Chapter 6: Trade Controls - Tariffs, Quotas, and Export Controls

Executive Summary

On March 22, 2018, President Trump signed a presidential memorandum imposing tariffs on approximately $50 billion worth of Chinese goods under Section 301 of the Trade Act of 1974, citing China's "unfair trade practices" related to technology transfer and intellectual property (USTR 2018). China immediately retaliated with equivalent tariffs on U.S. agricultural products, aircraft parts, and automobiles. What began as targeted measures escalated over 18 months into tariffs affecting more than $360 billion in bilateral trade—the largest trade war between major economies since the Smoot-Hawley Tariff of 1930. The era of "free trade as shared prosperity" was over; the era of "trade as strategic weapon" had begun. When the Biden administration took office in January 2021, it maintained nearly all Trump-era tariffs while expanding export controls, signaling a bipartisan consensus that traditional trade policy had transformed into a tool of strategic competition.

Trade controls—tariffs, quotas, and export restrictions—occupy unique territory among economic weapons. Financial sanctions can freeze bank accounts with a keystroke. Investment screening blocks individual transactions. But trade controls reshape entire industries and disrupt the daily operations of millions of businesses and workers. They are blunt instruments with broad collateral damage—which makes their proliferation in strategic competition all the more consequential.

First, trade policy has evolved from primarily economic objectives to strategic competition tools. Historically, tariffs served revenue generation and infant industry protection. Today's trade measures increasingly target specific countries and technologies for national security reasons, blurring traditional distinctions between economic policy and security policy. Section 232 steel tariffs (ostensibly for national security) and Section 301 China tariffs (for technology competition) exemplify this transformation.

Second, the multilateral trade architecture built after World War II is eroding under strategic competition pressures. The World Trade Organization's dispute resolution system faces paralysis as major powers ignore rulings or block appellate appointments. Export control regimes like the Wassenaar Arrangement struggle to adapt to dual-use technologies where commercial and military applications are inseparable. This erosion creates uncertainty but also flexibility for states pursuing coercive trade policies.

Third, effectiveness of trade-based coercion is highly context-dependent. Tariffs may redistribute trade flows without compelling behavioral change. Export controls can slow adversary capabilities if multilaterally coordinated but leak through third countries if unilateral. Success depends on market concentration, substitutability, alliance coordination, and the target's tolerance for economic pain. Understanding these dynamics helps policymakers design more effective measures and anticipate responses.

The analysis moves from tariff mechanisms and trade wars through export control regimes, multilateral versus unilateral approaches, and WTO compliance challenges. Government Tools Boxes detail the legal authorities underpinning U.S. trade controls (Section 232, Section 301, Export Administration Regulations). Case studies examine the U.S.-China trade war (2018-present) and CoCom export controls against the Soviet Union, with Chinese perspectives on counter-coercion woven throughout.

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Tariffs and Trade Wars

Tariffs—taxes on imported goods—represent the oldest form of trade policy, predating modern states. Yet their function has transformed dramatically. Through the 19th century, tariffs primarily generated government revenue (comprising 80-95% of U.S. federal revenue until the income tax). In the early 20th century, they protected infant industries from foreign competition. Today, tariffs increasingly serve as coercive instruments targeting specific countries to compel policy changes or degrade adversary capabilities. This section examines modern tariff mechanisms, their evolution into tools of economic statecraft, and effectiveness in achieving strategic objectives.

Legal Authorities for U.S. Tariffs

The United States employs multiple statutory authorities to impose tariffs, each with distinct procedural requirements and substantive standards:

Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. § 1862) authorizes the President to adjust imports of articles and derivatives if the Secretary of Commerce determines such imports threaten to impair national security. This remarkably broad authority requires no congressional approval and faces minimal judicial review. The Commerce Department's Bureau of Industry and Security conducts investigations considering:

• Domestic production needed for projected national defense requirements

• Capacity of domestic industries to meet those requirements

• Existing and anticipated availabilities of human resources, products, raw materials, and production equipment

• Growth requirements of domestic industries

• Impact of foreign competition on specific industries

• Displacement of any domestic products causing substantial unemployment

• Serious effects upon national security from imports

The Trump administration expansively interpreted "national security" to include economic security, using Section 232 to impose 25% tariffs on steel imports (March 2018) and 10% on aluminum imports, affecting imports from close allies including the European Union, Canada, and Mexico. The Biden administration maintained these tariffs while negotiating exceptions for allies, demonstrating bipartisan acceptance of broad Section 232 application.

Precedent Alert: The "National Security" Loophole The Trump administration's broad interpretation of "national security" under Section 232 set a dangerous precedent. By including economic security and industrial base concerns, this interpretation opened the door for virtually any import restriction to be justified on national security grounds. Other countries have since followed suit, invoking similar security exceptions for their own trade restrictions—eroding the rules-based trading system that the U.S. itself built.

Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411) authorizes the U.S. Trade Representative (USTR) to investigate and take action against foreign government practices that are "unjustifiable," "unreasonable," or "discriminatory" and burden U.S. commerce. Unlike Section 232's national security focus, Section 301 addresses unfair trade practices including:

• Intellectual property rights violations

• Denial of market opportunities

• Export targeting or market distortion

• Practices failing to provide adequate market access

• Technology transfer requirements

• Trade agreement violations

Section 301 requires USTR investigation (initiated by petition or self-initiated), public comment periods, and consultation with foreign governments. If USTR determines violations exist and diplomatic resolution fails, the President may impose retaliatory measures including tariffs, import restrictions, or suspension of trade agreement benefits. The Trump administration's August 2017 Section 301 investigation into China's technology transfer practices culminated in tariffs affecting over $360 billion in Chinese imports (USTR 2018; Bown and Kolb 2021)—the largest Section 301 action in history.

Section 201 of the Trade Act of 1974 (19 U.S.C. § 2251) provides "safeguard" relief for domestic industries seriously injured by imports, regardless of whether foreign practices are unfair. The International Trade Commission investigates injury claims and recommends remedies; the President decides whether to impose restrictions. Recent applications include solar panel tariffs (2018, later mostly removed) and washing machine tariffs (2018-2023). Section 201 applies on a most-favored-nation basis (affecting all countries), unlike the country-specific targeting possible under Section 232 or 301.

The U.S.-China Trade War: Escalation and Impacts

Figure 6.1: U.S.-China tariff rates and trade flows from 2018-2024, showing the escalation of the trade war.

The 2018-2024 U.S.-China trade war illustrates modern tariff-based coercion dynamics. What began as targeted technology-sector tariffs escalated through tit-for-tat retaliation into economy-wide restrictions affecting consumer goods, agricultural products, and industrial inputs.

Phase 1: Initial Escalation (2018)

• July 2018: U.S. imposes 25% tariffs on $34 billion of Chinese goods (machinery, electronics)

• August 2018: Additional $16 billion in U.S. tariffs; China retaliates equivalently

• September 2018: U.S. imposes 10% tariffs on $200 billion in Chinese goods (consumer products, textiles)

• December 2018: 90-day truce announced at G20; China agrees to purchase more U.S. agricultural products

By year-end, U.S. tariffs affected $250 billion in Chinese imports; Chinese retaliatory tariffs affected $110 billion in U.S. exports. U.S. tariffs averaged 12% on Chinese goods (up from 3% pre-escalation); Chinese tariffs averaged 18% on U.S. goods (up from 8%).

Phase 2: Maximum Pressure (2019)

• May 2019: U.S. raises tariffs on $200 billion tranche from 10% to 25% as negotiations stall

• June 2019: Trump threatens tariffs on remaining $300 billion in Chinese imports

• August 2019: China allows yuan to depreciate below 7.0 per dollar; U.S. Treasury designates China a "currency manipulator"

• September 2019: U.S. imposes 15% tariffs on $112 billion (consumer electronics, apparel, footwear); delays tariffs on remainder

Peak U.S. tariff levels: 25% on $250 billion in imports, 15% on $112 billion, affecting $362 billion total (66% of U.S. imports from China). China retaliated with tariffs ranging from 5% to 25% on $185 billion in U.S. exports (over 70% of U.S. exports to China).

Phase 3: "Phase One" Agreement (2020)

On January 15, 2020, the U.S. and China signed the "Economic and Trade Agreement Between the United States of America and the People's Republic of China" (Phase One Agreement), featuring:

• Chinese commitments to purchase $200 billion in additional U.S. goods and services over 2020-2021 (agriculture, manufactured goods, energy, services)

• Intellectual property protections for patents, trademarks, copyrights

• Technology transfer provisions prohibiting forced transfers

• Financial services market access

• Enforcement mechanism allowing tariff retaliation for non-compliance

In exchange:

• U.S. canceled planned December 2019 tariff increases

• U.S. reduced September 2019 tariff tranche from 15% to 7.5%

• U.S. maintained 25% tariffs on $250 billion in Chinese goods

COVID-19 pandemic derailed implementation. China purchased only 58% of committed goods in 2020 and 71% over 2020-2021 combined—a $140 billion shortfall (Bown 2022). Neither side invoked enforcement provisions, effectively rendering the agreement dormant by 2022.

Phase 4: Biden Continuity and Expansion (2021-2024)

The Biden administration conducted a Section 301 tariff review in 2021-2022, ultimately maintaining nearly all Trump-era tariffs while announcing targeted changes:

• May 2022: Removed tariffs on 352 excluded product categories (mainly inputs for U.S. manufacturers)

• September 2022: Initiated new Section 301 investigation into China's semiconductor, maritime, agriculture policies

• May 2024: Announced quadrupling of tariffs on Chinese electric vehicles (from 25% to 100%), doubling tariffs on solar cells (to 50%), and increasing tariffs on batteries, steel, aluminum, and medical equipment

As of 2024, U.S. tariffs affect $360 billion in Chinese imports (average effective rate 19.3%); Chinese retaliatory tariffs affect $180 billion in U.S. exports (average 20.7%). Both countries granted some exclusions and exemptions, particularly for products lacking domestic alternatives.

Economic Impacts of the Trade War

Assessing trade war impacts requires distinguishing direct effects (tariff incidence) from indirect effects (supply chain reconfiguration, uncertainty).

Trade Flow Changes

U.S. imports from China fell from $539.5 billion (2018) to $452.2 billion (2019), a 16.2% decline (U.S. Census Bureau 2020). However:

• Much trade diverted through third countries: U.S. imports from Vietnam surged 36% (2018-2019), from Mexico 10%, from Taiwan 25%

• Some products (furniture, electronics) saw minimal import decline despite 25% tariffs, suggesting Chinese exporters absorbed costs through price cuts or U.S. importers accepted higher prices

• Total U.S. imports declined only 1.7% (2018-2019), indicating trade diversion rather than import reduction

Chinese imports from U.S. fell from $134 billion (2017) to $107 billion (2019), a 20% decline concentrated in agriculture:

• U.S. soybean exports to China fell 75% (2018-2019) as China sourced from Brazil

• Aircraft deliveries fell 47%

• Energy product exports fell 54%

Incidence: Who Paid the Tariffs?

Economic theory predicts tariff incidence depends on elasticities of demand and supply. Empirical studies found:

• Amiti, Redding, and Weinstein (2019, AER): U.S. tariffs had complete pass-through to U.S. import prices; negligible reduction in Chinese export prices. U.S. consumers and firms bore nearly 100% of tariff costs.

• Fajgelbaum et al. (2020, JPE): Aggregate U.S. real income fell 0.04% from tariffs and Chinese retaliation combined. Costs distributed unevenly: import-competing industries gained; import-using industries and consumers lost.

• Flaaen and Pierce (2019, Fed Working Paper): Manufacturing employment in tariff-protected industries showed no significant increase; employment in tariff-affected input-using industries declined.

• Cavallo et al. (2021, AEJ): Retail prices for tariffed goods rose nearly one-for-one with tariffs; no evidence of Chinese exporters reducing prices or U.S. retailers absorbing costs.

The uncomfortable conclusion: U.S. tariffs functioned as a domestic tax on U.S. consumers and firms, not as costs imposed on China. Chinese tariffs similarly represented Chinese taxes on Chinese consumers. Each country was punching itself in the face, insisting the other would soon cry uncle.

