The Trump administration has added two more Chinese companies to the list of firms it regards as part of the Chinese military: China’s aviation manufacturer Comac and technology giant Xiaomi. This decision was made due to a broadening of the scope of the military blacklist by the Trump administration, which has been targeting Chinese companies since it announced the list in mid-2020. We will explore the implications of this decision in the following sections.
Trump Administration Adds China’s Comac, Xiaomi to Chinese Military Blacklist
On Thursday, November 8th, the Trump administration announced that it was placing China’s Commercial Aircraft Corporation (COMAC) and smartphone maker Xiaomi Corporation on a military blacklist that restricts US citizens investments in companies believed to be linked to the Chinese People’s Liberation Army (PLA). The move is part of ongoing efforts by the US government to take a stronger stance against companies it believes are tied to China’s military efforts.
The US Department of Defense issued an Executive Order prohibiting persons subject to US jurisdiction from engaging in any investment involving COMAC or Xiaomi. This means that no US person can purchase or sell securities of either company listed in the United States, or engage in any other transactions related to these companies. However, there are several exceptions for certain transactions if needed for humanitarian purposes and activities for national security reasons.
The decision follows intense scrutiny from the Trump administration of certain Chinese-linked enterprises and investments that largely began with the 2017 critical infrastructure law put in place by Congress. The goal was primarily to protect critical U.S infrastructure from foreign interference and exploitation by state-owned entities such as Comac and Xiaomi. This use of economic sanctions has recently been re-emphasized due to the growing economic tensions between the countries, especially regarding Chinese technology firms such as ZTE, Huawei and COMAC.
This new move will likely lead to some international fallout; with analysts specifying that other countries may choose not to follow suit or make minor tinkering adjustments as they attempt not to further inflame tensions between two global superpowers – something that would have dire consequences around much of the world.*
Background
The Trump administration has taken a hard stance against Chinese companies, adding them to a military blacklist in response to reports of their involvement in the Chinese military. This blacklist bans US investors from owning shares in firms that the US government deems connected to the Chinese military.
For example, Comac is a Chinese aircraft manufacturing company while Xiaomi is a tech giant. This article will discuss why this blacklist was created, its implications, and what it means for the US-China relationship.
History of the US-China Trade War
The US-China trade war dates back to 2018, when the Trump administration adopted an increasingly unilateral and protectionist trade policy towards China. President Donald Trump has imposed tariffs on numerous Chinese imports since then, straining relations between the two countries. China responded with its tariffs, including retaliatory ones on a wide range of US imports and other restrictive measures.
This ‘tit-for-tat’ situation resulted in lacklustre economic performances for both countries and distressing political fallouts that have serious implications for global markets today. By early March 2020, the US had imposed 25% duties on around $250 billion of Chinese goods and 10% levies on certain items worth an additional $300 billion. In retaliation, Beijing has also slapped tariffs worth some $178 billion of American goods, indirectly hurting Chinese companies purchasing numerous components overseas.
Ultimately, the war hit small business owners, farmers and consumers felt the impacts of increased prices most strongly – leading to many lost jobs in the US due to high costs associated with importing goods from China. The impasse remains unresolved despite multiple rounds of renegotiations at top diplomatic levels between respective governments. On May 31st 2020, The Tramp administration added 33 more companies to its list, restricting financial transactions by US individuals/organisations with them unless The US Commerce Department granted a licence. Among them was Comac (China’s major state owned aerospace conglomerate) and Xiaomi ,a major player in the consumer technology market from China .
Previous US Sanctions on Chinese Companies
The Trump administration has added Comac and Xiaomi, two large Chinese tech companies, to a military blacklist. This is the latest action taken in response to economic tension with China over trade, technology, and security issues.
