Beijing’s Warning Shot to Biden

By EDWARD FISHMAN and ASHLEY FENG

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Last Wednesday, as President Joe Biden was delivering his inaugural address on the steps of the U.S. Capitol, the Chinese government delivered a parting shot to the Trump administration: sanctions against 10 of its former senior officials, including Secretary of State Mike Pompeo and National Security Advisor Robert O’Brien.

Dubbing these officials “anti-China politicians” with “no regard for the Chinese and American people,” Beijing barred them and their families from visiting China, and prohibited companies and organizations associated with them from doing business in China. This is not the first time the Chinese government has imposed sanctions against U.S. officials. But these measures stand out for their ambition, targeting the most senior U.S. national security officials and handing U.S. companies a stark choice: break ties with the sanctioned Americans or jeopardize access to the Chinese market.

The move was not just a parting shot but a warning shot to the incoming Biden administration. The message: Aggressive policies toward China will be met with repercussions.

The Biden administration should take this move seriously. Gone are the days when the U.S. government could levy sanctions indiscriminately and expect no meaningful blowback. This should not deter the Biden team from pursuing a hard-nosed policy toward Beijing. Rather the lessons are that sanctions should be used judiciously and seldom, if ever, unilaterally; and that Washington must harden its defenses against sanctions levied by China and other countries.

China’s recent move did not appear out of thin air. Over the past few years, Beijing has worked hard to build its own legal and regulatory regime to counter U.S. sanctions and other tools of economic statecraft such as export controls. As the United States has honed its use of investment restrictions, export controls, and sanctions against China, Beijing has developed new tools and updated existing regimes to retaliate against U.S. individuals and companies for complying with U.S. regulations—all while implementing new strategies to reduce dependence on Western economies.

In just the last year, Beijing has accelerated this transformation by passing a new Export Control Law, updating its catalogue of prohibited and restricted export technologies, and creating an Unreliable Entity List. Taken together, these overhauls signal the creation of a more robust regulatory regime that Beijing can use to deploy against foreign companies and individuals at any point.

China has also made clear that it is prepared to force foreign entities to choose between doing business with the United States or China. On January 9, the Ministry of Commerce issued its first directive of 2021, which underscored that Beijing will prohibit firms from complying with any foreign rules or regulations that restrict transactions with Chinese firms. This is a shot against U.S. secondary sanctions, which pressure companies in third countries to cease business with sanctioned entities.

The expansion of Beijing’s claims of jurisdiction over foreign firms is not new. Article 32 of its new Export Control Law affirms that any company or individual, in any global jurisdiction, that endangers China’s national security will be held legally liable within China.

The sanctions against the former Trump officials seem severe. But there is still some uncertainty about how these sanctions will be enforced beyond visa restrictions. How Beijing will, or even if, punish companies associated with these individuals and those previously threatened with sanctions remains unclear. Opaque threats with mixed enforcement is keeping in line with China’s previous use of coercive economic measures. Beijing selectively implements its threats through informal processes to scare companies into complying with its requests all the time. However, China has also clearly stepped up the frequency and intensity at which it sanctions foreign countries and companies. For instance, in a dramatic escalation against a U.S. ally, Beijing placed restrictions on Australian imports due to Canberra’s calls for independent inquiries into the origin of COVID-19 and Chinese interference in Australian politics, which are estimated to have cost Australia $3 billion in 2020.

With last week’s sanctions, Beijing is seeking to use its economic might to conscript U.S. businesses into blacklisting American citizens. For many U.S. and foreign corporations that might otherwise recruit former high-level U.S. government officials, the benefits of employing Mike Pompeo won’t be worth the risk of losing access to the Chinese market. Consequently, the measures could make Pompeo and the other nine individuals radioactive, curtailing their future employment prospects.

Not everyone will shed a tear for these erstwhile Trump administration officials. But in wielding these new sanctions against members of the outgoing cabinet, Beijing is demonstrating that they can be used against any American individual or organization that infringes upon its interests. It calls to mind the Chinese government’s actions against the National Basketball Association in October 2019, after then-Houston Rockets General Manager Daryl Morey tweeted an image supporting pro-democracy protestors in Hong Kong. Following the tweet, China’s state-run television station stopped broadcasting NBA games, and Chinese companies cut ties with the league. All said, Beijing’s actions cost the NBA hundreds of millions of dollars.

These episodes demonstrate that U.S. policymakers must begin treating sanctions by other countries as a serious national security threat. Historically, U.S. officials have viewed the use of sanctions as virtually costless. The size and reach of the U.S. economy—and the strength of U.S. legal regimes—gave Washington so much asymmetric leverage that it rarely worried about what countries targeted by sanctions might do in retaliation. For instance, when the United States and the European Union imposed sanctions against Russia following its 2014 invasion of Ukraine, Moscow responded by slapping a ban on Western agricultural products. European farm producers quickly adapted and found alternative markets. Russian consumers, meanwhile, suffered as they were forced to consume “Russky Parmesan” and pay premium prices for genuine European foodstuffs re-exported via third countries. Along with more recent Russian actions, including barring certain EU officials from traveling to Russia in response to a fresh round of sanctions related to the poisoning of Alexei Navalny, the Kremlin’s countersanctions have done more to underscore Russia’s weakness than impose serious costs on their targets.

During the Trump administration, Washington did not shy away from hammering China with economic sanctions. Nevertheless, Beijing’s response was restrained. Previous sanctions threats were limited to U.S. companies that sell arms to Taiwan. These threats, however, have largely been seen as empty as the majority of the companies in question already limit their business with China and there was no follow-through from Beijing. Even as Beijing’s U.S. targets have become more high profile—including the sanctions placed on multiple U.S. senators and Congressional committees last summer over Hong Kong sanctions—the only clear implementation of these measures were visa restrictions against the members of Congress and their staff.

But the Inauguration Day sanctions may signal the dawn of a new era for U.S. sanctions policymakers. With Beijing’s new economic arsenal and increasingly aggressive foreign policy, U.S. sanctions policymakers will need to take potential retaliatory measures from China more seriously when deciding to impose new sanctions on Chinese entities and officials. Within this changing calculus, sanctions policymakers will not only have to think carefully about offensive policies but also how to defend against potential vulnerabilities inherent in intertwined supply chains.

In taking action in the minutes after Biden was sworn in as president, Beijing clearly meant to send a message. It may have even intended to intimidate the incoming team, underscoring that hawkish policies will not come cheap. To be sure, the Biden administration should maintain its resolve, and pursue the smart and tough approach toward Beijing highlighted by Secretary of State nominee Tony Blinken in his recent confirmation hearing.

At the same time, the Biden administration should view Beijing’s actions as a lesson that U.S. sanctions are not cost-free—and therefore, they should be used thoughtfully. Reports that the Biden administration intends to conduct a top-to-bottom review of U.S. sanctions programs bode well on this front. The same goes for plans to work in concert with allies on China policy.

But the Biden administration should go a step further, too. It should bolster American defenses against other countries’ sanctions. That means increasing intelligence collection on foreign sanctions policy and proactively identifying vulnerabilities in the U.S. economy that could become the target of sanctions. And it should rally U.S. companies to forge a united front against China’s economic aggression. Such a public-private network would share concerns about Chinese strongarm tactics and activate to respond collectively when necessary.

It may be difficult for any one company to stand up to the Chinese government. But if the Biden administration can bring firms together to speak with one voice, it is much likelier to register in Beijing.