Display mode (Doesn't show in master page preview)

20 Jul 2021

International Economy

U.S. and China’s legal tools... the prelude to global leadership competition in the new era (Current Issue No.3246)


​Since China joined the World Trade Organization (WTO) in 2001, its economy has continuously seen accelerated growth. China's GDP  reached USD 14.72 trillion in 2020, resulting in the narrowing of the economic gap between China and the United States. Meanwhile, China's bargaining power has significantly increased, generating anxiety on the U.S. side. The approach to China during the Biden presidency has shifted from traditional retaliatory “trade war" measures issued on occasion to a long-term strategic approach as stipulated in the U.S. legal system. The United States has passed a key bill to combat Chinese competitiveness. The objectives can be divided, as follows:


  1. Laws to restrict Chinese companies' imports and exports of products and technology: Expanding upon the Trump administration's efforts to obstruct imports of technological products from China on the basis of cyber security risk, the Biden administration has also worked to prevent China from gaining access to U.S. technology in strategic industries like semiconductors, by adding a number of Chinese companies to the U.S. Department of Commerce's 'blacklist' or “Entity List"[1] which makes it compulsory for U.S. companies and individuals to obtain a license before engaging in trade with the abovementioned companies. This tool is being used under the Biden era as a way to continually curb Chinese influence. Additions to the list have been made possible by expansion of its scope and reasons for which entities are added, ranging from military and technological stability to issues of human rights.
  2. Laws to prohibit US investments in Chinese companies: On June 3, 2021, President Biden signed an executive order banning investment in 59 Chinese companies that are on the Non-SDN Chinese Military-Industrial Complex Companies (NS-CMIC[2]) List, wherein certain names are added to, or deleted from Executive Order 13959 that was issued during the time of President Trump and originally listed 31 companies. U.S. investors have been given 1 year to fully withdraw their investment from the companies on the NS-CMIC list, which the United States has deemed to be entities with operations that negatively affect national security, or firms with alleged ties to the Chinese military.
  3. Law to boost U.S. competitiveness in strategic industries: This is considered the most important legal tool for this battlefield. On June 8, 2021, the U.S. Senate voted 68-32 to pass the “U.S. Innovation and Competition Act of 2021" (USICA), a USD 250 billion bill that spans a five-year period. It is arguably the largest bill ever approved to support U.S. strategic industries.


What makes this competition interesting is the striking similarities between the legal tools used by the United States and China, which differ only in the time frames of their implementation. The United States has just begun to study a tool used to identify strategic industries (through the Innovation and Competition Act) which is a tool that China has long utilized through iterations of the five-year plan for national economic and social development that has clearly identified the strategic tech industries since the 12th five-year plan (2011-2015) up to the current 14th five-year plan (2021-2025).


Meanwhile, China has started to adopt the legal tools that the United States has always used to impose its sanctions. On June 10, 2021, the Chinese government passed the “Anti-Foreign Sanctions Law" to enhance its legislative power in countering sanctions from Western countries. Through this mechanism, the Chinese government has the right to determine which foreign individuals or organizations to add to their counter-sanction list if they are found to have both direct and indirect involvement in determining or operating in line with foreign sanctions which are prejudiced towards Chinese citizens or organizations. China has never retaliated in this manner before, but given its economic and technological preparedness, as well as its military power, China now has increased bargaining power and can choose to use this tool whenever it is deemed appropriate.


The sparring between the United States and China through the use of laws in establishing their national strategies is merely the beginning of their competition for global leadership in this new era, wherein the sporadic nature of their conflict has been incorporated into long-term strategic plans. The road ahead in this competition remains long, and its outcome unpredictable. The risks that come with this competition should be a chief consideration for businesspersons and investors in Thailand and abroad. Furthermore, Thailand will need to maintain balance between the two sides to maximize the benefit of economic development going forward.

[1] Under the governance of the Bureau of Industry and Security (BIS), an agency of the US Department of Commerce

[2] Under the governance of the Office of Foreign Asset Control (OFAC), an agency of the US Department of Treasury

International Economy