Impacts of Export Controls, Trade Restrictions in US-China Competition Unclear Despite Increasing Use, Experts Say

Export controls and trade restrictions are becoming an increasing part of U.S.-China competition despite little clarity about whether they will work in the long term, trade experts said. The measures also seem to lack a clear focus within both the U.S. government and China, with officials disagreeing on how best to impose restrictions, the experts said.

“There are deep divisions within the Trump administration on what the objectives are,” said Peter Harrell, a senior fellow with the Center for a New American Security, speaking during an April 24 webinar hosted by the think tank. “China too wants to reduce its dependence on the United States … but I think they also have divergent views internally on how broad they want the decoupling to be and what exactly their objectives are.”

Harrell said the U.S. has seen an “explosion” of restrictive economic tools against China over the past two years, pointing to export controls against Huawei (see 2004070024), which Harrell called unprecedented. And although these restrictions are becoming a “defining” feature of U.S.-China competition, questions remain about whether they are actually working, said Elizabeth Rosenberg, director of CNAS’s energy, economics and security program. “There's a mixed record here,” she said. “While it's clear that they have created economic effects, economic harm and certainly powerful political outrage and diplomatic fallout, it's also clear that they're not creating political capitulation.”

Rosenberg said the U.S. does not have a “strategic framework in which to deploy these tools,” which has led to an assortment of competing restrictions and confusion within government and industry. “These tools can clash, and they’re not clear to people in the United States and China and elsewhere … which can create a greater opportunity for misunderstanding and miscalculation,” she said.

Although the impacts of some tools may be unclear, Harrell said increased U.S. foreign investment restrictions, including the implementation of the Foreign Investment Risk Review Modernization Act (see 2002270049), has “caused a tremendous reduction in Chinese” investment in the U.S. But other tools have produced fewer results, Harrell said, such as U.S. sanctions against Huawei. Huawei increased its revenue by about 20% from 2018 to 2019, he said. In addition, China’s Bank of Dandong, which was sanctioned by the U.S. in 2017 for ties to North Korea, “actually grew in 2018,” according to an April 24 CNAS report on U.S.-China competition. “We've seen Chinese companies subject to some of these measures continue to stay in business,” Harrell said. “So I think we need to look very carefully at what we're actually achieving here … before we double down on any of these measures.”

As the U.S. presidential election draws closer, Harrell said industry might see more Chinese trade restrictions as President Donald Trump seeks to renew his “hawkish line on China.” As the use of these tools increases, the administration should better align its strategy to make sure the restrictions are effective, Harrell said. “Policymakers need to think more rigorously about matching specific tools against specific goals, about having a realistic set of goals,” he said, “and understanding how the tools are going to actually achieve those goals.”