Previous US policy towards China has included sanctions and restrictions against several Chinese companies. For example, in August 2019, the US Department of Defense declared the “unacceptable risks” of investing in five major Chinese companies –– Beijing-based telecom-giant Huawei Technologies Co Ltd, Hangzhou Hikvision Digital Technology Co Ltd., Guangdong ZTE Corp., surveillance equipment maker Hytera Communications Corp., and Uniview Technologies Co Ltd.
In September 2019, President Donald Trump issued an executive order barring U.S. investors from buying securities from nine major Chinese firms deemed to have ties with the People’s Liberation Army (PLA). Those companies all make up pillars of China’s tech industry, including Semiconductor Manufacturing International Corporation (SMIC) , Dawning Information Industry Co.,Limited (CSSC), China North Industries Group Company Limited (NORINCO), Aviation Industry Corporation of China (AVIC), Commercial Aircraft Corporation of China (COMAC), United Aircraft Corporation Joint Stock Company Limited (UAC-JSC), Wison Engineering Services Co Ltd (WISON Engineering) , Advanced Business Service Business Solutions Group Co Ltd and Xi’an Microelectronics Technology Incorporated Division1.
Impact
The Trump Administration’s decision to add China’s Comac and Xiaomi to a military blacklist is expected to have a long-term impact on the US-China relations, especially in the tech and security domain. This decision is a measure to reduce Chinese influence in the global market and protect US companies from Chinese competition.
It is also expected to be a major blow to the Chinese economy and the companies in question. Let’s examine how this decision is expected to impact both countries.
Impact on Chinese companies
The U.S. The Department of Defense has added Chinese companies Comac and Xiaomi to its military blacklist, along with 27 additional affiliated entities, to contain Beijing’s alleged use of forced labour and technology theft. This move has significant implications for both businesses. For example, it will limit their ability to acquire American products or technologies with potential military applications or maintain relationships with U.S. entities in the defence/defence services industry.
The entrance of these two major Chinese names into a blacklist of companies caught up in claims of technological theft and forced labour will immediately impact their ability to conduct business and operate internationally. Both companies face restrictions including prohibitions on US investment, ban against sale of items produced by them or majority-owned suppliers; and ban against US personal engagement with Comac employees or certain Xiaomi employees. It is expected that these factors may cause financial damage for both companies.
A more serious consequence for Comac lies in its participation in the joint ventures established between Boeing Co., Airbus SE and other foreign suppliers from China’s one belt one road policy initiative projects.. Due to the effects caused by this listing, all these joint venture arrangements could suffer greatly unless sanctions currently imposed are revised at some later date. Finally, however serious the US sanctions on specific individuals within both entities may be, it is clear that Huawei Technologies Co., which is already facing significant sanctions from Washington continues as Chinese tech giant most acutely affected by current global situation due to its close relationship with Beijing’s military-industrial complex
Impact on US Companies
Including Chinese companies Comac and Xiaomi in the Trump Administration’s list of military-related entities means that US firms must now obtain government approval before they can do business with them. This has had an immediate and potentially far-reaching impact on various companies in the United States, particularly those with significant exposure to the Chinese market.
The order carries significant implications for US technology firms such as Google, Apple, Oracle, Microsoft and Qualcomm. These firms were already subject to restrictions on their dealings with Huawei Technologies — one of the only other companies on the blacklist — by order of last year’s Commerce Department ban on buying components from Huawei or its subsidiaries without prior approval. The restriction now extends to Comac and Xiaomi, meaning businesses engaging in transactions with these two Chinese firms must obtain special licences from their respective government authorities.
The new rules pose additional challenges for US cloud service providers such as Amazon Web Services (AWS), Azure Cloud Service from Microsoft, and Google Cloud Platform (GCP). While these companies have long sought market share in China, any agreements they seek to sign with either Comac or Xiaomi will likely be delayed due to licensing restrictions under the blacklist rule. Furthermore, any existing partnerships between these cloud providers and either company may need to be reevaluated according to current regulatory standards.
