Summary The rules lay the legal groundwork for punishing foreign companies that seek to shift their sourcing away from China
WASHINGTON (Reuters) – Beijing rolled out new trade rules this month that have alarmed US businesses and which analysts say could seriously undercut American efforts to reduce supply chain dependence on China.
But the Trump administration's reaction has been uncharacteristically muted – US officials have so far not spoken publicly about Beijing's move.
The rules, announced just weeks ahead of President Donald Trump's May 14-15 summit with Chinese leader Xi Jinping, lay the legal groundwork for punishing foreign companies that seek to shift their sourcing away from China.
The Trump administration has urged businesses to "derisk" – to be less dependent on goods from China – and retake "sovereignty" in strategic industries, including critical minerals and medicines. Beijing's new rules effectively push US and other foreign businesses in the other direction.
One US official told Reuters on condition of anonymity that the timing of Beijing's announcement, ahead of Trump's China trip, suggested Beijing was testing how eager the White House is to maintain the pause in the trade war, which started early last year with a US tariff broadside and Chinese retaliatory levies.
"It's a clear attempt to stop derisking," the official said.
Business groups have sounded the alarm about the Chinese regulations. The American Chamber of Commerce in China told Reuters China could cut purchases from foreign firms with little consequence, while foreign companies could face investigation by Chinese authorities for reducing their dependence.
"Washington's response so far has been silence. That risks signaling weakness," said Craig Singleton, a China expert at the Foundation for Defense of Democracies (FDD) think tank.
With the summit approaching, the administration appeared to want to avoid escalating publicly, he added.
White House spokesman Kush Desai did not respond directly to Reuters' questions on the measures, stating only that the Trump administration "will continue to leverage every bit of America's economic might to safeguard our national and economic security."
The Treasury Department and the Office of the US Trade Representative did not respond to Reuters' request for comment.
DEPARTURE FROM TRADE BRINKMANSHIP
The Trump administration's reticence on the new rules, which many in US industry see as a shot across the bow, is a departure from the bilateral trade brinkmanship that characterized the lead-up to Trump's October meeting with Xi in South Korea.
In Busan, the two sides ultimately reached an uneasy trade truce, but Trump had threatened to cut off all US software exports to China and levy 100% tariffs on Chinese goods in response to Chinese controls on critical minerals exports.
China's new measures state that foreign entities that take actions "such as suspending normal transactions with our nation's citizens or organisations," are subject to investigation and punishment.
The rules do not highlight specific industries for enforcement but say Chinese agencies will develop a "key sectors list" to safeguard "circulation of raw materials, technology, equipment" and other products.
The measures could affect a wide range of companies.
US pharmaceutical companies, for example, have increasingly looked to move some production and sourcing to India and other countries that have less geopolitical rivalry with Washington.
Under China's new rules, such actions could be seen as a threat to China's security, resulting in companies facing investment and import or export bans, and seeing staff prevented from entering the country.
A second set of Chinese regulations published days later lays out punishments for foreign firms that comply with "unjustified extraterritorial jurisdiction," Beijing's term for US sanctions and export controls.
CHINA EMBOLDENED
Analysts and some US officials worry about the precedent set by Beijing's measures.
"Left unaddressed, these new rules will normalize supply chain coercion and accelerate China's development of other economic weapons to lock in corporate dependence and prevent supply chain shifts out of China," FDD's Singleton said.
Two US industry sources told Reuters the Trump administration had been briefed by industry groups on the rules and the new leverage they gave China.
The US officials had been in "listening mode," but offered no concrete stance or objection, said the sources, who spoke to Reuters on condition of anonymity in order to speak candidly about their discussions with the administration.
"It's almost like loading the gun without actually firing it," one of the industry sources said of the Chinese rules, adding that they believed it was unlikely that the US would respond ahead of the summit given the administration's interest in "preserving strategic stability."
Another US business source said acknowledging China's new supply chain rules would require the Trump administration to fight back despite limited appetite for escalation.
Reva Goujon, geopolitical strategist and a director at Rhodium Group, said the measures are so broad that US negotiators could accuse Beijing of "violating the spirit of Busan and basically the whole idea of trade and investment reciprocity."
"China is clearly in a much more emboldened position," Goujon said.
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