Biden Order Banning Investment in Chinese Military Companies Takes Effect

By Matthew McMullan
Aug 04 2021 |
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Another sign that U.S.-China economic relations are growing strained.

This week an executive order signed by President Biden went into effect, banning American investment in dozens of Chinese companies his administration has identified as linked to the Chinese military. These are companies, the president declared in this order first announced in June, that make up China’s military-industrial complex. There are a bunch of weapons manufacturers on there, but also companies like the telecom giant Huawei and China’s largest semiconductor manufacturer.

But while this executive order taking effect was covered, it didn’t generate a ton of American headlines. Perhaps that’s because (according to people who analyze this kinda thing for a living) U.S. investment entities of any notable size moved their money out of these type of businesses long ago.

“You don’t need a weatherman to know which way the wind blows.”

That’s because you don’t need a weatherman to know which way the wind’s blowing.

And that’s because this executive order is just the latest evidence of something that began happening under President Biden’s predecessor, Donald Trump: China and the United States are economically decoupling.

Everybody is familiar with the trade fights and the commercial blacklists that President Trump respectively engaged in and used as political bargaining chips in his dealings with the Chinese government. Well, the tone and delivery may be different, but in general Biden has continued to govern in this confrontational stance toward China.

A top State Department official said as much in May, saying “the era of engagement” with Xi Jinping’s China is over. The top Biden State Department official got into an argument with Chinese counterparts in his first face-to-face meeting with them in March. The administration formally declared what’s happening in Xinjiang a genocide this spring, and has warned businesses they risk U.S. sanctions if their supply chains run through there.

And China is doing its part, too. Whether its enforcing its own domestic purchasing rules or demanding that tech companies operating in China (Chinese or otherwise) store user data locally, its in many ways matching the U.S. tit for tat. It’s also doubling down on its policies meant to encourage domestic industry, notes a columnist today in the Wall Street Journal:

(In) the view of Chinese leaders, consumer internet companies inflict costs on society that aren’t reflected in private market values. Companies such as Ant threaten the stability of the financial system, online education feeds social anxiety and online games such as Tencent’s represent an “opium for the mind,” as one state-owned publication put it this week.

Conversely, Chinese leaders think manufacturing confers social benefits that market values don’t reflect. For decades, it has been how the country created jobs, raised productivity and disseminated essential skills and know-how. Now, to achieve parity with the West, they think China must be able to make the most advanced technology, and will use subsidies, protectionism and forced technology transfers to achieve that.

Greg Ip, The Wall Street Journal

The specifics in this executive order aren’t even entirely new. As explained in an article on Lawfare, the U.S. Defense Department has been tasked with maintaining this list of Chinese military industrial companies since 1999, but it only released such a list for the first time in June 2020 in response to congressional pressure. And this too only speaks to the sea change toward confrontation in US-China relations; now we’re maintaining this list, 20 years after our two major political parties came together to normalize trade relations with the Chinese government and in effect speed up de-industrialization in our own country.

Some of these Chinese firms aren’t taking their designations lying down. Two petitioned the federal government (one successfully) to be removed from this list earlier this year, while Huawei is spending a lot of lobbying money in Washington, D.C. to improve its chances for future American business. But, like the U.S.-China trade deal the Trump administration cut that is becoming more of a clear-cut failure by the day, I wouldn’t bank on its long-term success.

This isn’t happening overnight. Plenty of American brands manufacture in China, and will continue to do so. And it’s not exactly Cold War II: The Quickening. There are far too many economic ties between the U.S. and China to make a fair comparison to the decades-long conflict between the U.S. and the Soviet Union. The United States never engaged in hundreds of billions of dollars of annual trade with the USSR.

We are, however, in the middle of a shift that’s being pushed along by American public opinion, politicians and policymakers. American corporations will regularly get raked over the coals for things like Olympic sponsorships when China hosts the games. This is the new normal, and there will be economic consequences to this ongoing reorganization.