Who Actually Pays Tariffs? Contrary to political rhetoric suggesting tariffs "punish" foreign exporters, economic research consistently finds that U.S. consumers and businesses bear nearly 100% of tariff costs. Chinese exporters did not lower their prices to absorb the tariffs. Instead, American importers paid the full tariff amount, passing costs to consumers through higher retail prices. The average U.S. household paid an estimated $800-1,300 annually in additional costs from trade war tariffs.

Supply Chain Reconfiguration

Beyond static trade impacts, tariffs accelerated supply chain reconfiguration. Multinational firms adopted "China+1" strategies, diversifying production to Vietnam, Thailand, India, and Mexico to avoid tariffs—Apple, Samsung, Intel, Dell, and HP all announced production shifts. Many of these moves proved permanent: sunk costs of relocating production mean that even if tariffs were removed, Flaaen and Pierce (2024) estimate 30-40% of trade flow changes are irreversible. The shift produced clear winners and losers. Vietnam's exports to the U.S. surged from $49 billion (2017) to $115 billion (2023), making it the 8th largest U.S. trade partner, while Mexico became the largest U.S. trade partner in 2023, partly from Chinese firms routing production through Mexican plants. On the losing side, Chinese manufacturing employment growth slowed, and sectors like furniture and electronics lost global market share permanently.

Aggregate Economic Impacts

The macroeconomic costs were substantial across all parties. Studies estimate a 0.3-0.5% reduction in U.S. GDP from tariffs and retaliation (2018-2020), with the agricultural sector suffering $27 billion in lost exports partially offset by $23 billion in government subsidies while manufacturing employment gains remained negligible. China experienced an estimated 0.5-0.8% GDP reduction, though its simultaneous growth slowdown from debt deleveraging and COVID-19 makes trade war effects difficult to isolate. Globally, the IMF (2019) estimated the trade war could reduce world GDP by 0.8% by 2020 through trade disruptions, uncertainty, and financial market impacts.

Political Economy of Tariff-Based Coercion

Why do governments impose tariffs despite clear evidence that their own citizens bear the costs? The answer lies not in economics but in politics:

Concentrated Benefits, Diffuse Costs

Tariff protection concentrates benefits on specific industries (steel, aluminum, manufacturing) while spreading costs across all consumers. Protected industries lobby intensively and contribute to political campaigns; consumers rarely mobilize against small price increases on individual products. This asymmetry makes tariff imposition politically attractive even when aggregate costs exceed benefits.

Symbolic Politics and Nationalism

Tariffs signal toughness on foreign competition and protection of domestic workers. Trump's "America First" trade rhetoric resonated with voters in manufacturing-heavy swing states (Pennsylvania, Michigan, Wisconsin) that decided the 2016 election. Biden maintained tariffs to avoid appearing "soft on China"—a politically toxic position in contemporary U.S. politics.

Retaliation Dynamics

Once one country imposes tariffs, the target faces domestic political pressure to retaliate to avoid appearing weak. China's retaliatory tariffs on U.S. agriculture deliberately targeted Republican-voting states (Iowa, Kansas, Nebraska) to create political pressure on the Trump administration. This created a "tariff trap": each side faced domestic costs from removing tariffs without reciprocal concessions, preventing de-escalation.

Interest Group Coalitions

Trade wars realign political coalitions. In the U.S.:

• Winners supporting tariffs: Steel and aluminum producers, some manufacturing unions, economic nationalists

• Losers opposing tariffs: Agriculture (export-dependent), technology firms (rely on Chinese supply chains), retailers (sell Chinese consumer goods), consumers

Politically, concentrated manufacturing interests in swing states outweighed diffuse consumer interests and geographically concentrated agricultural interests, enabling tariff persistence.

Strategic Effectiveness of Tariff-Based Coercion

Applying our four-dimension framework:

Domain: Trade (goods), with spillovers to investment, technology, and financial domains Target: State-level (China), with differential sectoral impacts Objective: Multiple overlapping objectives complicating assessment:

• Compellence: Force China to change IP practices, market access, subsidies (primary stated objective)

• Containment: Slow China's technological advancement by disrupting supply chains

• Industrial policy: Rebuild U.S. manufacturing and reduce dependence on China

• Signaling: Demonstrate resolve for broader strategic competition

Intensity: Level 3 (Substantial sectoral coercion)—affected majority of bilateral trade ($360 billion) but exempted many critical inputs and consumer goods; neither side pursued autarky.

Effectiveness Assessment:

Target Compliance (Low): China made minimal structural reforms. Phase One purchase commitments went unfulfilled without consequence. IP protections in Phase One Agreement lacked enforcement mechanisms. Forced technology transfer and subsidies continued.

Capability Degradation (Moderate): Supply chain shifts reduced China's market share in some sectors (furniture, textiles, some electronics). Accelerated "China+1" diversification reduced Western dependence on Chinese manufacturing. However, China retained dominance in critical industries (rare earth processing, solar panels, batteries, APIs).

Cost Imposition (Moderate): Tariffs imposed direct costs (~0.5-0.8% GDP for China, 0.3-0.5% for U.S.), but China tolerated these costs without major policy concessions. Agricultural sector losses ($27 billion) created political pressure but were offset by government subsidies.

Sustainability (Moderate): Both sides sustained tariffs for six years (2018-2024) with no resolution. However, U.S. inflation (2021-2023) created pressure to remove tariffs as anti-inflationary measure. China's economic slowdown (2023-2024) created pressure for trade normalization.

Collateral Damage (Moderate-High): U.S. consumers bore costs through higher prices. U.S. exporters (especially agriculture) suffered retaliatory tariffs. Global supply chains disrupted, reducing efficiency. Allies (EU, Japan, Korea) faced pressure to choose sides, complicating coordination.

Overall Assessment: The U.S.-China trade war achieved limited success in compelling Chinese structural reforms (the stated primary objective) but contributed to supply chain diversification (industrial policy objective) and signaled U.S. willingness to impose economic costs in strategic competition (signaling objective). The mismatch between stated objectives (compellence) and actual achievements (partial containment and signaling) reflects inherent limitations of tariff-based coercion against large, relatively closed economies capable of tolerating economic pain for strategic goals.

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Export Control Regimes

While tariffs tax imports, export controls restrict exports—prohibiting or conditioning sales of specific goods, software, or technology to specific destinations. If tariffs are a blunt hammer, export controls are a scalpel. They serve national security objectives: preventing adversaries from acquiring military capabilities, dual-use technologies (with both civilian and military applications), or technologies that could strengthen strategic competitors. Unlike tariffs' broad economic impacts, export controls surgically target specific technologies and recipients, making them precision instruments of technological competition. The catch: scalpels require precision. Aim poorly, and you cut yourself.

Multilateral Export Control Regimes

After World War II, Western states recognized unilateral export controls could be circumvented through third countries. This drove formation of multilateral regimes coordinating members' national controls:

Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies

Established 1996 as successor to Cold War-era CoCom (Coordinating Committee for Multilateral Export Controls), Wassenaar coordinates national export control policies for conventional weapons and dual-use goods. Forty-two member states (including U.S., EU members, Japan, Korea, Australia; notably excluding China, India, Israel).

Structure and Operation:

• Members maintain national export control systems based on common control lists

• Munitions List: Nine categories of conventional arms (aircraft, missiles, explosives, etc.)

• Dual-Use List: Nine categories of sensitive technologies (materials, electronics, computers, telecommunications, sensors, navigation, aerospace, propulsion)

• Members report licenses granted and denied to specific destinations

• Consensus decision-making for control list updates

• Key limitation: No binding obligation; members may grant licenses others would deny

Control Mechanisms:

• Individual licensing: Case-by-case review for sensitive destinations/end-users

• General licenses: Pre-approved for low-risk destinations

• Catch-all controls: Authority to block unlisted items if suspicion of weapons use

Effectiveness and Limitations:

Strengths:

• Harmonizes national control lists, reducing competitive disadvantages for compliant firms

• Information sharing on denied licenses prevents shopping around multiple jurisdictions

• Provides cover for politically sensitive denials ("required by international obligations")

Weaknesses:

• Consensus requirement enables lowest-common-denominator standards; any member can block list additions

• Non-binding nature means members can approve sales others oppose

• Major producers outside regime (China, India, Israel, Brazil) not bound by restrictions

• Dual-use technology definition increasingly ambiguous as digitalization blurs civilian-military boundaries

The Dual-Use Dilemma The fundamental challenge of export controls is that the most powerful technologies are almost always dual-use. The same AI chips that power ChatGPT can train military targeting systems. The same gene-editing tools that cure diseases can create bioweapons. The same satellite imagery that tracks deforestation can guide precision missiles. This creates an impossible choice: restrict broadly and cripple legitimate commerce and scientific progress, or restrict narrowly and watch controlled technologies flow to adversaries through commercial channels.

Missile Technology Control Regime (MTCR)

Founded 1987, MTCR restricts exports of missiles, unmanned aerial vehicles, and related technology capable of delivering weapons of mass destruction. Thirty-five members committed to control transfers of:

• Category I: Complete rocket systems, unmanned aerial vehicles, and production facilities (strong presumption of denial for transfers)

• Category II: Rocket components, materials, and technologies (case-by-case licensing)

Threshold: Systems capable of delivering 500kg payload to 300km range.

MTCR successfully constrained proliferation of long-range missiles to non-members (North Korea, Iran, Pakistan remain outside). However, proliferation of short-range systems (drones, cruise missiles below threshold) continues, and emerging hypersonic technologies challenge 1980s-era definitions.

Nuclear Suppliers Group (NSG)

Created 1975 after India's nuclear test, NSG coordinates export controls on nuclear materials, equipment, and technology. Forty-eight members (including nuclear weapon states plus major suppliers) control:

• Part 1 (Trigger List): Materials and equipment especially designed for nuclear use (enrichment, reprocessing, heavy water)

• Part 2 (Dual-Use List): Materials, equipment, and technology with nuclear and non-nuclear applications

NSG operates by consensus. Its effectiveness shown by successful isolation of North Korea's nuclear program and substantial constraints on Iran's. However, China's admission (2004) and Russia's participation create complications when proliferation concerns conflict with strategic interests (e.g., Chinese nuclear cooperation with Pakistan, Russian cooperation with Iran).

Australia Group (AG)

Established 1985 after Iraqi chemical weapons use, AG coordinates export controls on chemical and biological weapons precursors and equipment. Forty-three members control:

• Chemical weapons precursors (dual-use chemicals)

• Biological agents and toxins

• Chemical/biological production equipment (fermenters, aerosol systems, specialized protective equipment)

AG faces fundamental challenge: Most controlled chemicals and equipment have legitimate commercial uses (pharmaceuticals, agriculture, research). Overly broad controls impede legitimate commerce; narrow controls enable proliferation. Balance remains contested.

Common Challenges Across Regimes

1. Dual-use technology expansion: Digitalization, AI, quantum technologies blur civilian-military boundaries. Commercial AI chips used for both consumer applications and military systems. Quantum computers enable cryptography and code-breaking. Biotechnology serves medicine and bioweapons. Traditional category-based controls struggle.

2. Non-member producers: China's exclusion from most regimes increasingly problematic as it becomes major technology producer. India, Israel, Brazil, and others export without multilateral constraints. Regime effectiveness erodes as non-members' market share grows.

3. Intangible technology transfer: Traditional controls focused on physical exports. Modern technology transfer occurs through digital communications, cloud computing, remote access, and personnel mobility. Controlling intangible technology without impeding scientific collaboration proves difficult.

4. Enforcement variation: Members vary enormously in enforcement resources and political will. Small states with limited enforcement capacity create transshipment vulnerabilities. Some members prioritize commercial interests over nonproliferation.

5. Update lag: Control lists update slowly (annual at best) while technology evolves rapidly. Emerging technologies (AI, quantum, synthetic biology) lack agreed definitions and control parameters.