For some investors who hold stakes in US tech companies whose security products are widely used by both Comac and Xiaomi, this could lead to decreased revenues. Moreover, when tension between Beijing and Washington is growing over issues ranging from trade tariffs to cyber espionage allegations, this directive further complicates matters for already strained Sino-US relations.
Reactions
The Trump administration recently added China’s Comac and Xiaomi to a military blacklist, which has sent shockwaves across the political world. The implications of this decision have been met by many with caution, as there are numerous questions surrounding the legality of the move. In this article, we will explore the various stakeholders’ reactions and analyse the decision’s potential consequences.
Chinese Government’s Response
The Chinese government has condemned the Trump administration’s decision to add China’s Commercial Aircraft Corporation of China (Comac) and smartphone maker Xiaomi Corporation to its military blacklist.
Chinese Foreign Ministry spokesperson Zhao Lijian said in a statement that the US decision was “a serious violation of market competition principles, blatant protectionism and gross interference in the normal economic and trade activities between Chinese and American enterprises.”
Zhao called on the US to “immediately correct its wrong practices, withdraw relevant sanctions that violated international law, soberly recognize the major conflicts between China and itself, and avoid further damaging Sino-US relations. China’s legitimate interests.” He also warned of further countermeasures against any “wrongful practice” by the US.
The US State Department added Comac and Xiaomi to a list of companies owned or controlled by entities tied to the Chinese military. It also accused Comac of attempting to acquire American companies with military applications without notifying the US government, resulting in those firms being unable to use their inventions abroad or access US technology.
US Companies’ Response
The Trump Administration has recently added China’s Comac and Xiaomi, two of the largest tech firms in Asia, to a military blacklist, creating considerable tension between the world’s two largest economies. In response to this decision, some US firms have cut ties with these organisations.
Apple is one of several companies that have announced they will no longer do business with Comac and Xiaomi due to the recent addition to the military blacklist. However, Apple has stated that their perception of Chinese trade policies remains unchanged and they remain committed to engaging with Chinese companies in compliance with US laws.
Google has also suspended all business transactions related to specified areas with Comac and Xiaomi due to this new policy. They recently issued a statement saying that not abiding by US rules can jeopardise national security, strategic interests, foreign policy goals and increase the risk of global technology instability.
Intel is another corporation that declared that it will cease its involvement directly or indirectly with said companies, admitting it will “continue to comply with all applicable laws” from all countries where its operations are based.
As a result of these decisions from US giants Apple Inc., Google, Intel Corp., American firmware developer Broadcom Limited and other tech-oriented organisations, on-going deals between such companies and Xiaomi or Comac are likely to be significantly affected by this move from the Trump administration.
Conclusion
The Trump administration’s addition of two Chinese companies to the military blacklist has significant implications for the future of Chinese tech firms and the US-China trade relations. This decision is expected to immediately impact China’s major state-owned companies, such as Comac, and China’s larger tech firms such as Xiaomi. However, we will need to wait and see how both countries respond to this latest development and what impact it will have in the long run.
Implications of This Move on US-China Relations
The move by the Trump administration to add Chinese tech companies Comac and Xiaomi to a US-military blacklist will have far reaching implications on US-China ties. This comes when tensions between the two nations over technology trade have escalated dramatically in recent weeks.
This move, as well as other recent actions taken by the US government to limit Chinese technological investments in America, is seen as an attempt to prevent China from obtaining advanced American technology that it could use for military or espionage purposes. In addition, it signals the Trump administration’s growing frustration with China over what it sees as unfair economic practices such as intellectual property theft, forced transfer of sensitive technology and subsidies for mainland companies that are seen as “unfairly” competing against American firms.
The action taken against Comac and Xiaomi is likely to further inflame tensions between Washington and Beijing and may even lead to retaliatory measures by China. This could impact businesses operating in both countries and potentially ignite an international trade dispute that can spiral out of control. As this event unfolds, market watchers will closely monitor its impact on US-China relations.
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