Just several weeks into his new term, U.S. President Donald Trump has dramatically shifted the United States’ approach to economic statecraft, turning to tariffs as a tool to address an expanding array of policy aims. His March 4 decision to increase tariffs on Chinese imports by an additional 10 percent (on top of the 10 percent tariff he imposed in February) elicited an immediate response from policymakers in Beijing.
The Western media focused most of its attention on the tit-for-tat tariffs imposed by China on U.S. agricultural products and the Chinese Foreign Ministry spokesman’s bombastic response: “If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.” But tariffs are not the only tool in China’s trade war toolkit.
Left relatively unexamined was the second part of Beijing’s response: the addition of 10 U.S. companies to the Unreliable Entities List (UEL) and 15 companies to its export control list. These measures follow on the heels of China’s multifaceted response to U.S. tariffs announced February 4: retaliatory tariffs on U.S. exports of energy and farm equipment, but also export licensing requirements for several critical minerals, additional UEL listings, and the re-opening of an antitrust investigation into Google.
Sanctions, export controls and other administrative measures are increasingly crucial in Beijing’s efforts to push back against foreign government actions that China sees as detrimental to its development, territorial claims, and national dignity.
Since 2020, China has promulgated several new laws related to sanctions and export controls that, on the surface, appear similar to Western laws. While these new economic measures may bear a passing resemblance to Western sanctions and export controls, their uses and goals differ significantly from the way in which Western countries traditionally have used these tools. Rather than preventing proliferation, promoting global human rights or governance norms, disrupting terrorist networks, or undermining aggression, Beijing wields these tools against what it perceives as criticism or threats against its domestic policies – including treatment of minorities or dissidents, economic activities, and sovereignty claims.
These measures are part of a broader strategy to extend the reach of Chinese law beyond its borders and to bolster the legitimacy and effectiveness of China’s economic coercion tools. Chinese policymakers are testing the limits of these new tools and are beginning to demonstrate a willingness to move beyond signaling in favor of measures that impose real costs on Western targets.
Adapting Foreign Models to Chinese Circumstances
As China’s economy grew through the early years of this century, Chinese leaders took advantage of their newfound leverage to respond to what they view as interference in China’s domestic affairs, sovereignty, and national dignity. For the past 20 years, Beijing’s use of economic coercion was characterized by tit-for-tat responses, often targeted at vulnerable parties with little connection to the issue at hand, using tools like trade restrictions, “public” boycotts, official freezeouts, travel bans, regulatory actions, and fines. The actions were often highly symbolic, but the costs to China and to the countries targeted were typically low. These measures were intended, as the Chinese saying goes, to “kill the chicken to scare the monkeys,” or to make an example of one entity to elicit preferred behavior from others.
While arguably effective as political signaling, such actions came with costs in eroding business confidence and spurring increasingly vocal calls for reduced reliance on China. These informal measures have increasingly been met with efforts on the part of major economies (including the G-7 with the launch of the Coordination Platform on Economic Coercion) to mitigate the impacts of Beijing’s economic restrictions on third countries.
Chinese policymakers appear to recognize the weaknesses in this approach and have adjusted accordingly. Beginning in 2020, China deliberately and strategically began building out and formalizing its body of laws and regulations to create a more structured, legal approach to economic coercion that it could apply to large economies. With the promulgation of the Rules on the List of Unreliable Entities (September 2020), Export Control Law (December 2020), Blocking Rules (January 2021), and Anti-Foreign Sanctions Law (June 2021), China laid the framework for a move away from extralegal economic coercion to a toolkit that looks familiar to many Western economic security practitioners. However, looks can be deceiving.
China’s Unreliable Entities List (UEL) is designed specifically as a retaliatory measure targeting foreign entities that undermine Beijing’s domestic policy or suspend normal transactions with Chinese companies for “non-commercial purposes.” There is no definition of what might constitute such an offense, and the authorities may take several measures against those listed, including restricting trade and investment, travel bans, and fines. To date, only U.S. firms have been listed or investigated for inclusion on the UEL and the number has more than doubled in the first months of 2025 with 12 new UEL listings, including for the first time firms like Skydio and Illumina that compete with Chinese manufacturers.
The Export Control Law marks China’s attempt to create an overarching legal framework for restricting exports of “controlled items” covering dual-use items, military and nuclear items, items related to anti-proliferation, and items related to China’s national security and national interests. Uniquely, it also specifically authorizes the use of export controls as a retaliatory measure if other countries are determined to be “abusing” export measures against China.
China’s Blocking Rules prohibit Chinese entities from complying with foreign sanctions and allow Chinese persons or organizations to sue for compensation. It also authorizes unspecified countermeasures by the Chinese government.
