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U.S. – China Monthly Risk Update: Trade Restrictions on AI, Vehicles, and Chinese Firms

On January 13, the Bureau of Industry and Security (BIS) under the United States Department of Commerce (DOC) published a new Framework for Artificial Intelligence Diffusion intended to further curb the sale of advanced AI technologies to adversaries such as China and Russia. The sweeping restriction was released to close existing loopholes that have allowed blacklisted Chinese companies such as Huawei Technologies Co., Ltd. to circumvent existing limits and obtain cutting-edge semiconductor devices. 

The framework will categorize importing countries into three tiers. Close allies will be exempted from license requirements for AI-related chip and equipment trades. Countries of concern including China and Russia will be presumably denied such licenses to purchase AI technologies from U.S. companies. A cap will be set up for each country in terms of computational powers purchased between 2025 and 2027. The license requirement has been expanded to cover the export of certain non-open-source AI models which require advanced computing ICs. According to the source, gaming chips and supply chain activities are not regulated by the rule. 

Companies and countries will have a comment period of 120 days to suggest modifications and raise concerns with the incoming Trump administration which will have the final say over finalizing the new regulation. Industry groups such as Semiconductor Industry Association (SIA) have opposed the interim final rule for its potential harm on the competitiveness of U.S. chipmakers. Immediate effects have been reported with Chinese companies stockpiling potentially affected products. This has led to a surge in the prices of NVIDIA’s RTX 5090, a gaming GPU, to be launched on January 30. 

On January 15, the BIS also released another set of rules enhancing export controls on advanced semiconductor technology. The updated regulations have expanded license requirements for chip making facilities, or foundries, and packaging companies seeking to export semiconductors made on 14nm and 16nm nodes. The new rules also encourage chip firms to improve due diligence by reporting transactions involving high-risk customers that could be diverting chips to China. The rule has also added 16 entities to the Entity List including Singapore-based Sophgo Technologies Pte. Ltd. which allegedly diverted restricted TSMC chips to Huawei. 

An ongoing investigation by the U.S. Trade Representative’s (USTR’s) office could also see the U.S. impose restrictions on China’s mature process semiconductors. Unlike recent restrictions that have targeted advanced chips used in AI applications, this probe is assessing whether China’s has unfairly disadvantaged foreign chip companies in the manufacturing of silicon wafers and legacy semiconductors that are more widely used in the production of automotive, electronics, and medical device products. Additional restrictions such as tariffs on mature node semiconductors manufactured in China could prove to be more disruptive to traditional manufacturing operations as the country is currently the world’s largest supplier of mature logic chips larger than 28 nm as well as a major supplier of DRAM and NAND memory chips. 

Multiple Chinese industries come under scrutiny for unfair trade practices 

In addition to restrictions targeting China’s chip and biotechnology sectors, USTR has also announced the conclusion of a probe into unfair trade and manufacturing practices within China’s shipbuilding industry. The investigation was initiated in April 2024 over allegations that China has been engaging in unfair policies and practices including IP theft and state financial support to dominate the global shipbuilding sector. China is the world’s largest shipbuilder and the gross tonnage of ships built in China accounted for over 70% of global ship production in 2024. 

The Biden administration has not imposed any restrictions on China’s shipbuilding sector but the USTR report will likely provide the incoming Trump administration with enough evidence to impose restrictions targeting China’s shipbuilding sector. Such restrictions could involve imposing tariffs or even port fees on Chinese-built vessels seeking to dock at American ports – potentially resulting in increased logistics costs for the global shipping industry. 

Lastly, the Biden administration has also finalized plans to ban Chinese and Russian automotive technologies from the U.S. market. The rule was announced by the Department of Commerce on January 14 and bans cars from being sold in the U.S. market from the 2027 model year onwards if they contain software made by manufacturers with links to China or Russia. Cars with hardware components linked to either of these countries will also be banned in the U.S. from the model year 2030 onwards. The Department of Commerce also plans to announce separate measures for commercial vehicles like smart trucks and buses. 