U.S. Unilateral Export Controls: The Export Administration Regulations

The United States maintains the world's most extensive unilateral export control system, codified in the Export Administration Regulations (EAR), 15 C.F.R. Part 730 et seq. The Commerce Department's Bureau of Industry and Security (BIS) administers EAR based on statutory authority from the Export Control Reform Act of 2018 (ECRA), 50 U.S.C. § 4801 et seq.

Figure 6.3: Entity List additions by administration, showing the growth of export control restrictions.

Scope of EAR Jurisdiction

EAR applies extraordinarily broadly:

1. U.S.-origin items: All items (commodities, software, technology) exported from the United States

2. Foreign-made items incorporating U.S. content: Items made abroad incorporating controlled U.S.-origin components above de minimis thresholds (typically 25%, lower for military items)

3. Foreign Direct Product (FDP) Rule: Foreign-made items produced using U.S.-origin technology or software, even if containing no U.S. components

4. U.S. persons: U.S. citizens, permanent residents, and U.S. entities subject to EAR regardless of location

This extraterritorial reach makes EAR a powerful tool: U.S. can restrict foreign sales of foreign-made goods if they contain U.S. technology or were produced using U.S. equipment.

Commerce Control List (CCL)

EAR controls items listed on the CCL, organized into ten categories:

• 0: Nuclear materials, facilities, and equipment

• 1: Materials, chemicals, microorganisms, and toxins

• 2: Materials processing

• 3: Electronics

• 4: Computers

• 5: Telecommunications and information security

• 6: Sensors and lasers

• 7: Navigation and avionics

• 8: Marine

• 9: Aerospace and propulsion

Each entry includes:

• Export Control Classification Number (ECCN): Identifies specific item

• Reasons for Control: National security (NS), missile technology (MT), regional stability (RS), chemical/biological weapons (CB), crime control (CC), etc.

• License Requirements: Destinations requiring licenses for export

• License Exceptions: Circumstances allowing export without individual license

Items not on CCL are designated EAR99—low-technology consumer goods generally exportable without licenses (except to embargoed destinations).

Entity List: Targeted Denials

The Commerce Department's Entity List (Supplement No. 4 to Part 744 of the Export Administration Regulations) identifies foreign entities subject to specific license requirements due to proliferation concerns, weapons development, human rights violations, or other national security threats. As of 2024, over 600 Chinese entities appear on the Entity List, including:

• Huawei Technologies (2019): Telecommunications equipment and services, security and foreign policy concerns

• SMIC (Semiconductor Manufacturing International Corporation) (2020): China's leading chip manufacturer, military diversion risk

• YMTC (Yangtze Memory Technologies Corporation) (2022): Memory chip manufacturer

• Hikvision, Dahua (2019): Surveillance equipment manufacturers, complicity in Xinjiang human rights violations

• Leading Chinese AI firms (SenseTime, Megvii, CloudWalk, iFlytek): Facial recognition and surveillance technologies

Entity List designation requires licenses for exports of specified items (often all EAR-controlled items); licenses carry presumption of denial. This effectively operates as an export ban for most controlled technologies.

The Ultimate Chokepoint: EDA Software Electronic Design Automation (EDA) software—essential for designing any advanced semiconductor—represents perhaps the most powerful chokepoint in the technology ecosystem. Three American companies (Synopsys, Cadence, and Siemens EDA/Mentor Graphics) control approximately 100% of the market for advanced chip design tools. Without EDA software, no country can design cutting-edge semiconductors, regardless of their manufacturing capabilities. This near-total monopoly gives the U.S. extraordinary leverage that even China's massive investments cannot quickly overcome.

Foreign Direct Product Rule Expansion

The FDP Rule traditionally applied narrowly to items directly produced by U.S. technology. In May 2020, BIS expanded the FDP Rule specifically targeting Huawei, restricting foreign semiconductor manufacturers from selling chips to Huawei if:

1. Chips designed by Huawei using U.S. software (e.g., Electronic Design Automation tools from Synopsys, Cadence)

2. Chips manufactured using U.S.-origin equipment (e.g., Applied Materials, Lam Research, KLA lithography systems)

This expansion effectively cut Huawei off from Taiwan's TSMC (which uses U.S. equipment) despite TSMC being a foreign company selling foreign-made products. TSMC immediately ceased accepting new Huawei orders.

October 2022 semiconductor export controls extended FDP principles broadly: Foreign fabs using U.S. equipment cannot produce advanced chips (< 16nm) for Chinese customers without licenses (presumption of denial). This extraterritorial assertion of control over foreign production represents unprecedented expansion of export control jurisdiction.

Penalties and Enforcement

EAR violations carry severe consequences:

• Civil penalties: Up to $330,000 per violation or twice transaction value, whichever is greater

• Criminal penalties: Willful violations up to $1 million per violation and 20 years imprisonment

• Denial orders: Prohibition on export privileges (receiving U.S. exports or participating in export transactions)

Major recent enforcement actions:

• ZTE Corporation (2017): $1.19 billion penalty for violating Iran/North Korea sanctions, plus seven-year suspended denial order; later imposed (2018) before negotiated settlement

• Huawei (2020-present): Indictments for sanctions evasion, trade secret theft; effective export denial through Entity List

• Fujian Jinhua (2018): Entity List addition for DRAM technology theft; company operations suspended

2018 Export Control Reform Act (ECRA)

ECRA codified and strengthened export controls, adding focus on "emerging and foundational technologies" essential to U.S. national security:

• Emerging technologies: Biotechnology, AI/machine learning, position/navigation/timing, microprocessor technology, advanced computing, quantum information/sensing, logistics technology, additive manufacturing, robotics, brain-computer interfaces, hypersonics, advanced materials, advanced surveillance

• Foundational technologies: Technologies emerging from or enabling emerging technologies (interpreted broadly)

ECRA directed Commerce to establish controls for these technologies in coordination with Defense, State, and Energy departments. Implementation proceeded slowly due to definitional challenges and industry opposition. As of 2024, controls established for some categories (quantum, certain AI chips, some additive manufacturing) but many emerging technologies lack clear controls.

Technology-Specific Controls: Semiconductor Case Study

Semiconductor export controls illustrate how EAR authorities operate in practice. Advanced semiconductors enable AI, quantum computing, autonomous weapons, and supercomputers—dual-use technologies where the commercial/military distinction collapses entirely. Controls evolved through three phases, each reflecting lessons from the previous approach's limitations:

Phase 1: Entity List Additions (2019-2021) targeted specific Chinese companies (Huawei, SMIC, Sugon, Phytium), blocking U.S. exports to designated entities. This proved insufficient—Chinese firms sourced from foreign suppliers or acquired older-generation technology not subject to restrictions.

Phase 2: Technology-Specific Controls (October 2022) marked a fundamental reorientation from entity-based to capability-based restrictions. BIS imposed controls on manufacturing equipment for logic chips below 16nm, memory chips below specified thresholds (DRAM < 18nm half-pitch, NAND > 128 layers), and prohibited U.S. persons from supporting Chinese advanced chip development. These rules targeted China's semiconductor ecosystem broadly rather than individual firms.

Phase 3: Allied Coordination (2023-2024) extended controls multilaterally through negotiations with the Netherlands and Japan (see below, "Multilateral Versus Unilateral Approaches"). October 2023 updates tightened node definitions, added over 100 Chinese chip firms to the Entity List, and expanded geographic scope to close transshipment routes through Macau and Hong Kong.

Chapter 4 provides a detailed analysis of these controls' strategic logic, allied coordination dynamics, Chinese responses, and effectiveness assessment across five criteria. From an export control architecture perspective, the semiconductor case demonstrates both the power and limits of EAR authorities: ECCN-based controls can restrict specific technological capabilities, the FDPR can extend jurisdiction extraterritorially, and Entity List designations can target specific actors—but effectiveness depends on allied coordination that lies beyond any single government's legal authority.

Lessons from Cold War Export Controls: CoCom

Historical parallels inform current challenges. The Coordinating Committee for Multilateral Export Controls (CoCom, 1949-1994) coordinated Western export controls denying Soviet bloc access to advanced technologies.

Structure:

• Seventeen members (NATO minus Iceland, plus Japan, Australia)

• Maintained embargo lists (munitions, atomic energy, dual-use industrial/commercial items)

• Consensus decision-making

• Informal regime (no treaty, no secretariat, no binding enforcement)

Challenges:

• Free-riding: Members had incentives to cheat for commercial gain. France, Italy particularly prone to approving sales others denied.

• Technology diffusion: Civilian technologies proliferated beyond control (computers, telecommunications). As computing spread globally, maintaining denial became impossible.

• Non-member leakage: Transshipment through Austria, Switzerland, Hong Kong enabled circumvention

• Enforcement variation: Small members (Portugal, Greece) lacked resources; some prioritized commerce over security

Effectiveness:

Soviet assessments after Cold War revealed CoCom imposed substantial costs:

• Delayed Soviet capabilities 5-10 years in computing, semiconductors, telecommunications

• Forced inefficient indigenous development at high cost

• Created technological lag perpetuating Soviet economic weakness

However, limitations clear:

• Soviets acquired many controlled technologies through espionage, smuggling, and legal purchases through front companies

• Rapid technological change in West meant even successful Soviet acquisition resulted in outdated technology

• CoCom could not prevent Soviet military technological development, only impose costs and delays

Relevance to China Controls:

Soviet case offers mixed lessons:

• Long-term comprehensive controls can impose costs and slow development

• But: Soviet Union was much smaller economically and more technologically isolated than China

• China deeply integrated in global economy and technology ecosystem; far more difficult to isolate

• Chinese tech ecosystem larger and more advanced than Soviet; closer to technological frontier

• Third countries (Taiwan, Korea, Japan) critical to semiconductor supply chains complicate coordination

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Multilateral Versus Unilateral Approaches

Export controls face a fundamental dilemma: Unilateral measures risk competitive disadvantage as firms lose sales to foreign competitors unburdened by restrictions, while multilateral coordination requires compromises that may dilute effectiveness. This section examines the trade-offs, exploring when unilateral action succeeds despite commercial costs and when multilateral coordination proves essential.

The Case for Multilateral Coordination

Market Coverage and Effectiveness

For export controls to meaningfully constrain adversary capabilities, they must cover sufficient market share that substitutes are unavailable or prohibitively expensive. Consider semiconductor manufacturing equipment:

• Netherlands (ASML): 100% market share for EUV lithography (essential for sub-7nm chips)

• United States (Applied Materials, Lam Research, KLA): ~40% market share for deposition, etching, and inspection equipment

• Japan (Tokyo Electron, Screen, Kokusai Electric): ~30% market share for etching and cleaning equipment

• Others (Europe, Korea): ~30% combined

Unilateral U.S. controls leave Japan and Netherlands equipment available. If Japan and Netherlands don't coordinate, Chinese fabs can access 60% of equipment market. Coordinated controls by all three close access to ~85%, making indigenous development or evasion much harder.

Reducing Commercial Disadvantage

Firms complying with unilateral export controls lose market share to foreign competitors selling to restricted destinations. This creates:

1. Immediate revenue losses: U.S. semiconductor equipment firms lost $10-15 billion annually (2022-2024) from China restrictions

2. Long-term market position erosion: Chinese customers develop relationships with non-U.S. suppliers; even if restrictions lifted, U.S. firms may not regain market share

3. R&D funding constraints: Reduced revenues limit R&D spending, potentially ceding technological leadership over time

4. Political opposition: Affected firms lobby against controls or for exemptions, weakening policy sustainability

Multilateral controls level the playing field: All major suppliers face same restrictions, minimizing competitive distortions. This enhances political sustainability as firms cannot circumvent controls by relocating to less restrictive jurisdictions.

