Blacklisting companies now common strategy for getting upper hand

Geneva/London — Tariffs are not the only weapon in a trade war. Countries are also turning to “blacklists” to restrict the economic activities of certain foreign companies. While such steps are often described as necessary to preserve national security, they are increasingly being deployed as policy tools to gain leverage in trade negotiations.

Where is this happening?

US President Donald Trump has placed dozens of Chinese companies on the US commerce department’s “entity list” — a classification that restricts their ability to purchase US software and components. China’s government is mulling ways to hit back with a blacklist of its own. The use of targeted trade restrictions to settle scores has also been deployed by export powerhouses Japan and South Korea in a renewal of their generational feud dating back to Japan’s colonisation of the Korean peninsula.

Who is on the US list?

The most prominent Chinese company on the list is Huawei Technologies, the giant telecommunications firm at the global forefront of fifth-generation, or 5G, mobile technology. The US most recently added 28 Chinese companies — including eight technology giants — for alleged human rights violations against Muslim minorities. Those companies include two of the world’s largest manufacturers of video surveillance products, Hangzhou Hikvision Digital Technology and Zhejiang Dahua Technology, and a pair of artificial-intelligence companies, SenseTime Group and Megvii Technology.

What does it mean to be blacklisted?

Those on the entity list are prohibited from doing business with US companies without first obtaining a government licence. Targets can be “businesses, research institutions, government and private organisations, individuals, and other types of legal persons,” according to the commerce department’s bureau of industry and security, which administers the list as part of US export administration regulations.

What is the purpose of the list?

It was created in 1997 as a way to sanction companies that helped build weapons of mass destruction. It has since been expanded to cover activities considered “contrary to the national security or foreign policy interests of the US.”

How is China responding?

By compiling its own blacklist of foreign companies, organisations and people it calls “unreliable entities”. These are defined as having “severely damaged the legitimate interests” of Chinese firms by not obeying market rules, violating contracts or blocking or cutting off supply for noncommercial reasons. China has already launched an investigation into FedEx Corporation for misrouting some parcels sent by Huawei and has pledged to retaliate against the Trump administration’s sanctions related to human rights violations.

What explains the increased use of blacklists?

It is part of what trade hawks in both governments see as a generational fight for technological and economic supremacy of the 21st century. The Chinese government has leveraged its  state resources to support industrial policies like “Made in China 2025” and a 2017 development strategy that aims to make China the world’s primary artificial intelligence innovation centre by 2030. The Trump administration views this as a threat to America’s economic and national security and has actively sought to curb China’s technological ambitions.

Bloomberg