More companies blacklisted for military and forced labor ties 

Chinese companies also continue to face scrutiny over potential ties to the Chinese military and forced labor in Xinjiang. For example, the U.S. BIS recently added 13 entities into the Department of Commerce’s Entity List on January 6. Most of the sanctioned companies are headquartered in China, mostly specializing in advanced optical machinery and electronics. 

Similarly, the U.S. Department of Defense also announced an expansion to its own list of companies with suspected ties to the Chinese military on January 7. Notable companies added to the list include the largest lithium battery manufacturer Contemporary Amperex Technology Co., Ltd. (CATL), global shipping line China COSCO Shipping Co., Ltd., and Tencent Holdings Ltd., a major game vendor and social media operator. The list does not impose any legal restrictions on the companies but the aforementioned firms are now at higher risk of being targeted by the Departments of Treasury and Commerce for sanctions and other trade restrictions. 

On January 14, the U.S. Department of Homeland Security (DHS) further expanded the Uyghur Forced Labor Prevention Act (UFLPA) Entity List with the addition of 37 new China-based entities. The addition marks the largest expansion of the UFLPA list to date and covers solar panel manufacturers such as Donghai JA Solar Technology Co., Ltd., textile producers such as Huafu Fashion Co., Ltd., silicon wafer and rod maker such as Jiangsu Meike Solar Technology Co., Ltd., and metal suppliers including Xinjiang Zijin Zinc Industry Co., Ltd. 

China has also expanded its own export control list over national security concerns with the recent addition of 28 U.S.-based entities. Companies mentioned in the list will also be banned from importing dual-use items from China. Most of the affected companies are in the aerospace and defense industry, including Anduril Industries, Inc., General Dynamics Corp., and Lockheed Martin Corp. 

Industrial materials at risk of retaliatory tariffs and controls from China 

China continues to respond to increasing trade controls from the U.S. by further tightening access to the country’s industrial metals market. For example, China’s Ministry of Commerce of China recently released rules on January 2 further tightening export controls for lithium processing technologies and products. The expanded rules cover anode materials, lithium carbonate which is an active ingredient in a mood stabilizer medicine, lithium hydroxide used in the production of greases and lubricants, and lithium alloy. Once finalized, companies will have to apply for permission from the Chinese government to export these technologies. 

Beijing is also set to apply provisional anti-dumping levies on imports of certain industrial plastics from the U.S., the European Union, Japan, and Taiwan from January 24. The levy applies to shipments of polyacetal copolymers and ranges from 3.8 to 74.9% and appears to have been imposed in response to U.S. tariffs on Chinese EVs and European investigations into Chinese steel exports. 

Trump administration likely to step up economic measures against China 

Economic restrictions targeting exports from China are likely to increase under President-elect Trump, who will begin his term on January 20. Trump has repeatedly criticized China’s trade practices and has stated his intention to reduce the U.S. trade deficit with the country by reshoring manufacturing and increasing tariff rates. 

Following his election, Trump has pledged to enact additional 10% tariffs on all goods from China along with 25% tariffs on Mexico and Canada immediately after taking office. Trump has also previously floated additional measures against Chinese products, including a flat 60% tariff rate on imports and a tariff rate of up to 100% on products from nations that seek to lessen their dependence on the U.S. dollar, which many assume could target China as well as other countries including Brazil and Russia. He has also threatened to revoke China’s Most Favored Nation status, a status which currently lowers many trade barriers between the two countries. 

Outgoing President Joe Biden’s policies on China, which included additional tariffs and trade barriers towards companies that violated human rights or national security concerns, remain likely to continue under the Trump administration. While Biden used more targeted tariffs to focus on specific high-profile products, Trump’s policies are likely to be more sweeping and apply to a wide variety of goods. Continued expansion and enforcement of the UFLPA is also likely to continue under Trump as Marco Rubio, the presumptive nominee for Secretary of State, was one of the main sponsors of the legislation in the U.S. congress. 

 

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