Signaling and Normative Effects

Multilateral action carries greater political weight than unilateral measures. When multiple governments coordinate export denials, it:

• Signals severity: Demonstrates threat assessment shared across allies, not unilateral U.S. paranoia

• Creates stigma: Targets face reputational costs when multiple advanced democracies deny access

• Establishes norms: Repeated multilateral denials for specific end-uses (e.g., surveillance technologies for human rights abuses) strengthen nonproliferation norms

Challenges to Multilateral Coordination

Despite theoretical advantages, achieving and maintaining multilateral coordination faces severe obstacles:

Divergent Threat Perceptions

Allies often disagree on threat severity or prioritization:

• Geographic proximity: European allies prioritize Russia threat; Asian allies prioritize China; U.S. addresses both globally

• Economic ties: Germany's deep economic integration with China (largest trade partner) creates different cost-benefit calculus than U.S.

• Historical relations: Japan and Korea have complicated histories with China affecting willingness to antagonize

• Domestic politics: Governing coalitions in parliamentary systems may include parties opposing confrontational policies

Commercial Interests and Lobbying

Firms facing revenue losses lobby home governments for exemptions:

• ASML (Netherlands) lobbied against broad lithography restrictions; Dutch government initially limited controls to only most advanced EUV systems, permitting older DUV sales generating substantial revenues

• Samsung and SK Hynix (Korea) secured exemptions for their China fabs, allowing equipment imports and U.S. personnel support despite broader controls

• Tokyo Electron (Japan) advocated for narrow controls preserving sales of all but newest-generation equipment

Lobbying more effective in smaller countries where individual firms represent larger share of economy and political influence.

Consensus Requirements and Lowest-Common-Denominator

Multilateral regimes requiring consensus (Wassenaar, MTCR, NSG) can only adopt controls acceptable to all members. This creates:

• Delay: Negotiations drag on as holdouts extract concessions or exemptions

• Ambiguity: Compromise language may be vague, enabling divergent interpretations and inconsistent implementation

• Loopholes: Exemptions to secure consensus create exploitable gaps

Example: Wassenaar took three years (2013-2016) to add intrusion software and surveillance technology controls, and final language contained exemptions enabling continued sales to authoritarian regimes.

Free-Riding and Enforcement

Even with formal agreement, enforcement varies:

• Resource constraints: Small countries lack personnel and budgets for robust export control enforcement

• Priority mismatches: Countries prioritizing counterterrorism may underinvest in nonproliferation enforcement

• Corruption: In some jurisdictions, bribes enable license approvals regardless of formal policies

• Third-country transshipment: Non-member countries (Singapore, UAE, Hong Kong historically) facilitate re-export to restricted destinations

These gaps enable circumvention: Goods exported legally to intermediary countries are re-exported illegally to restricted end-users.

When Unilateral Action Works

Despite challenges, unilateral export controls can succeed when specific conditions obtain:

Technological Monopoly or Oligopoly

When one country (or small group) dominates production of critical inputs, unilateral controls can be effective:

• EDA software (U.S.): Synopsys, Cadence, Mentor Graphics control ~100% of advanced electronic design automation software essential for chip design. Chinese designers cannot create advanced chips without this software. U.S. unilateral controls effectively block Chinese access.

• EUV lithography (Netherlands/ASML): Only producer of EUV lithography equipment essential for sub-7nm chip production. Dutch unilateral controls (coordinating with U.S.) block Chinese advanced chip manufacturing.

• Advanced AI chips (U.S.): Nvidia and AMD dominate high-end AI accelerators. China's Huawei, Biren, Hygon cannot match performance. Unilateral U.S. controls significantly constrain Chinese AI development.

Network Effects and Standards

Technologies with strong network effects create lock-in that unilateral controls can exploit:

• Software ecosystems: U.S. dominance in operating systems (Windows, iOS, Android), cloud platforms (AWS, Azure, Google Cloud), and enterprise software creates dependencies difficult to replace. Denying access imposes significant costs.

• Financial infrastructure: SWIFT messaging system for international payments based in Belgium but dollar-dominated. U.S. can unilaterally threaten SWIFT access (secondary sanctions) to pressure intermediaries.

• Internet infrastructure: While fragmented, U.S. firms still dominant in critical internet infrastructure (DNS, CDNs, submarine cables). Unilateral restrictions on these could impose costs (though also harm U.S. interests and face significant retaliation).

Strategic Goods with Limited Substitutability

Some goods lack ready substitutes due to technical complexity or economies of scale:

• Rare earth processing (China): Despite rare earths mined globally, China processes 85%. Chinese export restrictions force others to develop processing (slow, expensive, environmentally challenging) or pay premium prices.

• Pharmaceutical precursors: Consolidation of API production in China/India creates dependencies exploitable through export restrictions

• Specialized aerospace components: Single-source suppliers for certain aircraft and satellite components enable unilateral controls

Speed and Surprise

Multilateral coordination is slow. When rapid action necessary to prevent imminent threat, unilateral moves may be only option:

• Emergency controls to block arms sales to conflict zones

• Preventing technology acquisition during crisis (e.g., blocking semiconductor sales if Taiwan Strait crisis escalates)

• Responding to sudden threat discovery (e.g., evidence of weapons program breakthrough)

After crisis passes, unilateral measures can be multilateralized through subsequent negotiations.

Hybrid Approaches: Coalitions of the Willing

Recent U.S. strategy increasingly employs "coalitions of the willing"—not full multilateral regimes but informal coordination among key players:

Chip 4 Alliance

Proposed U.S.-Japan-Korea-Taiwan semiconductor coordination to:

• Align export controls and investment screening

• Coordinate R&D on next-generation technologies (post-silicon, 3D chips, quantum)

• Build resilience through diversified production

• Share threat intelligence on Chinese acquisition attempts

Status: Informal discussions ongoing; formal alliance resisted by Korea and Taiwan fearing Chinese economic retaliation.

Technology 7 (T-7)

U.S., Japan, Korea, Netherlands, Taiwan, and key EU members coordinating on export controls for critical technologies:

• Semiconductor manufacturing equipment

• Advanced computing

• AI systems

• Quantum technologies

Advantage over formal regimes: Smaller group enables faster decision-making and tighter coordination. Excludes members unlikely to support strict controls (Germany initially resistant).

Disadvantage: Lack of institutional structure reduces sustainability; dependent on aligned political leadership across members.

Limits of Coalitions

Even coalitions face coordination challenges:

• Exemptions and loopholes: Korea secured exemptions for Samsung/SK Hynix China operations; Netherlands limited ASML restrictions; Japan delayed implementation to allow sales completion

• Transshipment: Singapore, Malaysia, UAE, Mexico enable re-export to China; coalition members lack extraterritorial enforcement in third countries

• Technology evolution: As Chinese firms move toward indigenous alternatives (RISC-V, domestic EDA, domestic equipment), coalition controls become less effective

China's Retaliation: Counter-Controls and Unreliable Entity List

Chinese counter-coercion illustrates retaliation dynamics:

Export Control Law (2020)

China enacted Export Control Law (2020) establishing authority to:

• Control exports of dual-use items, military items, and nuclear items

• Implement end-user and end-use controls

• Conduct temporary controls on items not on control lists if national security risk

• Prohibit exports to entities violating export control obligations or threatening national security/interests

Specific Controls:

• Rare earth export restrictions (2023): Controls on gallium and germanium (used in semiconductors, solar cells, fiber optics). China produces 94% of global gallium, 83% of germanium (USGS 2024). Restrictions raised prices and forced Western firms to stockpile.

• Graphite restrictions (2023): Controls on certain graphite materials essential for lithium-ion battery anodes. China controls 65% of global graphite mining, 90% of processing (USGS 2024).

• Antimony restrictions (2024): Controls on antimony (used in semiconductors, solar panels, batteries, ammunition). China produces 48% globally, processes 63% (USGS 2024).

Unreliable Entity List (不可靠实体清单, bù kě kào shítǐ qīngdān)

Announced 2019, implemented 2021, China's Unreliable Entity List targets foreign entities that:

• Endanger China's national sovereignty, security, or development interests

• Block or cut supplies to Chinese entities for non-commercial purposes

• Discriminate against Chinese entities in violation of market rules

Listed entities face:

• Restrictions on trade with China

• Prohibitions on investment in China

• Denial of work permits for personnel

• Fines and other penalties

As of 2024, few entities publicly listed (Lockheed Martin, Raytheon for Taiwan arms sales), but threat used to deter foreign compliance with U.S. restrictions. Many firms face difficult choice: Comply with U.S. export controls (losing Chinese market access) or maintain China ties (facing U.S. penalties).

Effectiveness of Chinese Counter-Controls

Chinese retaliation less effective than U.S. controls due to:

1. Substitutes exist: For most Chinese-controlled materials (rare earths, graphite, gallium), alternatives available or can be developed, albeit at higher cost and longer timelines

2. Limited technology monopolies: China lacks monopoly position in critical enabling technologies comparable to U.S./Allied position in semiconductors, AI, aerospace

3. Autarky costs: Restricting exports harms Chinese producers and creates incentives for foreign firms to develop alternatives, reducing long-term leverage

However, near-term disruptions real: Gallium/germanium restrictions caused 6-12 month supply disruptions and 20-30% price increases. For firms with thin margins or just-in-time inventory, temporary disruptions can be severe.

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WTO Compliance and the Erosion of the Trading System

The World Trade Organization embodies post-1945 liberal international economic order: rules-based system constraining states' unilateral trade restrictions. Yet U.S.-China strategic competition increasingly operates outside or in explicit violation of WTO commitments. This section examines how national security exceptions, dispute resolution dysfunction, and great power prerogatives undermine multilateral trade law.

WTO Rules on Trade Restrictions

General Prohibition on Quantitative Restrictions

GATT Article XI prohibits "prohibitions or restrictions other than duties, taxes or other charges" on imports or exports. This seemingly prohibits export controls and quotas. However:

Article XXI: Security Exception

GATT Article XXI allows states to take actions "necessary for the protection of [essential security interests]" including:

• (a) Preventing disclosure of information contrary to essential security interests

• (b) Relating to fissionable materials or materials from which they are derived

• (c) Taken in time of war or other emergency in international relations

Article XXI is self-judging: States determine what constitutes "essential security interests." This creates enormous loophole: Any trade restriction can be justified as national security measure.

Historically, states exercised restraint in invoking Article XXI to avoid undermining the trading system. U.S. Section 232 steel/aluminum tariffs (2018) expansively defined "national security" to include economic security, breaking this norm. Other states followed: India invoked Article XXI for information technology controls, Russia for transit restrictions, UAE for Qatar blockade.

Article XX: General Exceptions

GATT Article XX permits restrictions "necessary to protect public morals," "protect human, animal or plant life or health," or "relating to conservation of exhaustible natural resources." States invoked Article XX to justify:

• Environmental regulations restricting hazardous material imports

• Public health measures (e.g., COVID-19 medical equipment export restrictions)

• Sanctions on goods produced with forced labor

However, Article XX requires restrictions be "not applied in a manner which would constitute... arbitrary or unjustifiable discrimination" and "not a disguised restriction on international trade." Proving necessity and non-discrimination proves difficult; many measures struck down.

Dispute Resolution Breakdown

The Appellate Body Crisis

WTO dispute resolution previously constrained unilateral actions: Members could challenge restrictions, and Dispute Settlement Body rulings (including Appellate Body appeals) were binding. This system collapsed:

• U.S. blocking Appellate Body appointments (2017-2020): Trump administration blocked new member appointments, citing concerns over Appellate Body overreach, inconsistent interpretation, and failure to meet 90-day deadlines. By December 2019, Appellate Body fell below minimum three members required to hear appeals, effectively ceasing function.

• Rationale: U.S. criticized Appellate Body for treating prior reports as precedent (not required by WTO Agreement), engaging in advisory opinions beyond case requirements, and second-guessing national determinations (especially in trade remedy cases). Critics saw this as pretext; real objective was preventing adverse rulings on U.S. national security tariffs and other measures.

Consequences:

Without functioning Appellate Body:

• Panel reports can be appealed "into the void"—no resolution

• Losing parties appeal all adverse rulings, preventing enforcement

• System reverts to diplomatic negotiation without binding arbitration

• Powerful states (especially U.S., China) face no constraints

Dispute Resolution Paralysis The collapse of the WTO Appellate Body represents one of the most consequential developments in international economic law since World War II. Without binding dispute resolution, the rules-based trading system that the U.S. championed for 75 years has effectively reverted to power politics. Any country can now violate WTO commitments, appeal the ruling, and face no consequences. The irony is profound: the United States disabled the very system it built to constrain others' trade violations.

