy Institute’s China Analysis Center. “Beijing is copying Washington’s playbook because it saw firsthand how effectively US export controls could limit its own economic development and political options.”
He added: “The game recognizes the game.”
The idea dates back to at least 2018.
It was in 2018, when President Donald Trump launched a trade war with China, that Beijing felt the urgency to adopt a set of laws and policies that it could easily implement when new trade conflicts arose. And he looked to Washington for ideas.
Its Unreliable Entity List, established in 2020 by China’s Ministry of Commerce, resembles the U.S. Department of Commerce’s “entity list” that restricts certain foreign companies from doing business with the U.S.
In 2021, Beijing adopted the anti-foreign sanctions law, which allows agencies such as China’s Foreign Ministry to deny visas and freeze the assets of unwanted people and companies, similar to what the US State Department and Treasury Department can do.
Calling it a toolkit against foreign sanctions, intervention and far-reaching jurisdiction, state news agency China News cited an ancient Chinese teaching in a 2021 news report, saying Beijing would be “countering back with the enemy’s methods.”
The law “has examined relevant foreign legislation and taken into account international law and the basic principles of international relations,” Chinese academic Li Qingming was quoted as saying in the news report. He also said it could deter the other side from escalating.
Other formal measures Beijing has adopted in recent years include expanded export controls and foreign investment review tools.
Jeremy Daum, a senior legal scholar and senior fellow at Yale Law School’s Paul Tsai China Center, said Beijing often relies on foreign models when developing its laws in non-trade and non-foreign-related areas. As China seeks capabilities to retaliate in kind through trade and sanctions, the tools tend to be “very parallel” to those of the United States, he said.
Both governments have also adopted a “holistic view of national security,” which expands the concept to justify mutual restrictions, Daum said.
Things accelerated this year
When Trump launched his trade war with China shortly after returning to the White House earlier this year, Beijing quickly deployed its new tools, in addition to raising tariffs to match those imposed by the US president.
In February, in response to Trump’s first 10% tariff on China over accusations that Beijing failed to stem the flow of chemicals used to make fentanyl, the Chinese Ministry of Commerce put PVH Group, owner of Calvin Klein and Tommy Hilfiger and the biotech company Illumina, on the list of unreliable entities.
This prevented them from engaging in import or export activities related to China and from making new investments in the country. Beijing also announced controls on exports of tungsten, tellurium, bismuth, molybdenum and indium, which are critical elements for the production of modern high-tech products.
In March, when Trump imposed the second 10% tariff, related to fentanyl, Beijing placed 10 more American companies on its list of untrustworthy entities and added 15 American companies to its export control list, including aerospace and defense companies such as General Dynamics Land Systems and General Atomics Aeronautical Systems, among others, stating that they “endanger China’s security and national interests.”
Then came the so-called “Liberation Day” tariffs in April, when Beijing not only matched the sky-high 125% tariff imposed by Trump, but also blacklisted more American companies and announced export controls on more rare earth minerals. That caused a pause in the shipment of magnets needed to manufacture a wide range of products such as smartphones, electric vehicles, jet planes and missiles.
While the new tools have allowed China to stare down the United States, Daum said they are not without risks.
“The dangers of such an apparently balanced and fair approach are, one, that one side sees it as reciprocity and the other could interpret it as escalation,” he said. And second, “in a race to the bottom, no one wins.”