More export restrictions | UFLPA list grows | Jumbo tariffs on shrimp
Chamber: U.S. will block exports to 200 more Chinese chip companies before Thanksgiving
Last Thursday, the U.S. Chamber of Commerce sent its members an email stating that the U.S. Department of Commerce is preparing to add an additional 200 Chinese semiconductor companies to its "Entity List "prior to the Thanksgiving break. Commerce manages the U.S.'s export control program; companies may not export to firms on the Entity List without a special license, or else risk being added to the list themselves. They also could face penalties if they export to anyone who then forwards restricted goods to parties on the Entity List.
The email also said that Commerce would issue a new set of restrictions blocking exports of high-bandwidth memory chips in December, as part of a broader set of restrictions targeting the AI sector. High-bandwidth memory is critical for AI research and training.
Our analysis: These changes were anticipated after components made by Taiwan's TSMC appeared in an advanced AI chip produced by Chinese company Huawei, which is on the Entity List. Under U.S. export control rules, sensitive technologies can be exported to parties not on the Entity List, but the exporter is responsible for conducting checks on the foreign recipient. In this case, those checks were not enough to keep the chips from being forwarded to Huawei. The new rules will likely try to close these gaps.
While Trump relied on tariffs in his first term to limit China's access to the U.S. market, Biden's trade policy has heavily relied on using export controls to try to cripple China's development in sectors with military or defense applications - particularly AI and quantum computing. Just as Trump's tariffs were not withdrawn by Biden but were a starting point for Biden's trade policy, Biden's export restrictions are unlikely to be drawn back by Trump.
In his second term, Trump is likely to simultaneously expand the use of tariffs, sanctions and export controls in order to minimize China's ability to extract economic, technological and military benefits from the U.S. market, while also incentivizing U.S. companies that have not already de-coupled their supply chains from China to do so. Export controls in particular are unlikely to be temporary measures or bargaining chips, as they are linked to sectors in which China has a military interest. The greatest risks are to firms that have underestimated Trump's willingness to accept economic and political costs on the road to "America First" and are still relying on China for much of their sourcing needs or customer base.
DHS blocks imports from 29 more Chinese companies due to forced labor
On Friday, the Department of Homeland Security announced it would add an additional 29 Chinese companies to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List. Goods produced by companies listed on the UFLPA Entity List are prohibited from entering the United States. The changes take effect on Monday, November 25.
Companies can be added to the UFLPA entity list due to either sourcing materials from the Xinjiang Uyghur Autonomous Region (XUAR), or working with the government of Xinjiang to recruit, transport, transfer, harbor, or receive oppressed minority groups from the XUAR.
Most of the companies being added are agricultural or food processing companies for which there is evidence that they source agricultural products - likely produced using forced labor - from the XUAR. Two companies, however, were found to be directly participating in government forced labor or forced relocation programs: Xinjiang Zhonghe Co., Ltd. (also known as "Xinjiang Joinworld"), and Xinjiang Nonferrous Metals Industry Group Co., Ltd. (also known as "Xinjiang Nonferrous").
Our analysis: Xinjiang Joinworld and Xinjiang Nonferrous have been named as suppliers to some of the largest players in the renewables space: battery manufacturers Contemporary Amperex Technology Co. Limited ("CATL") and Gotion High-tech Co. Ltd. ("Gotion"). Gotion has announced plans for new U.S. manufacturing facilities in both Michigan and Illinois. Both projects have been lightning rods for political controversy. Nonetheless, Gotion has already started signing master supply agreements with renewables firms such as Borrego and Ormat Technologies.
Xinjiang Joinworld and Xinjiang Nonferrous have also been named as suppliers to Jingwe Group and Minth Group. Jingwe Group is a multi-industry conglomerate for which Xinjiang Joinworld is alleged to be its largest aluminum supplier. Minth Group is a global auto parts manufacturer with annual revenue of $3B. The two companies are themselves suppliers to auto manufacturers including BMW, Honda, Volvo, Nissan, Volkswagen, Stellantis, and Hyundai.
The CCP's use of Uyghur forced labor in Xinjiang and cities and provinces across China will continue to be a flashpoint in the U.S. - China relationship during Trump's second term. China has not only refused to end its forced labor practices but has doubled down, asserting its sovereign right to manage its internal affairs as it sees fit. Credible evidence of forced labor has surfaced in sectors as diverse as agriculture, cotton and textiles, iron, steel, aluminum, semiconductors, and renewables. Companies doing business with China-owned suppliers anywhere in the world may expose themselves to financial and reputational risk due to upstream suppliers using forced labor, with little ability to hold their suppliers accountable due to China's nontransparent and tortuously interconnected supply chains.
Additional reading: Company List, XUAR Auto Supply Chains
USITC finds dumped and subsidized shrimp has injured U.S. industry
The United States International Trade Commission has found that government subsidies on shrimp from Ecuador, India and Vietnam and dumped shipments of shrimp from Indonesia have injured the domestic U.S. shrimp industry. The report detailing USITC's findings will be issued on or before January 6.
Meanwhile, the ruling clears the way for the Commerce Department, which investigates the extent of the dumping or subsidization, to instruct U.S. Customs and Border Protection to collect additional antidumping or countervailing duties (AD/CVDs) on imports of shrimp from those countries.
Our analysis: AD/CVDs have been used for many decades to address distortions in trade of specific products - the first U.S. antidumping law was passed in 1916. Today, international rules allow all World Trade Organization members to use AD/CVDs and they are a crucial part of the international trading system. However, the end result is the same as for other types of tariffs: the price of shrimp sold in the U.S. will go up. Under Trump, AD/CVD cases will continue to be brought, but Commerce will be more amenable to novel approaches to measuring dumping and subsidization that could drive up duty rates even further (one such example: new rules in 2020 treating currency manipulation as a subsidy).
Additional reading: USITC Announcement