Multi-Party Interim Appeal Arbitration Arrangement (MPIA)

EU, China, Canada, and 25+ other members created alternative arbitration mechanism (2020) using WTO arbitration provisions. However:

• U.S. refuses to participate

• China participates selectively

• Limited to disputes among MPIA members

• Lacks legitimacy and enforcement power of formal Appellate Body

Major Trade Disputes and Weak Enforcement

U.S. Section 232 Tariffs (Steel and Aluminum)

EU, Canada, Mexico, China, Japan, Korea, and others filed WTO challenges to U.S. Section 232 national security tariffs (2018):

• Complainant arguments: Tariffs not justified by Article XXI; economic security is not essential security interest; no emergency in international relations; tariffs actually protect domestic industries (disguised protectionism)

• U.S. response: Article XXI self-judging; WTO has no authority to review U.S. national security determinations; defending Article XXI as self-judging essential to U.S. sovereignty

Panel rulings (2022):

• Norway-U.S. and China-U.S. panels ruled against U.S., finding tariffs not justified by Article XXI

• Panels held Article XXI not completely self-judging; "taken in time of war or other emergency" must be objectively verified

• Ruled no evidence of emergency justifying steel/aluminum tariffs

U.S. response: Appealed to non-functioning Appellate Body, effectively nullifying panel rulings. Maintained tariffs. Signaled WTO dispute resolution irrelevant for great power trade policies.

U.S. Section 301 Tariffs on China

China challenged U.S. Section 301 tariffs (2018) arguing:

• Tariffs exceed bound tariff rates (U.S. committed to maximum tariffs in WTO accession)

• Not justified by Article XXI (no security emergency)

• Not justified by Article XX (not necessary for public morals or health)

• Violate dispute settlement understanding (U.S. unilaterally determined violations and imposed remedies rather than using WTO dispute process)

Panel ruling (2024, expected): Delayed due to COVID-19 and procedural issues. Panel likely to rule against U.S., but U.S. expected to appeal to void, preventing enforcement. Even if China wins, no mechanism to force U.S. tariff removal. China could retaliate with authorized countermeasures, but already imposing equivalent tariffs.

China's Technology Transfer and Subsidy Practices

U.S., EU, and Japan filed multiple WTO cases against Chinese:

• Forced technology transfer requirements for market access

• Discriminatory licensing restrictions

• Indigenous innovation subsidies favoring domestic firms

• Lack of intellectual property protection

Some cases succeeded:

• China—Intellectual Property Rights (2009): Panel ruled China must provide criminal enforcement for commercial-scale copyright piracy

• China—Auto Parts (2009): Panel ruled China cannot impose higher tariffs on imported auto parts than finished vehicles

However, enforcement limited:

• China often makes minimal compliance efforts

• Subsidies hard to identify and quantify (state-owned enterprises, below-market financing, concealed support)

• Technology transfer requirements operate informally ("voluntary" agreements)

• U.S./EU increasingly bypass WTO, using unilateral measures instead

The Political Economy of WTO Erosion

Why did states previously respecting WTO rules abandon constraints?

Changing Power Dynamics

WTO rules negotiated when U.S. enjoyed overwhelming economic dominance (1990s). As China's economy approached U.S. size, symmetrical rules became less advantageous:

• U.S. previously tolerated some Chinese non-compliance as cost of integrating China into rules-based order and supporting Chinese development

• As China became peer competitor, costs of non-compliance rose and tolerance fell

• U.S. perception: WTO rules failed to constrain Chinese state capitalism and technology mercantilism

Domestic Political Economy

Trade liberalization benefits diffuse (slightly lower consumer prices) while costs concentrate (job losses in specific communities). This creates:

• Weak constituencies supporting WTO compliance (exporters, consumers)

• Strong constituencies opposing trade (displaced manufacturing workers, unions, economic nationalists)

• Political incentives to prioritize protection over compliance

Trump's 2016 election demonstrated political power of trade grievances in swing states (Pennsylvania, Michigan, Wisconsin). Biden maintained Trump trade policies to avoid appearing weak on China—a politically toxic position across both parties.

National Security Imperatives

As technology competition became central to U.S.-China rivalry, policymakers prioritized security over trade rules:

• Semiconductors, AI, quantum, biotech seen as existential national security issues

• WTO compliance regarded as constraint on necessary security measures

• Article XXI interpreted expansively to justify necessary actions

Strategic Competition Logic

In strategic competition, states prioritize relative gains over absolute gains. WTO promotes absolute gains (all members benefit from trade). But if trade disproportionately benefits rivals, states defect:

• U.S. concerns: Trade with China strengthened potential adversary; China used market access to acquire technology and fund military modernization

• China concerns: Dependence on U.S. technology creates vulnerability; U.S. can weaponize interdependence to contain China

Both sides increasingly view trade through security lens, incompatible with WTO's commercial framework.

Future of the Multilateral Trading System

Three Scenarios:

Scenario 1: Managed Fragmentation

The most likely outcome in the near term:

• WTO continues for non-strategic trade among non-rivals

• Strategic sectors (semiconductors, AI, quantum, critical materials, pharmaceuticals) governed by separate frameworks outside WTO

• Blocs form around U.S. and China with different rules (IPEF for U.S.-aligned, RCEP for China-aligned)

• Appellate Body remains defunct; disputes among great powers settled diplomatically or not at all

Scenario 2: WTO Reform and Restoration

Optimistic scenario requiring substantial reforms:

• Agreement on Appellate Body reform addressing U.S. concerns while restoring binding dispute resolution

• Clearer Article XXI disciplines distinguishing legitimate security from disguised protectionism

• Stronger subsidy disciplines to address state capitalism and industrial policy

• Mechanism to address national security trade-offs in emerging technologies

Barriers: Requires consensus among U.S., China, EU. Current political climates make agreement unlikely. Would require crisis (major trade war causing recession) or leadership change prioritizing multilateralism.

Scenario 3: Collapse and Mercantilism

Pessimistic scenario if U.S.-China competition escalates:

• WTO becomes irrelevant as members ignore rules and rulings

• Trade wars spread beyond U.S.-China to other sectors and dyads

• Tariffs and export controls proliferate as states prioritize self-sufficiency and security

• Global trade declines; economic growth slows; political tensions rise

Historical parallel: 1930s trade collapse after Smoot-Hawley Tariff contributed to Great Depression and World War II.

Most Likely: Scenario 1 with elements of Scenario 3

Managed fragmentation for now, but with risk of escalation into broader mercantilism if U.S.-China tensions spike (Taiwan crisis, military conflict, technology decoupling accelerates).

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Chinese Perspective Box: Trade War as Containment

Section 301 Tariffs: Economic Aggression and the Breaking of Trust

From the Chinese perspective, the Section 301 tariffs imposed in 2018 represented not legitimate trade enforcement but economic aggression designed to contain China's rise. Chinese officials and state media characterized the tariffs as bullying (霸凌主义, bàlíng zhǔyì)—the abuse of American economic power to coerce a competitor. The trade war (贸易战, màoyì zhàn) label, used freely in Chinese discourse, framed the conflict as deliberate American hostility rather than dispute resolution.

Chinese critiques emphasized several dimensions of perceived illegitimacy:

Unilateral action bypassing WTO: The United States determined Chinese violations and imposed remedies without WTO dispute resolution, violating the Dispute Settlement Understanding that requires members to resolve trade disputes through multilateral procedures. From Beijing's perspective, Washington claimed to defend the "rules-based international order" while systematically violating those rules when convenient.

Pretextual justifications: Chinese officials argued that intellectual property and technology transfer concerns were pretexts for economic containment. China had made substantial progress on IP protection since WTO accession; the sudden escalation reflected not genuine grievances but strategic competition fears as Chinese firms approached technological frontiers.

Maximum pressure tactics: The escalating tariff waves (25% on $50 billion, then $200 billion, then threats on remaining $300+ billion) resembled sanctions campaigns rather than trade negotiations. Chinese commentators compared this to American pressure tactics against Iran and North Korea—economic warfare designed to impose capitulation rather than negotiate mutual accommodation.

Key Chinese Terms in Trade Conflict

Trade War (贸易战, màoyì zhàn): Unlike American officials who initially avoided this term, Chinese discourse embraced it explicitly. Framing the conflict as "war" emphasized American aggression and justified comprehensive mobilization in response.

Bullying/Hegemonic Bullying (霸凌主义, bàlíng zhǔyì): This term appeared constantly in Chinese official statements, portraying the United States as global bully using economic power to intimidate smaller nations and competitors. The framing resonated domestically, tapping nationalist resentment of perceived American arrogance.

Decoupling (脱钩, tuōgōu): Chinese officials warned that American policy aimed at decoupling—deliberately severing economic integration to contain Chinese development. This was framed as losing proposition for both sides but especially damaging to global economy. China rhetorically committed to continued integration while preparing for forced separation.

Legitimate Development Rights (合法发展权利, héfǎ fāzhǎn quánlì): Chinese framing positioned the conflict as American denial of China's "legitimate development rights"—the entitlement of developing countries to industrialize, adopt technologies, and improve living standards. American restrictions represented not fair competition but "ladder-kicking": developed countries that climbed to prosperity now denying the same path to others.

Phase One Deal: Forced Concessions Under Duress

Chinese perspectives on the January 2020 Phase One deal differ markedly from American triumphalism. Where U.S. officials celebrated Chinese commitments to purchase $200 billion in additional American goods and strengthen IP protections, Chinese commentary emphasized:

Coerced agreement: The deal was signed under economic duress with tariffs still in place on most Chinese exports. This was capitulation to extortion, not mutual accommodation. Any agreement reached through threats lacks legitimacy and stability.

Unequal obligations: China committed to specific purchase targets while the United States merely promised to consider tariff reductions. This asymmetry reflected power imbalance, not fair negotiation.

Impossible targets: The $200 billion purchase commitments (above 2017 baseline over two years) were economically unrealistic, as subsequent COVID-19 disruptions and market conditions demonstrated. Chinese analysts argued American negotiators knew targets were unachievable but extracted commitments anyway to claim victory.

Core issues unresolved: Phase One addressed symptoms (trade balance, specific practices) while ignoring causes (American containment strategy, structural competition). China viewed the deal as temporary ceasefire, not durable settlement.

Chinese Counter-Measures: The Legal Framework

China responded to American economic coercion by constructing legal frameworks enabling systematic retaliation:

Unreliable Entity List (不可靠实体清单, bù kě kào shítǐ qīngdān): Announced in 2019 and implemented in 2021, this directly mirrored the American Entity List. Foreign entities that cut off supplies to Chinese firms for non-commercial reasons, discriminate against Chinese companies, or endanger Chinese sovereignty and interests face placement on the list. Consequences include trade restrictions, investment prohibitions, personnel visa denials, and fines. The concept of "unreliability" emphasizes that politically-motivated supply disruptions make partners fundamentally untrustworthy—a pointed critique of American firms complying with Entity List restrictions.

Export Control Law of 2020 (出口管制法, chūkǒu guǎnzhì fǎ): Enacted October 2020, this law established comprehensive authority for Chinese export controls previously scattered across regulations. Key provisions include control lists for dual-use items, military items, and nuclear materials; end-user and end-use controls; extraterritorial application to items containing Chinese-origin content; and explicit authorization for retaliatory measures against countries "abusing export control measures." The law provides legal basis for restricting critical minerals (gallium, germanium, antimony, graphite), rare earth elements, and pharmaceutical precursors where China holds dominant market positions.

Anti-Foreign Sanctions Law of 2021 (反外国制裁法, fǎn wàiguó zhìcái fǎ): Enacted June 2021, this law directly responds to American secondary sanctions and Entity List additions targeting Chinese firms. It authorizes counter-measures against foreign individuals and organizations implementing discriminatory restrictions against Chinese entities, including asset seizes, visa denials, and prohibitions on transactions with Chinese parties. Critically, it requires Chinese entities to implement counter-sanctions—placing firms in impossible positions where complying with American restrictions triggers Chinese penalties. The law transforms individual American coercive acts into occasions for systematic Chinese retaliation.