Finally, the Anti-Foreign Sanctions Law (AFSL) authorizes the Ministry of Foreign Affairs (MFA) to impose sanctions on those involved in drafting, decision-making, or implementing sanctions, as well as those who “interfere in China’s internal affairs” or engage in any conduct that threatens China’s “sovereignty, security, or development interests.”
China’s New Approach to Economic Coercion
Since the adoption of these policies, Chinese authorities have primarily used these new tools to deliver political messages related to domestic policy concerns. Initial targets of these measures were primarily government officials, human rights advocates, and companies in the defense, intelligence, and aerospace sectors who had criticized China’s policies or provided military equipment to Taiwan. Most of these actions had symbolic rather than practical effects – after all, those targeted were unlikely to travel to China and had few assets or business interests there. The lack of significant practical consequences for most targets, perhaps combined with a Western reluctance to criticize legal mechanisms, meant that the countries targeted responded minimally.
However, since the fall of 2024, we’ve seen a shift in how China is using these tools to send warnings to U.S. (and other) policymakers and companies. Beijing has begun using its legal measures as tools for asymmetric retaliation, in addition to its continued use of sanctions against targets directly tied to defense trade with Taiwan and human rights defenders.
In October 2024, China’s Ministry of Commerce (MOFCOM) announced that it was investigating the U.S. clothing company PVH for inclusion on the UEL for refusing to import goods made with Xinjiang cotton – the first time a non-defense company was targeted for the UEL. Days later, China’s MFA announced a leading U.S. drone manufacturer, Skydio, and its CEO Adam Bry, along with several other U.S. companies, would face countermeasures under the AFSL. Skydio’s reliance on Chinese suppliers for batteries made it vulnerable and it’s worth noting that Bry was a frequent public critic of Chinese drone manufacturers’ business practices, warning Congress of excessive U.S. reliance on Chinese drones.
In early December 2024, MOFCOM announced new country-specific restrictions on exports of critical minerals, including antimony, gallium, and germanium, to the United States. MOFCOM spokespeople indicated that these restrictions were imposed as a reciprocal measure against the United States following U.S. restrictions on exports of high-end semiconductors to China. China’s State Administration for Market Regulation (SAMR) also announced an investigation into Nvidia for unspecified anti-monopoly violations.
In response to U.S. tariffs imposed on Chinese exports in February and March, China responded with its own tariffs, but also announced export licensing requirements for additional critical minerals, reopening of a long-suspended antitrust investigation into Google, and more UEL and export control listings, including adding PVH and biotech company Illumina to its UEL. Like PVH, Illumina has no connection to the defense industry but has been a major player in China’s genetic sequencing market. Finally, MOFCOM also announced March 4 it was launching an antidumping circumvention investigation into U.S. exporters of optical fiber, including Corning, OFS Fitel and Draka Communications. The timing isn’t a coincidence.
These recent examples of China using its trade, sanctions and export control authorities to respond to U.S. export controls and tariffs go beyond traditional tit-for-tat retaliation against companies or persons directly involved in defense trade or human rights promotion. It is increasingly apparent that Beijing is willing to use asymmetric responses to both signal and impose costs, particularly against companies that operate in strategic industries. Avoiding comment on human rights issues or direct sales to Taiwan defense buyers will not protect Western companies from the impact of China’s potential sanctions and export controls. Ironically, the formal nature of these designations makes it more likely that Chinese authorities will maintain them, irrespective of future trade deals.
Practice Makes Perfect
China’s work to develop its own framework of laws related to sanctions and export controls is part of a broader effort to expand its use of international law and to institutionalize its coercive toolkit. Despite some similarities to the traditional way Western sanctions and export control authorities have been used, China’s legal measures are not primarily used to stop proliferation, undermine support for terrorism, disrupt military aggression, or enforce global norms related to corruption and human rights, but rather to intimidate, retaliate and punish those who violate specific Communist Party redlines – including Taiwan defense sales or China’s economic development – or those who question or criticize sensitive domestic policies.
The rapid pace of announcements since late 2024 is clearly meant to send a message to the new U.S. administration, namely, that China is growing more comfortable with the use of these tools and will use them more frequently in ways that adversely affect a wide range of Western interests. While China’s use of legal measures for asymmetric retaliation have so far just targeted the United States, there is no reason to believe Chinese officials would not use these measures to target other states for retaliation in the future.
As policymakers in Beijing grow more confident in wielding these tools, Western nations must collaborate to identify risks to global supply chains and reduce dependence on Chinese sources in critical sectors to safeguard their economic and national security. Western companies in any sector could see their access to Chinese supply chains restricted in response to trade or other tensions. Even those who do not trade in military or dual use goods need to be aware that their exposure to China-based manufacturing, commodities, or markets carries increasing risk. In an ever more unpredictable policy environment, overreliance on Chinese inputs or sales will lead to more sleepless nights for Western CEOs.
