President Donald Trump plans to increase sanctions on China in his final months in office, according to multiple sources. For businesses with interests in China, the situation warrants close monitoring, particularly given that President-elect Joe Biden may not immediately reverse course when he takes office in January.

Recent Sanctions Against China

On November 13, 2020, President Trump issued Executive Order 13959, “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies.” The EO prohibits U.S. investors from purchasing the securities of a “Communist Chinese military company.” In support of the ban, the Executive Order maintains that the “People's Republic of China’s (PRC) military-industrial complex, by directly supporting the efforts of the PRC's military, intelligence, and other security apparatuses, constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States.”

The Executive Order expressly prohibits “any transaction in publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities, of any Communist Chinese military company as defined in section 4(a)(i) of this order, by any United States person.” The definition of  “Communist Chinese military company” includes those previously identified pursuant to Section 1237 of the National Defense Authorization Act for Fiscal Year 1999 (the Department of Defense identified 31 companies in June and August 2020), along with any person determined in the future by the Secretaries of Defense or Treasury to meet the criteria of a “Communist Chinese military company.” Meanwhile, the definition of “US person” includes any U.S. citizen or permanent resident alien, any person in the United States, or any entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches)

The prohibitions will take effect on January 11, 2021. For companies identified as Communist Chinese military companies after the date of the Executive Order, the prohibitions will take effect 60 days after their identification. Violations of the EO may result in civil and criminal penalties under International Emergency Economic Powers Act (IEEPA).

Additional China Sanctions Likely Under Trump Administration

Officials within the Administration have stated that further sanctions against China are a top priority as President Trump enters the “lame duck” phase of his presidency.

In recent remarks to the Ronald Reagan Institute, Secretary of State Michael Pompeo stated that the U.S. is “not finished yet” when it comes to getting tough on China. He characterized the Chinese Communist Party as a “Marxist-Leninist monster” whose rule is “authoritarian, brutish and antithetical to human freedom.”

According to an Axios report, the Trump Administration is contemplating expanding the DoD list of prohibited Chinese military companies, as well as cracking down on China’s use of forced labor in the fishing industry. President Trump’s new Defense Secretary Christopher Miller has also been ordered to focus on Chinese threats, including the county’s use of cyber warfare.

The actions taken by the Trump Administration are also intended to make its China policy difficult to reverse once President-elect Biden takes office. John Ullyot, National Security Council spokesperson, told Axios: "Unless Beijing reverses course and becomes a responsible player on the global stage, future US presidents will find it politically suicidal to reverse President Trump's historic actions."

Key Takeaway

Businesses, particularly those with interests in China, are facing a tumultuous few months in light of the Presidential transition and escalating COVID-19 crisis. With this in mind, it is imperative to stay on top of legal updates and consult with experienced legal counsel regarding how any changes, such as sanctions and investment restrictions, may impact your operations.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Teddy Eynon, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.