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U.S. Adds to China Investment Ban as Trade Talks Resume

The U.S.-China economic relationship under the Biden Administration, while lacking the bombast of President Trump, has been highlighted by a continued “get tough” approach. However, recent reports indicate that there is optimism surrounding the potential resolution of the ongoing trade war. Elements of the economic relationship will be open for conflict resolution, albeit with a renewed and active focus on perceived threats to national security. 

Biden has continued to pursue measures aimed at addressing “threats” from China as illustrated by his recent expansion of Executive Order 13959, which was originally declared on November 12, 2020. It amends the previous order (outlined in a November 2020 investment blog) “by creating a sustainable and strengthened framework for imposing prohibitions on investments in Chinese defense and surveillance technology firms.” The order names 59 companies (up from 31 in the original order) with links to the defence and/or surveillance technology sectors of the Chinese economy. U.S. citizens are prohibited from investing in all firms listed. Chinese Ministry of Foreign Affairs (MFA) spokesperson Wang Wenbin responded by stating that the U.S. move violates the “law of the market and undermines the rules and order of the market” and that China would “take necessary measures to resolutely safeguard the legitimate rights and interests of Chinese companies.”

This news comes after parallel positive reports of two video calls between Liu He (Chinese Vice Premier and chief negotiator in previous trade war talks), Katherine Tai (U.S. Trade Representative), and Janet Yellen (U.S. Treasury secretary). Reuters notes that the conversations, which revolved around Sino-U.S. trade, macro-economic situations and domestic policies, were “the first formal engagement between the two sides on trade and economic issues under the Biden administration.” When asked if Biden’s aforementioned executive order could derail “normal communications on economy and trade” between the two nations, Wang largely dodged the question but reiterated the line that “China-US economic and trade ties are mutually-beneficial.”

Both sides will continue to spar over national-security, high tech and other sensitive dimensions of the economic relationship. But there is clearly a willingness to compartmentalize the conflict and potentially improve select (and important) elements of the economic relationship, including trade. The Global Times, quoting Tu Xinquan of the University of International Business and Economics in Beijing, notes that “[w]hile it’s unlikely that the Biden administration will immediately remove all the tariffs, it’s possible for the tariffs to be rolled back in a gradual manner.” This could then lead to China “tak[ing] corresponding measures.” This will likely depend on the willingness of one side to make a “first move” on the tariff front – a difficult decision for the leadership in both countries.

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