In January 2025, amid escalating tensions with the United States, China announced a series of punitive measures targeting American companies. On January 2, ten U.S. companies were added to China’s Unreliable Entities List, followed by seven more on January 14 and an additional four shortly thereafter.
As with previous sanctions, these actions have been dismissed by some as largely symbolic due to minimal economic ties between the target companies and China. Additionally, because these penalties were imposed during the U.S. presidential transition, they have been interpreted as both a warning to the incoming administration and a strategic move to strengthen China’s bargaining position ahead of potential negotiations.
However, these actions should not be viewed as a stand-alone development. They are part of China’s broader efforts to modernize its economic statecraft. While the narrative of “symbolism” may have been valid in the early stages, it is becoming increasingly untenable as Beijing demonstrated a growing willingness and capability to impose substantive costs.
For instance, on October 10, 2024, China imposed sanctions on Skydio, the largest U.S. drone manufacturer, in response to its arms sales to Taiwan. This action caused a supply chain crisis for the company as Chinese firms were prohibited from providing critical components, and Skydio had to scramble for alternative suppliers. Similarly, as China tightened its controls over critical minerals, even companies without direct business ties to China could be impacted by these broad restrictions, as minerals like antimony, gallium, and germanium are essential for modern technology production.
These cases illustrate a subtle yet significant transformation in China’s sanctions approach, characterized by discarding symbolism and embracing substance. With the prospect of a harsher U.S. policy toward China under a second Trump administration, this shift raises an intriguing question: How is China modernizing its economic statecraft, and how might it leverage these evolving policy tools to navigate the ongoing trade and tech wars?
Modernizing China’s Economic Statecraft
China’s reliance on economic sanctions as a foreign policy instrument has grown over the past two decades, despite initially lacking a robust legal framework to support such measures. Unlike its previous informal practices, Beijing has increasingly mirrored Washington’s approach and formalized its punitive measures through a series of domestic regulations and laws since 2019. These include the Unreliable Entity List, the Anti-sanctions Laws, and revised Export Controls Laws, which provide a legal basis for Beijing to impose sanctions and restrict exports.
Since then, China has also increased the frequency of publicly announced sanctions, primarily targeting U.S. individuals and entities accused of interfering in China’s internal affairs, specifically Hong Kong, Xinjiang, and Taiwan. Sanctions against individuals typically include asset freezes, visa bans, and business restrictions, while measures targeting firms include export and import controls, property freezes, and transactional restrictions. However, given the limited economic ties, such measures were often perceived as symbolic gestures aimed at delivering diplomatic signals about not crossing Beijing’s red lines, rather than inflicting real damage.
However, this narrative of symbolism is no longer tenable. As China unified its previously fragmented sanctions and export control policies into a cohesive framework, China has elevated its countermeasures into a more systematic, credible, and impactful instrument of economic statecraft. Its recent efforts to leverage its dominance in key markets, such as drones and critical minerals, reflect a growing willingness to weaponize supply chains and impose economic costs on targeted entities through export restrictions on essential products. After introducing export controls on gallium, germanium, graphite, and drones in 2023, China expanded these measures to include antimony in August 2024. By December 2024, Beijing intensified its efforts by directly targeting the U.S. and extending these restrictions to third parties. On January 2, 2025, China doubled down on these restrictions by adding 28 U.S. entities to its export control list, banning the export of dual-use items to these companies.
These actions highlight China’s evolving strategy to exert leverage in the intensifying China-U.S. competition. The Skydio case exemplifies how restricting access to China’s dominant markets can impose substantial costs on targeted entities. Even U.S. companies initially considered to have limited economic ties with China could be impacted by these broad restrictions, as these minerals are essential for modern technology production, coupled with U.S. reliance on their imports from China.
Toward a Targeted and Defensive Retaliatory Approach
With the prospect of a harsher China policy, tariffs, sanctions, and export controls are expected to increase under Donald Trump’s second administration. However, China’s adoption of these newly introduced policy tools will likely remain targeted and defensive, designed to respond to specific provocation rather than initiate aggressive punishment.
From an economic perspective, refraining from retaliation would be the most prudent choice. However, faced with a flurry of U.S. sanctions, Chinese policymakers are under both domestic and international pressure to push back and avoid appearing weak. This raises a thornier question: How should Beijing respond?
So far, Beijing has remained cautious and restrained. Given China’s ongoing reliance on U.S. capital, advanced technologies, and global markets, the Chinese government may be wary of the potential escalation of tit-for-tat economic confrontation that could inflict greater harm on China than on the United States. Additionally, China’s recent export controls on critical minerals, as well as earlier restrictions on rare earth elements, have encouraged the U.S. and other countries to accelerate efforts to diversify their supply chains. Over time, this could diminish China’s leverage, making indiscriminate application of such measures less tactically or strategically viable. Thus, Beijing must balance bringing substantive pains and keeping the United States reliant on the Chinese market.
The dual demand to retaliate against U.S. sanctions while avoiding escalation compels China to adopt a carefully calibrated approach to prevent overplaying its hand. These measures are applied selectively, targeting specific entities or sectors involved in actions China deems hostile, such as U.S. sanctions on Chinese firms, arms sales to Taiwan, and interference in its internal affairs. To minimize disruption to its own economic stability and global supply chains, Beijing may first test the efficacy of these instruments and carefully weigh their costs and benefits before considering broader applications.
Furthermore, China’s long-standing opposition to unilateral sanctions and its continued preference for informal measures suggest that it is unlikely to expand the use of these tools on a larger scale. This restraint is also reflected in how China justifies its countermeasures against the U.S., consistently framing them as retaliatory and defensive.
Conclusion
China’s recent sanctions against the United States reflect its retaliatory approach of discarding symbolism and embracing substance. Despite its growing arsenal of economic policy tools, Beijing remains cautious, seeking to avoid escalation that could damage its economy or alienate key trading partners. In the short term, China’s sanctions against the U.S. will likely remain targeted and defensive, focusing on specific provocations rather than initiating broad offensive measures. This calibrated approach reveals China’s balancing act: asserting its defensive position in the China-U.S. tit-for-tat sanctions dynamics while exercising restraint to manage the complexities of the intensifying great power competition and a deeply interconnected global economy.
