China Trade Restrictions

The Biden Administration announced its intention to restrict Chinese access to certain technologies with military applications. Now the Treasury Department has proposed rules to implement this policy. Martin Chorzempa has reviewed the proposal, and assesses that it reasonably supports the Administration’s goal of a narrow derisking rather than a broader decoupling of trade with China.

Most investment in China would be allowed to continue without any new restrictions. Some types of investments would have reporting requirements, and a few types of investments would be prohibited. The banned category includes aspects of semiconductor manufacturing and design, artificial intelligence geared towards military, mass surveillance, and intelligence applications, and quantum technology. The reporting requirements mostly exempt publicly traded companies, as well as index funds, and as proposed will kick in within the 30 days after a deal closes, rather than before. Most US investments in non-Chinese firms would remain untouched, unless these firms were both involved in certain categories, such as semiconductors and AI, and heavily dependent on Chinese subsidiaries.

Going forward, two large questions remain. First, the proposed regime may not remain intact—political pressure from security hawks could lead to more intrusive oversight. Second, it is unclear to what extent other countries will participate in the plan to restrict Chinese technological access, and the ultimate success of the US measures depends significantly on multilateral implementation. But for a typical US investor, the impact of proposed US restrictions with respect to China appears to be quite limited.

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This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.