Since President Trump first took office eight years ago, the United States has added almost 1,000 Chinese companies to a trade blacklist known as the Entity List. A rule change this week has effectively increased that figure several times over.
The rule, published Monday, automatically restricts exports by American companies to all majority-owned subsidiaries of companies already on the Entity List.
In a Big Picture we published in July we explained the impact the new rule could have. You can read that article here.
As we wrote then, the idea behind the move is to stop Chinese companies getting around the Entity List’s restrictions by registering new businesses and using them to continue buying from U.S. suppliers.
Any given Chinese company may have dozens of majority-owned subsidiaries who were not previously subject to these restrictions. Telecoms giant Huawei alone had 131 that were not subject to Entity List restrictions as recently as this summer, data from WireScreen shows.
The Commerce Department has also provided answers to several open questions about how the rule would be executed. For example, it says the rule will include aggregate ownership: That means that if a company has two or more Entity-listed shareholders with an aggregate stake of 50 percent or more, then it will be subject to export controls.
Experts say Chinese companies could still devise ways to skirt the rules.
“There is control on paper, and then there’s de facto control,” says Jimmy Goodrich, a senior fellow with the University of California Institute on Global Conflict and Cooperation. “When you set the threshold at 50 percent, when in practice 1 percent can mean de facto control, it still allows a lot of flexibility for a lot of Chinese companies to quickly restructure themselves and dodge these rules.”
Still, the rule change could lead American exporters to become more risk-averse, says Emily Kilcrease, senior fellow at the Center for a New American Security.
“You’re both going to have a legal umbrella that’s bigger, and then a chilling effect that could be substantial,” she says. “That’s a huge shift in terms of compliance.”
Noah Berman is a staff writer for The Wire based in New York. He previously wrote about economics and technology at the Council on Foreign Relations. His work has appeared in the Boston Globe and PBS News. He graduated from Georgetown University.
Eliot Chen is a Toronto-based staff writer at The Wire. Previously, he was a researcher at the Center for Strategic and International Studies’ Human Rights Initiative and MacroPolo. @eliotcxchen
