Jack McBreen

Associate Editor

Loyola University Chicago School of Law, JD 2023

Throughout the end of 2021, the Biden administration intensified its crackdown on civilian organizations believed to be supporting China’s military. As a result, the U.S. Commerce and Treasury departments, acting pursuant to the president’s June 3 Executive Order, recently unleashed a barrage of economic sanctions by effectively blacklisting more than forty Chinese companies, tech firms, and research institutes. Such far-reaching measures have ensnared prominent businesses across a variety of industries, including facial recognition specialists, artificial intelligence companies, and the world’s largest producer of commercial drones, DJI Technology Co. Those targeted were added to either the Commerce Department’s entity list, which blocks trade with U.S. exporters of software and other technologies, or to a Treasury list restricting access to American investment. Placement on the Treasury’s list can be especially damaging to an organization’s financial stability because the agency’s policies not only bar those sanctioned from transacting with domestic businesses but also prohibit American investors from taking stakes in companies on the list. Unsurprisingly, a spokesman for China’s Foreign Ministry quickly denounced the sanctions as an “unwarranted suppression” of Chinese enterprises. Some of the listed companies themselves also publicly criticized their presence on the blacklists, including the artificial-intelligence start-up SenseTime Group which called the accusations against it “unfounded.” U.S. officials, however, defended the decision – citing both national security threats and human rights violations as causes for the sanctions.

The policy initiatives behind U.S. blacklisting

The Commerce Department announced last November that certain companies, including Hangzhou Zhongke Microelectronics Co Ltd, New H3C Semiconductor Technologies Co Ltd, Xi’an Aerospace Huaxun Technology, and China’s Academy of Military Medical Sciences, were specifically blacklisted for supporting the “modernization of the People’s Liberation Army.” In particular, the U.S. Government’s national security concerns seem to focus on the Chinese military’s potential interest in using tech companies to develop highly sophisticated, tech-based weaponry, such as counter-stealth applications, unbreakable encryption, and even devices with purported brain-control capabilities. U.S. officials have also pointed to China’s alleged mistreatment of ethnic minority groups, including Tibetans and Muslim Uyghurs, as an additional reason for the government’s increased use of blacklisting. Both the Treasury and Commerce Departments have indicated that China’s advancements in biotechnology present a serious threat to the safety of Chinese ethnic and religious minorities because of their ability to increase the government’s surveillance and tracking capabilities. Specifically, agency officials stated that several companies were added to the Treasury’s blacklist because of their involvement in creating software that can translate the Uyghur language to enable authorities to scan an individual’s device for illegal content. Tech firms charged with producing experimental software that can recognize and track members of specific minority groups were also targeted.

Increased blacklisting will likely trigger harsh retaliatory measures.

Overall, the U.S. Government’s use of blacklisting to carry out certain foreign policy initiatives represents one of the few similarities in the agendas of the current and former presidents. By issuing Executive Order 14032, President Biden authorized the continuation of efforts opposing the militarizing of Chinese companies, which were introduced via Executive Order during the Trump administration. In some ways, EO 14032 has even built on its predecessor by expanding the blacklists’ scope to not only include organizations operating in the materiel sector but also those involved in surveillance technology as well.

The United States’ increased reliance on diplomacy by way of trade sanctions does, however, carry with it the very real threat that China will retaliate with equally strict or even stricter trade regulations. In fact, such retaliatory measures may already be underway, as reports in 2020 indicated that officials in Beijing were creating their own list of “unreliable entities.” This Chinese blacklist intends to target those believed to have “severely damaged the legitimate interests” of Chinese companies through injurious actions, such as breaching contracts, failing to abide by market rules, and disrupting supply for noncommercial purposes. Additionally, such policies would apply to a broad array of countries, businesses, and people and may punish those listed with a variety of sanctions, including fines, trade bans, and restrictions on investment. Finally, although China has not publicly named any blacklisted entities yet, several major U.S. corporations could be in its crosshairs. These potential targets range from FedEx Corp., which was accused by the Chinese government of mis-routing shipments sent by the telecom giant, Huawei, as well as General Dynamics Corp. and Honeywell International Inc. for their involvement in a proposed U.S. arms deal with Taiwan. Ultimately, while the possibility and extent of China’s retaliatory measures remains unknown, the specter of additional blacklists continues to loom over international trade.