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Congressional Research Service, China’s Recent Trade Measures/Countermeasures, Sept. 20, 2021

Karen M. Sutter, specialist in Asian trade and finance, at the non-partisan Congressional Research Service wrote this report.
September 20, 2021

(The full report is available at the link below.)

Since early 2020, the government of the People’s Republic of China (PRC or China) has adopted a set of interrelated laws and measures that seek to enhance the government’s control over a wide range of commercial activity, within and outside of China. These measures signal the government’s growing assertiveness in advancing and aligning China’s national economic security tools to seek global economic, technology, and military leadership, and relatedly, control of core technologies and global supply chains. China’s measures include extraterritorial reach and also aim at countering trade and national security policy tools and actions that the United States and other governments have applied toward China, such as sanctions, export controls, and foreign investment review. While China’s measures mirror certain U.S. authorities in form, the government is applying its tools differently in ways that highlight core distinctions in the operating conditions and tenets of the economic, political, and legal systems in the United States and China. China’s measures pressure U.S. and other firms to abide by China’s policies and laws in ways that contravene U.S. authorities. Some of China’s actions appear to be aimed at pressuring U.S. and foreign firms to work around U.S. and foreign government authorities and potentially violate U.S. and foreign laws by penalizing firms that contravene China’s measures. Many of China’s measures provide for retaliation in an apparent effort to codify and legitimize the Chinese government’s propensity for trade retaliation and brinkmanship and the use of economic coercive measures to advance its economic and political objectives, often arguably in violation of global trade rules and norms.  

These recent measures are part of a broader effort by China’s leader Xi Jinping since 2014 to build out China’s national
security authorities to establish broad justification, jurisdiction, and mechanisms for China’s national security-related actions on trade, investment, and other economic activity. Central to China’s efforts are new measures that promote data sovereignty by expanding data localization requirements and placing data under new trade authorities, such as export controls and security review requirements for Chinese firms listing or operating overseas. These measures appear to enhance the Chinese government’s control over foreign data (e.g., personal identifying and health information), intellectual property (IP), technology, and research that is transferred to or developed in China and increase the potential risks to the United States of U.S. government, commercial, and academic activities in these areas. Relatedly, China in its 14th Five-Year Plan (2021-25) is seeking to extend the reach of its judicial decisions extraterritorially, including in the United States, in ways that might undermine U.S. authorities. China is challenging certain U.S. decisions and the scope of certain authorities in the United States and other foreign legal and regulatory systems that appear aimed at limiting the scope and reach of U.S. authorities over Chinese firms, including in trade, investment, IP, and antitrust matters. At a strategic level, the Chinese government is developing alternative trade, currency, and geospatial platforms to those controlled or influenced by the United States.  

The Chinese government says it is pursuing a policy of technology independence, but its approach involves sustaining its
access to U.S. and foreign technology, capabilities, research, and talent. China’s policy statements notwithstanding, China
appears to be using its new measures to gain access and control over advanced technology and capabilities from the United
States and U.S. allies and partners. Chinese firms, such as Huawei, are restructuring themselves and their foreign partnerships, arguably to avert U.S. national security restrictions and access U.S. technology, IP, research, and talent. China’s industrial policies continue to require U.S. and other foreign firms to transfer advanced capabilities to China, using structures that place these firms’ IP, R&D, and technology under China’s authorities and control. China’s announcements of “indigenous” breakthroughs are silent on the persistent ties to U.S. and foreign technology and talent that China seems to be leveraging to make many of these gains, including through research and open-source technology collaboration that China is increasingly pursuing as alternative paths in response to U.S. trade and investment controls.

Congress has actively sought to address its economic-related concerns about China through legislation, reports, and hearings. As the Biden Administration frames the U.S.-China relationship as one of “strategic competition,” Congress might examine the Executive Branch’s response to China so far to determine whether additional approaches and tools, as well as enhanced trade policy focus and bureaucratic agility, are needed to address China’s new trade measures and countermeasures, and the broader challenges that China’s approach may pose for the United States. Congress might consider how China’s measures affect U.S. policies and authorities and whether follow-on legislation or policy actions are needed. Congress might examine how legal challenges to U.S. government authorities by Chinese firms in U.S. courts could constrain U.S. government policy action and narrow the scope of U.S. authorities as they pertain to China. Congress also could consider how the United States might work with like-minded countries to enforce and shape new global trade rules, initiate new arrangements, and act jointly to impose consequences and counter specific Chinese trade policies, actions, and behaviors of mutual concerns.