Zero-Sum Thinking Versus Legitimate Development

Chinese discourse frames the trade conflict as reflecting fundamentally different worldviews:

American zero-sum logic: Chinese commentators argue Washington views international economics through Cold War competitive lens—any Chinese gain represents American loss. This zero-sum thinking produces containment policies: rather than competing to advance, America seeks to hold China back. Evidence includes bipartisan consensus on China competition, framing of Chinese success as "threat," and restrictions targeting Chinese firms regardless of specific misconduct.

Chinese win-win development: Beijing presents alternative vision of mutual benefit through trade, investment, and technology cooperation. China's rise benefits global economy through manufacturing efficiency, market expansion, and innovation. Restrictions harm not just China but American consumers (higher prices), American farmers (lost export markets), and global supply chains (fragmentation inefficiency).

Development rights versus established privilege: At deeper level, conflict reflects tension between developing country rights to industrialize and developed country desire to maintain technological hierarchy. American restrictions aim to preserve permanent advantages, relegating China to low-value manufacturing while Western firms monopolize high-value activities. This perpetuates colonial-era patterns of North-South exploitation.

Belt and Road Initiative: Building Alternative Systems

China positions the Belt and Road Initiative (一带一路, yīdài yīlù) as constructive alternative to Western-dominated trade and financial systems:

Infrastructure investment: Where Western institutions impose conditions and restrictions, BRI provides infrastructure financing for developing countries seeking roads, ports, railways, and power plants. This addresses genuine development needs while creating trade networks centered on China rather than Western capitals.

Alternative payment systems: Facing potential exclusion from dollar-based financial infrastructure, China develops alternatives: Cross-Border Interbank Payment System (CIPS) for yuan-denominated transactions, digital currency electronic payment (DCEP) pilot programs, and bilateral currency swap agreements reducing dollar dependence.

Standards and regulations: BRI projects spread Chinese technical standards in telecommunications (5G), power systems, and construction. As developing countries adopt Chinese standards, they integrate into Chinese rather than Western supply chains.

South-South solidarity: BRI enables China to position itself as leader of developing world challenging Western hegemony. This framing resonates in countries with historical grievances against Western colonialism and contemporary frustrations with IMF/World Bank conditionality.

Implications for Understanding Chinese Responses

Chinese perspectives on the trade war produce predictable response patterns: escalation of American restrictions triggers proportional Chinese retaliation; coercive tactics strengthen rather than weaken Chinese resolve; economic pain is tolerable given nationalist framing and authoritarian governance; and long-term strategic competition replaces hopes for mutual accommodation.

Western policymakers expecting Chinese concessions through economic pressure underestimate Beijing's tolerance for costs and determination to resist perceived containment. The trade war confirmed Chinese narratives about American hostility, validated self-reliance strategies, and accelerated development of counter-coercion capabilities. Whether this serves long-term Chinese interests remains debatable, but understanding these perspectives enables more realistic assessment of policy options and their likely consequences.

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Government Tools Box 1: Section 232 of the Trade Expansion Act

Legal Authority and Statutory Basis

Section 232 of the Trade Expansion Act of 1962, codified at 19 U.S.C. § 1862, authorizes the President to adjust imports of articles and their derivatives if the Secretary of Commerce determines such imports threaten to impair U.S. national security. This remarkably broad authority represents one of the most powerful unilateral trade policy tools available to the executive branch.

Key Provisions

Investigation Process:

1. Initiation: Secretary of Commerce may self-initiate investigation or respond to request from head of any department/agency, interested party, or Congress (19 U.S.C. § 1862(b)(1)(A))

2. Scope: Investigation considers whether:

   • Article is being imported into U.S. in quantities or circumstances that threaten to impair national security

   • Domestic production needed for projected national defense requirements

   • Domestic industries have capacity to meet those requirements

   • Related human resources, products, raw materials, and production equipment are adequate

   • Growth requirements of critical domestic industries may be jeopardized

   • Foreign competition displaces domestic products causing substantial unemployment or decrease in government revenues

3. National Security Definition: Statute provides no definition. Commerce Department interprets broadly to include:

   • Direct military applications and defense production

   • Critical infrastructure (energy, telecommunications, transportation)

   • Economic security and industrial base

   • Supply chain resilience

4. Timeline: Commerce must report findings to President within 270 days of investigation initiation

Presidential Action:

If Commerce determines imports threaten national security, President has 90 days to decide whether to:

• Adjust imports through tariffs, quotas, or other restrictions

• Negotiate agreements with foreign governments to address threat

• Take no action

Presidential determinations receive substantial deference; judicial review extremely limited. Courts generally hold national security determinations are non-justiciable political questions.

Implementing Agencies

Department of Commerce: Bureau of Industry and Security (BIS) conducts investigations, gathering data from:

• Domestic producers

• Importers and foreign producers

• Department of Defense (assessment of defense requirements)

• Other federal agencies (State, Treasury, Energy, Homeland Security)

White House: National Security Council coordinates interagency review. U.S. Trade Representative typically leads policy development. President makes final determination.

Customs and Border Protection: Enforces tariffs/restrictions once imposed.

Recent Applications

Steel and Aluminum Tariffs (2018):

• Investigation launched: April 2017 (steel), March 2017 (aluminum)

• Commerce findings: January 2018 (steel), January 2018 (aluminum) - imports threaten to impair national security by reducing domestic production capacity needed for defense and critical infrastructure

• Presidential action: March 2018 - imposed 25% tariff on steel imports, 10% on aluminum imports globally

• Initial exemptions: Canada, Mexico, EU (later revoked); Australia, Argentina, South Korea (quotas instead)

• Justification: Domestic steel/aluminum production declined from 1970s peaks; imports rose to 26% (steel), 90% (aluminum) for certain products; defense industrial base requires domestic capacity; critical infrastructure (bridges, pipelines, electrical grid) depends on steel/aluminum availability

Automobiles Investigation (2018-2019):

• Investigation launched: May 2018

• Commerce findings: February 2019 (not publicly released) - imports and declining domestic production threaten national security

• Presidential action: May 2019 - delayed action for 180 days to pursue negotiations; subsequently delayed indefinitely; no tariffs imposed as of 2024

• Stated concerns: Auto imports (47% of U.S. market); production shifting abroad; skills and supplier base eroding; defense mobility requirements (tactical vehicles share technology with commercial vehicles)

Uranium Investigation (2019):

• Investigation launched: July 2018

• Commerce findings: April 2019 (not publicly released)

• Presidential action: July 2019 - determined imports threaten national security but declined to impose restrictions; instead created U.S. Nuclear Fuel Working Group to develop recommendations

• Rationale: Domestic uranium mining declined to <1% of consumption; reliance on imports from Kazakhstan, Canada, Russia creates supply vulnerability for naval reactors and nuclear weapons complex

Strengths

1. Executive autonomy: No congressional approval required; President can act unilaterally and rapidly

2. Broad discretion: "National security" undefined; flexible interpretation enables application to wide range of circumstances

3. WTO exception: Article XXI security exception provides legal basis (though contested); less vulnerable to WTO challenge than other trade restrictions

4. Global application: Can impose restrictions on all countries simultaneously or selectively exempt allies

5. Revenue generation: Tariffs generate federal revenue (steel/aluminum tariffs generated ~$10 billion, 2018-2021)

Limitations

1. Minimal judicial review: Courts generally refuse to review national security determinations, creating accountability gap. However, 2020 precedent (Transpacific Steel v. United States) found limited judicial review permissible, ruling Commerce must provide reasoned explanation connecting imports to national security threat.

2. Retaliation: Targeted countries impose counter-tariffs. EU, Canada, Mexico, China, Turkey all retaliated against steel/aluminum tariffs, affecting U.S. exports (agriculture, manufactured goods, consumer products).

3. Domestic opposition: Import-using industries (automotive, construction, food/beverage) oppose tariffs due to increased costs. Estimates suggest steel/aluminum tariffs destroyed more jobs in steel-using industries than saved in steel production.

4. Ally relationships: Applying Section 232 to allies (Canada, EU, Japan, Korea) strains relationships. Canada and EU particularly offended by national security justification for tariffs on long-standing defense partners.

5. Norm erosion: Expansive interpretations (economic security, supply chain resilience) legitimize similar actions by other countries. India, EU, others increasingly invoke security exceptions for trade restrictions.

6. WTO compliance questions: While Article XXI provides legal basis, abuse of security exceptions threatens multilateral trading system. WTO panels (2022) ruled U.S. steel/aluminum tariffs violated Article XXI standards.

7. Economic costs: Tariffs function as taxes on domestic consumers and import-using firms. Studies estimate steel/aluminum tariffs cost U.S. economy $900,000 per job saved in steel/aluminum production—far exceeding average steel worker wages.

European Perspective Box: Strategic Autonomy and the Politics of Extraterritoriality

Understanding European Views on Trade-Based Coercion

European perspectives on economic coercion occupy a distinctive third position — neither the American view (coercion as legitimate tool of primacy) nor the Chinese view (coercion as Western containment). The EU experiences economic coercion from both directions: as a target of Chinese pressure and as collateral damage from American extraterritoriality. This dual exposure has produced a European approach emphasizing institutional rules, multilateral frameworks, and a growing — if still incomplete — commitment to strategic autonomy.

Historical Context: From Rule-Taker to Rule-Maker

The European Union was built on trade rules. The Single Market, the customs union, the Common Commercial Policy — these represent the world's most ambitious experiment in rules-based economic integration. Europeans internalized the lesson of the 1930s: that unilateral trade restrictions and beggar-thy-neighbor policies lead to political catastrophe. This institutional DNA shapes European reactions to both American and Chinese economic coercion: a reflexive preference for WTO adjudication, multilateral coordination, and proportionate response over unilateral escalation.

But this rules-based instinct has been tested. The Trump administration's Section 232 steel and aluminum tariffs (2018) — imposed on allies under a "national security" justification that Europeans found insulting and pretextual — demonstrated that rule-following provides no protection when a major partner abandons multilateral norms. China's informal economic coercion against Lithuania (2021-2022), after Vilnius permitted Taiwan to open a "Taiwanese Representative Office," demonstrated that rules-based economies are vulnerable to state-capitalist pressure tactics that operate below the threshold of formal trade disputes.

Key European Concepts

Strategic Autonomy (autonomie stratégique)

European strategic autonomy — a concept originally articulated by French President Macron and adopted in modified form by the European Commission — describes the EU's aspiration to act independently in defense of its economic interests without dependence on American security guarantees or vulnerability to Chinese leverage. In its trade dimension, strategic autonomy encompasses:

• Reduced dependence on single suppliers: Diversifying critical supply chains away from both Chinese and, in some cases, American dominance

• Defensive trade instruments: Building the EU's own capacity to respond to economic coercion, rather than relying on American protection

• Technology sovereignty: Developing European capabilities in semiconductors, AI, cloud computing, and other strategic sectors — neither American nor Chinese, but European

Strategic autonomy remains contested within the EU. France champions robust autonomy; Germany worries it will damage transatlantic trade and investment; smaller member states fear it reduces their leverage within the alliance. The concept has nonetheless shifted European policy from passive rule-following toward active economic security, codified in the European Commission's 2023 European Economic Security Strategy.

The Blocking Statute (1996, updated 2018)

The EU Blocking Statute, originally adopted in 1996 in response to U.S. extraterritorial sanctions on Cuba, Iran, and Libya, prohibits EU persons from complying with specified U.S. secondary sanctions and nullifies the effect of foreign court judgments based on them. The statute was updated in August 2018 after the Trump administration's withdrawal from the Iran nuclear deal (JCPOA) and reimposition of secondary sanctions on European firms doing legitimate business with Iran.

