As trade tensions between the U.S. and China continue to flare up, Chinese technology companies operating on American soil have become the latest targets of the Trump administration. And Trump’s recent targeting of Chinese-owned social media app TikTok is being seen as something of a harbinger for future sanctions.

 

ARE WE LIKELY TO SEE THE U.S. GOVERNMENT CONTINUE TO TARGET CHINESE TECHNOLOGY FIRMS IN THE COMING MONTHS?

Haiyan Tang, a partner in the litigation department of Paul Hastings, tells Asian Legal Business that we can expect to see Chinese tech firms continue to be targeted in the future. “Particularly in light of new rules issued by the U.S. Commerce Department to limit Huawei’s access to chips incorporating U.S. technology, the Trump administration’s recent moves against TikTok and WeChat should be seen as part of a broader series of moves,” says Tang.

“Additionally, President Trump has made comments recently confirming that other Chinese technology firms could become targets. Our sense from keeping our fingers on the pulse of the Hill is that there will be more actions against Chinese companies before the November election in the U.S.,” says Tang.

But Trump is not isolated in his focus on Chinese companies operating in the U.S. More broadly, this is a stance adopted by both sides of the political divide — and it’s far from a recent concern.

“Democratic and Republican lawmakers increasingly share similar views on the perceived threat of Chinese technology companies. As early as 2012, under President Obama’s administration, Congress already raised concerns about security threats allegedly posed by China’s tele-communications corporations,” explains Tang.

A flurry of activity over the past few years, including the changed stance on well-known Chinese technology companies, have served to illustrate this shift in attitude.

“Trade wars, the DOJ’s ‘China Initiative,’ along with tightening of audit requirements over U.S.-listed Chinese companies, plus the recent moves against TikTok, WeChat and Huawei have only heightened the U.S. government’s apparent commitment to pursuing a strategy of enforcement and restrictions against Chinese companies,” Tang adds.

ARE THERE AVENUES TO DISPUTE THE SANCTIONS — AND ARE THESE BEING EXPLORED?

There are legal avenues to dispute the U.S. government’s restrictions against Chinese companies, but these may prove difficult to access.

“The president’s authority in instituting sanctions is quite broad, and challenging that authority in the courts can be a time-consuming and costly course of action,” says Tang of the mechanisms to challenge such restrictions.

Some companies may apply for special licences, should the regulations restrict their ability to do business, says Tang, noting: “Licenses are often broadly granted to all entities or all U.S. persons for certain periods of time or certain types of trans-actions, where sanctions might otherwise hamper transactions seen as being in the U.S. national interests, but where these general licenses do not apply, companies can apply for specific licenses.”

But for Chinese companies in the U.S., there are likely to be broader ramifications as a result of such changes. An increased emphasis on compliance is likely to be part of this.

“Chinese companies in the U.S. may have to increase their resources and investment in effective compliance programs to ensure ethical and compliant conduct not only in the U.S., but globally. We expect to see this trend of increased compliance investment to continue,” says Tang.

And longer term, this shift is likely to cause deeper divisions.

“These moves may be part of a broader realignment on top of a partial ‘decoupling’ between the world’s two largest economies,” suggests Tang. “With uncertainty around what hardware or software may be permissible for use in government contracts or cross-border trade from one year to the next, companies may look for more localized supply chains or segregated sources of technology – avoiding, for example, using chips manufactured with U.S. technology in Chinese hand-held sets, or operating systems from U.S. companies in smart products (refrigerators, cars, etc.) marketed in China.”

OUTSIDE THE U.S., WHAT IMPACT MAY THE SANCTIONS HAVE?

The latest developments are likely to cast a shadow beyond U.S. borders. Further afield the sanctions may restrict both U.S. and non-U.S. entities’ trans-actions — depending on their scope.

“Even transactions by two non-U.S. entities can be caught by sanctions if they involve U.S. goods, technology or even U.S. financing,” warns Tang. “Sanctions may therefore have major impacts even outside the U.S., by restricting the actions of U.S. companies abroad or dictating what types of transactions non-U.S. entities are willing or able to engage in.”

As a result, many Chinese companies are placing a greater emphasis on compliance, and looking to mitigate risks where they can, in a bid to avoid being targeted. “Companies have increased their resources and investment in effective compliance programs to ensure ethical and compliant conduct not only in the U.S., but around the world as well. This has proven especially valuable for Chinese companies with substantial business in the U.S., which can subject them to U.S. jurisdiction in certain respects. We expect to see increased compliance investment continue,” she adds.

 

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