The Blocking Statute embodies the EU's core legal objection to extraterritoriality: that U.S. secondary sanctions violate international law by extending American jurisdiction to transactions involving no U.S. persons, no U.S. territory, and no U.S.-origin goods. It has, however, proven largely ineffective in practice — European firms, faced with the choice between compliance with EU law and access to dollar-denominated markets, overwhelmingly chose compliance with U.S. sanctions. The BNP Paribas case (2014, $8.9 billion fine for sanctions violations) and the mass withdrawal of European firms from Iran after 2018 demonstrated that American financial market access trumps European legal obligations. The statute's failure catalyzed the search for more effective instruments.

The Anti-Coercion Instrument (ACI, December 2023)

The ACI represents the EU's most significant response to economic coercion, adopted in November 2023 and entering into force on December 27, 2023. It was directly inspired by China's economic pressure on Lithuania and Australia, but its architecture is deliberately non-country-specific:

• Definition: Economic coercion exists when a third country applies or threatens trade/investment measures to pressure the EU or a member state into making a particular policy choice

• Procedure: The Commission investigates, proposes a determination to the Council (which decides by qualified majority — critically, no single-member veto), engages in dialogue with the coercing country, and if dialogue fails, adopts countermeasures

• Response measures: Tariffs, import/export restrictions, exclusion from public procurement, limits on financial market access, restrictions on intellectual property rights — a comprehensive toolkit

• Deterrence logic: The ACI is designed to deter coercion before it occurs, signaling that the EU can impose costs on coercers rather than simply absorbing pressure

The ACI has not yet been formally invoked as of early 2026, but its existence has already reshaped diplomatic calculations. Its adoption by qualified majority voting — removing the single-member veto that previously paralyzed EU trade responses — represents a significant institutional evolution.

European Critiques of U.S. and Chinese Economic Coercion

On American Extraterritoriality

European frustration with U.S. extraterritorial sanctions runs deep and crosses the political spectrum:

• JCPOA withdrawal: The U.S. unilateral exit from the Iran nuclear deal and reimposition of secondary sanctions forced European firms out of a market that the EU had collectively negotiated to open — demonstrating that European commercial interests are subordinate to American domestic politics

• Secondary sanctions as coercion: Europeans view secondary sanctions as the United States coercing allies, not adversaries. When a French bank, a German automaker, or an Italian energy company must abandon legal business because Washington changed policy, Europeans experience this as American economic coercion dressed in the language of alliance solidarity

• Dollar weaponization: The dollar's role as global reserve currency gives the U.S. jurisdiction over virtually any transaction touching the dollar clearing system — a structural asymmetry that Europeans resent but cannot easily escape

On Chinese Economic Coercion

European views on Chinese coercion have hardened significantly since 2020:

• Lithuania precedent: China's de facto trade embargo on Lithuania (2021-2022) over a Taiwan representation office — including blocking Lithuanian goods transiting through other EU member states — was understood as a direct attack on EU single market integrity and member state sovereignty

• "Divide and conquer": Europeans recognize Chinese strategy of targeting individual member states to fracture EU solidarity, creating pressure on smaller economies (Greece, Hungary, Czech Republic) to block collective EU positions on China

• Systemic rivalry: The European Commission's 2019 designation of China as a "systemic rival" alongside "partner" and "competitor" reflected growing recognition that Chinese economic practices — subsidies, forced technology transfer, market access restrictions — represent structural challenges, not solvable through WTO dispute settlement

Implications for Transatlantic Coordination

The EU's development of autonomous economic security tools creates both opportunities and tensions in the transatlantic relationship. On one hand, European investment screening (the EU FDI Screening Regulation), export controls (the EU's dual-use regulation), and the ACI expand the toolkit available for coordinated Western responses to Chinese economic coercion. On the other, European strategic autonomy explicitly aims to reduce dependence on American decisions — the EU does not want to be dragged into economic confrontations driven by American domestic politics, as occurred with Iran.

The central European dilemma: how to coordinate with the United States on China (where interests substantially overlap) while protecting against American extraterritoriality (where interests directly conflict). This balancing act — partner on Monday, target on Tuesday — defines the European experience of 21st-century economic coercion and explains why European policy responses emphasize rules, institutions, and process over the unilateral exercises of power that characterize both American and Chinese approaches.

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Key Insights

• Trade policy has transformed from an economic tool to a strategic weapon: Historically, tariffs served revenue generation and infant industry protection. Today's trade measures increasingly target specific countries and technologies for national security reasons, blurring the distinction between economic policy and security policy. The bipartisan consensus maintaining Trump-era tariffs under the Biden administration confirms this transformation is structural, not partisan.

• The U.S.-China trade war achieved limited compellence but contributed to broader strategic objectives: China made minimal structural reforms in response to tariffs, and Phase One purchase commitments went unfulfilled. However, the trade war accelerated supply chain diversification ("China+1" strategies), signaled U.S. willingness to impose costs, and shifted the political economy of trade toward strategic competition. The mismatch between stated objectives and actual achievements is characteristic of tariff-based coercion.

• Export controls are precision instruments, but precision requires constant adaptation: Unlike tariffs' broad economic impacts, export controls surgically target specific technologies and recipients. However, their effectiveness depends on multilateral coordination, enforcement capacity, and the ability to update controls faster than adversaries develop workarounds or circumvention networks through third countries.

• The multilateral trade architecture is eroding under strategic competition: The WTO's dispute resolution system faces paralysis as major powers invoke expansive "national security" exceptions. The Trump administration's broad interpretation of Section 232 set a precedent that other countries have adopted to justify their own trade restrictions, accelerating the erosion of rules-based trade.

• The dual-use dilemma makes clean technology restrictions impossible: The same AI chips powering consumer chatbots train military targeting systems. The same gene-editing tools treating cancer could create bioweapons. This inseparability forces governments into an impossible choice between restricting broadly (crippling legitimate commerce) and restricting narrowly (watching controlled technologies flow to adversaries through commercial channels).

• Multilateral export control regimes face structural challenges from non-member producers and intangible technology: The Wassenaar Arrangement and other regimes were designed for a world where advanced technology concentrated in Western hands and transferred through physical exports. China's exclusion from most regimes, growing non-Western technology producers, and the shift to digital technology transfer through cloud computing and remote access all undermine traditional frameworks.

Discussion Questions

1. The U.S.-China trade war imposed estimated GDP costs of 0.5-0.8% on China and 0.3-0.5% on the United States, yet produced minimal structural reform from Beijing. Under what circumstances can tariff-based coercion compel policy changes from a large economy with high pain tolerance? Are there alternative policy designs that could have been more effective?

2. Section 232 steel and aluminum tariffs were justified on national security grounds, but studies estimate they cost the U.S. economy $900,000 per job saved. How should policymakers weigh the economic costs of trade restrictions against their strategic benefits? Is there a principled framework for determining when "national security" justifications for trade restrictions are legitimate versus pretextual?

3. The Wassenaar Arrangement operates by consensus with no binding obligations, and its 42 members can grant export licenses that others would deny. Given these structural weaknesses, should the United States pursue a new, smaller export control alliance among like-minded technology producers (a "Tech 10" or "Chip 4"), or work to reform existing multilateral regimes? What are the trade-offs?

4. China's retaliatory tariffs during the trade war strategically targeted U.S. agricultural products from politically important states. How does the political economy of retaliation -- the ability to target politically sensitive sectors in the coercing country -- constrain the design and sustainability of trade-based coercion?

5. Export controls on dual-use technologies face a fundamental tension: restricting too broadly stifles scientific collaboration and commercial innovation, while restricting too narrowly allows military-relevant capabilities to flow to adversaries. Using semiconductors or AI as a case, propose a framework for drawing the line between permissible commercial trade and restricted strategic technology.

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Tabletop Exercise: The tabletop exercise for this chapter — Tariff Escalation and Trade War Dynamics — can be found in Appendix A: Tabletop Exercises.

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Government Tools Box 2: Export Administration Regulations and Entity List

Legal Authority and Statutory Basis

The Export Administration Regulations (EAR), codified at 15 C.F.R. § 730-774, implement the Export Control Reform Act of 2018 (ECRA), 50 U.S.C. § 4801 et seq. EAR regulates exports of commercial and dual-use items (goods, software, and technology with both civilian and military applications) from the United States, re-exports of certain U.S.-origin items from abroad, and transfers of technology to foreign nationals.

Key Provisions

Jurisdictional Scope:

EAR applies to:

1. U.S.-origin items: All items physically located in U.S. at time of export

2. U.S. content: Foreign-made items incorporating controlled U.S.-origin content above de minimis thresholds (generally 25% for most items, 10% for items destined to embargoed destinations, 0% for items on certain control lists)

3. Foreign Direct Product (FDP) Rule: Foreign-made items produced using U.S.-origin technology or equipment, even if containing no U.S. components

4. U.S. persons: U.S. citizens, permanent residents, and U.S. entities subject to EAR regardless of location; includes restrictions on providing technology or support to foreign persons

Commerce Control List (CCL):

Items subject to EAR organized into ten categories (0-9) covering:

• Nuclear materials and equipment (Category 0)

• Materials, chemicals, and microorganisms (Category 1)

• Materials processing and electronics (Categories 2-3)

• Computers and telecommunications (Categories 4-5)

• Sensors, lasers, navigation, avionics (Categories 6-7)

• Marine and aerospace propulsion (Categories 8-9)

Each item assigned Export Control Classification Number (ECCN) specifying reasons for control (e.g., NS - national security, MT - missile technology, CB - chemical/biological weapons) and destinations requiring licenses.

Licensing Requirements:

Exports require individual licenses unless:

• Item is EAR99 (not on CCL) and destination is not restricted

• License Exception applies (e.g., low-value shipments, temporary exports, encryption)

• General license covers transaction

License applications reviewed by Commerce's Bureau of Industry and Security (BIS), often with input from State, Defense, Energy, and Homeland Security departments. Licenses may be:

• Approved: Exporter may proceed

• Denied: Export prohibited

• Returned without action: Application withdrawn or incomplete

• Subject to conditions: Approved with restrictions (end-use limitations, inspections, reporting)

Entity List (Supplement No. 4 to Part 744):

Identifies foreign persons (individuals, companies, organizations, governments) posing proliferation, terrorism, or national security risks. Entity List designation requires exporters to obtain licenses for specified items (often all EAR-controlled items); licenses typically denied.

As of 2024, Entity List contains 1,000+ entities from 50+ countries. China accounts for 600+ listings, including:

• Telecommunications: Huawei, ZTE, Semiconductor Manufacturing International Corporation (SMIC)

• Surveillance: Hikvision, Dahua, SenseTime, Megvii, CloudWalk, iFlytek

• Supercomputing: Sugon, Phytium, Sunway

• Aerospace/Military: Numerous entities linked to PLA, defense research institutes, missile programs

Implementing Agencies

Bureau of Industry and Security (BIS): Within Commerce Department, administers EAR including:

• Maintaining CCL and Entity List

• Reviewing license applications

• Conducting end-use checks and enforcement investigations

• Coordinating with other agencies on policy

Operating Committee and Advisory Committee on Export Policy: Interagency bodies resolving disputes over license applications, typically involving State, Defense, Energy, Commerce, and sometimes Treasury, Homeland Security, others.

Export Enforcement: BIS Office of Export Enforcement investigates violations, coordinates with FBI, Homeland Security Investigations, and foreign law enforcement.

Penalties and Enforcement

Civil Penalties:

• Up to $330,000 per violation or twice the transaction value, whichever is greater

• Denial of export privileges (temporary or permanent prohibition on participating in exports)

Criminal Penalties (willful violations):

• Fines up to $1 million per violation

• Imprisonment up to 20 years

• Forfeiture of property used in violations

Recent Enforcement Actions:

• ZTE Corporation (2017-2018): Chinese telecommunications equipment manufacturer convicted of violating Iran/North Korea sanctions; $1.19 billion civil and criminal penalties plus $400 million suspended penalty; seven-year denial order suspended but later activated (2018) before settlement requiring U.S. compliance monitor and management changes

• Fujian Jinhua Integrated Circuit Company (2018): Chinese DRAM manufacturer added to Entity List for DRAM technology theft from Micron; U.S. persons prohibited from providing support; company operations suspended

• Huawei Technologies (2019-present): Entity List designation for violating Iran sanctions, stealing trade secrets, and national security threats; expanded 2020 with Foreign Direct Product Rule application cutting off access to semiconductors; multiple executives indicted

• Applied Materials employees (2022): Three employees indicted for violating Entity List restrictions by providing semiconductor manufacturing equipment and services to SMIC

Strengths

1. Extraterritorial reach: Foreign Direct Product Rule extends U.S. control over foreign-made items produced using U.S. technology, giving U.S. leverage over global supply chains

2. Targeted precision: Entity List enables surgically targeting specific companies/organizations while permitting broader trade

3. Flexibility: BIS can add/remove entities relatively quickly (30-day review process) compared to treaty-based multilateral regimes

4. Deterrence: Severe penalties (including criminal prosecution of individuals) and denial orders deter violations

5. Allied coordination: EAR framework compatible with and often coordinates with multilateral regimes (Wassenaar, MTCR, NSG, Australia Group)

Limitations

1. Circumvention: Shell companies, third-country transshipment, and false end-user statements enable evasion. Enforcement resource-intensive; some violations detected years after occurrence.

2. Competitive disadvantage: U.S. firms lose sales to foreign competitors unrestricted by EAR. Semiconductor equipment firms lost billions annually from China restrictions.

3. Allied resistance: Extraterritorial assertions (esp. Foreign Direct Product Rule) generate sovereignty concerns. Netherlands, Japan, Korea initially resisted coordinated semiconductor controls.

4. Definitional challenges: Rapidly evolving technologies (AI, quantum, synthetic biology) difficult to define precisely. Overly broad controls impede legitimate commerce; narrow controls enable military applications.

5. Enforcement gaps: Limited resources for end-use monitoring, especially in uncooperative jurisdictions (China, Russia, Iran, North Korea). Relies heavily on exporter compliance.

6. Chinese retaliation: Entity List designations trigger Chinese counter-restrictions (Unreliable Entity List, export controls on rare earths/gallium/germanium), forcing firms to choose between U.S. and Chinese markets.

7. Technology diffusion: Controlled technologies inevitably proliferate globally. Export controls can delay acquisition but rarely prevent determined adversaries from eventually developing or acquiring capabilities.

Further Reading

• Statute: 50 U.S.C. § 4801 et seq. (Export Control Reform Act of 2018)

• Regulations: 15 C.F.R. § 730-774 (Export Administration Regulations)

• Commerce Department: Bureau of Industry and Security (www.bis.doc.gov) - Entity List, Denied Persons List, CCL

• Federal Register: BIS publishes rule changes, Entity List additions, enforcement actions

• Congressional Research Service: "The Export Administration Regulations: Overview and Related Issues"

• Analysis: Kevin Wolf, "The ECRA and the New World of Export Controls," Akin Gump (2018); Emily Kilcrease, "Assessing the Export Control Reform Act of 2018," CNAS (2019)

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Case Study 1: U.S.-China Trade War (2018-Present)

Background and Escalation

The U.S.-China trade war represents the largest bilateral trade conflict in modern history, affecting over $600 billion in annual trade and $360 billion in tariffed goods. What began as targeted tariffs on specific sectors escalated through tit-for-tat retaliation into comprehensive trade restrictions affecting consumer goods, agricultural products, and critical industrial inputs.

Origins: Trump administration's August 2017 Section 301 investigation concluded China engaged in unfair trade practices: forced technology transfer requirements for market access, discriminatory licensing restrictions, cyber espionage to steal intellectual property, and massive state subsidies to strategic industries. USTR estimated Chinese practices cost U.S. economy $50+ billion annually in lost innovation and competitiveness.

Escalation Timeline:

• March 2018: Initial $50 billion tariff announcement targeting Chinese high-tech goods

• July 2018: First tranche ($34 billion) implemented at 25%; China retaliates equivalently

• August 2018: Second tranche ($16 billion) implemented; China retaliates

• September 2018: Massive escalation - $200 billion Chinese imports at 10%; China retaliates on $60 billion U.S. exports

• May 2019: Tariffs on $200 billion increased from 10% to 25% as negotiations fail

• August-September 2019: Additional $112 billion at 15%; China retaliates; yuan depreciates below 7.0

• January 2020: Phase One Agreement; U.S. reduces some tariffs to 7.5% but maintains 25% on $250 billion

• 2021-2024: Biden maintains Trump tariffs; adds targeted increases (EVs to 100%, solar to 50%, batteries, steel)

Peak Impact: U.S. tariffs affected $360 billion Chinese imports (66% of total); effective average rate 19.3%. Chinese retaliatory tariffs affected $185 billion U.S. exports (72% of total); average rate 20.7%.

Applying the Four-Dimension Framework

Domain: Trade (goods), with spillovers to technology (semiconductor export controls), investment (CFIUS reviews), and financial (Hong Kong dollar peg scrutiny)

Target: Primarily state-level (China as whole), but differential sectoral impacts:

• U.S. targeting: Chinese high-tech manufacturing (machinery, electronics, telecommunications), emerging technologies (AI, robotics), and consumer goods; deliberately excluded some inputs critical to U.S. supply chains

• Chinese retaliation: U.S. agriculture (soybeans, pork, wheat—targeting Republican-voting states), energy, aircraft, automobiles; designed to create maximum political pressure on Trump administration

Objective: Multiple overlapping and partially contradictory objectives complicated assessment:

1. Compellence (stated primary objective): Force Chinese structural reforms - end forced technology transfer, improve IP protection, reduce subsidies, increase market access

2. Containment: Slow China's technological advancement by disrupting supply chains and forcing U.S./allied firms to diversify away from China ("China+1" strategies)

3. Industrial policy: Rebuild U.S. manufacturing base, reduce dependence on China for critical goods, create political wins ("bringing jobs back")

4. Signaling: Demonstrate U.S. willingness to impose costs in strategic competition; rally allies; establish toughness credentials domestically

Intensity: Level 3-4 (Substantial-to-Major sectoral coercion)

• Affected majority of bilateral trade but exempted many critical inputs and services

• Neither side pursued complete decoupling or autarky

• Both maintained mechanisms for de-escalation (Phase One negotiations, exemption processes, exclusions)

• Level 3 initially (2018-2019); escalated toward Level 4 (2019-2020) before Phase One Agreement partial de-escalation

Effectiveness Assessment: Five Criteria

1. Target Compliance: LOW

Measured against stated compellence objectives, the trade war failed to achieve structural reforms:

• Forced technology transfer: No significant changes. U.S. firms continuing operations in China still face pressure for technology sharing as condition of market access. Phase One Agreement language on voluntary technology transfer lacks enforcement.

• IP protection: Minimal improvements. China enacted patent law amendments (2020) and copyright law amendments (2020) but enforcement remains weak. U.S. firms report continued theft, counterfeiting, and forced licensing.

• Subsidies: No reduction. China's industrial subsidies increased through semiconductor Big Fund III ($47 billion, 2024), EV subsidies, green technology support. Made in China 2025 rebranded but objectives unchanged.

• Market access: Limited improvements in Phase One Agreement (financial services, agriculture) but major sectors remain closed or restricted (internet services, telecommunications, media).

• Purchase commitments: Phase One required China purchase $200 billion additional U.S. goods (2020-2021). Actual purchases: $288 billion below target (58% of 2020 commitment, 71% overall). No enforcement mechanism invoked.

China's non-compliance reflects assessment that tolerating tariff costs preferable to compromising strategic economic model. Leadership prioritized maintaining state-directed development over tariff relief.

2. Capability Degradation: MODERATE

Tariffs contributed to supply chain reconfiguration reducing China's economic leverage:

• Trade diversion: Chinese export share to U.S. fell from 21.6% (2017) to 16.5% (2023). Vietnam, Mexico, India, Taiwan captured market share. Some genuinely diversified; much represents Chinese goods routed through third countries.

• Manufacturing relocation: Apple, Samsung, Intel, Dell, HP announced production shifts. Vietnam's exports to U.S. surged from $49 billion (2017) to $115 billion (2023); Mexico became largest U.S. trade partner (2023, partly from Chinese nearshoring).

• Technology ecosystem fragmentation: Combined with semiconductor export controls and CFIUS reviews, tariffs accelerated bifurcation into U.S./Allied and Chinese technology spheres. Long-term reduces Chinese access to cutting-edge technologies but also U.S./allied market access to China.

However, limits clear:

• Chinese domestic market ($17 trillion GDP, 1.4 billion consumers) provides scale for many sectors independent of U.S. market

• Chinese manufacturing capacity remains massive; still produces 28% of global manufacturing output

• In critical sectors (rare earths, solar panels, batteries, APIs), China retained or increased dominance

3. Cost Imposition: MODERATE

Tariffs imposed measurable but manageable costs on both sides:

Chinese costs:

• GDP impact: Economic studies estimate 0.5-0.8% reduction (2018-2020), approximately $65-100 billion lost output

• Export losses: $140 billion decline in U.S.-bound exports (2018-2019)

• Job losses: Estimates range 1-3 million manufacturing jobs, concentrated in export-oriented coastal provinces

However, China's simultaneous economic slowdown from debt deleveraging and COVID-19 makes isolating trade war effects difficult.

U.S. costs:

• GDP impact: 0.3-0.5% reduction, approximately $60-100 billion lost output

• Consumer costs: Tariffs raised prices for consumer goods (electronics, apparel, furniture); average household paid $800-1,300 annually in tariff costs

• Agricultural losses: $27 billion lost exports (2018-2020); partially offset by $23 billion government subsidies to farmers

• Manufacturing: Tariff-protected industries (steel, aluminum) saw minimal employment gains; tariff-affected input-using industries (automotive, construction, appliances) lost employment

Political costs:

• U.S.: Agricultural state anger partially neutralized by subsidies; manufacturing state support sustained Trump politically

• China: Nationalist rhetoric framed tariffs as Western containment, rallying domestic support; limited domestic political costs due to authoritarian system

Neither side faced intolerable costs forcing capitulation. Mutual tolerance for economic pain enabled stalemate.

4. Sustainability: MODERATE-HIGH

Both sides sustained tariffs six years (2018-2024) without resolution, demonstrating political sustainability:

Factors supporting sustainability:

• U.S.: Bipartisan consensus on China threat; Biden maintained Trump tariffs to avoid appearing "soft"; removing tariffs politically costly (framed as concession)

• China: Authoritarian system enables costs imposition without electoral accountability; nationalist framing generates public support

• Economic adaptation: Firms adjusted supply chains, absorbed costs, raised prices; initial shock effects moderated over time

Pressures for de-escalation:

• U.S. inflation (2021-2023): Consumer price increases created pressure to remove tariffs as anti-inflationary measure; Biden Treasury Secretary Yellen advocated removal

• Chinese growth slowdown (2023-2024): Economic weakness, property crisis, and export decline created pressure for trade normalization

• Allied pressure: EU, Japan, Korea seek clarity on U.S. trade strategy; inconsistent tariff policy complicates coordination

Despite pressures, tariffs remain as of 2024, suggesting high political sustainability absent major crisis or leadership change.

5. Collateral Damage: MODERATE-HIGH

Tariffs generated substantial unintended costs:

U.S. domestic:

• Consumers: Higher prices on everyday goods; tariffs function as regressive tax (low-income households spend higher share of income on tariffed goods)

• Downstream industries: Input-using industries (automotive, construction, food/beverage using steel/aluminum) faced higher costs, lost competitiveness, shed jobs

• Exporters: Retaliatory tariffs (agriculture especially) caused concentrated losses; subsidies only partially compensated

Chinese domestic:

• Exporters: Smaller firms lacked resources to shift production or absorb costs; closures and consolidation

• Consumers: Retaliatory tariffs on U.S. goods reduced consumer choice and raised prices (soybeans, aircraft, automobiles)

Global:

• Supply chain disruption: Uncertainty disrupted long-term planning; firms delayed investments; trade growth slowed globally

• Ally pressure: U.S. steel/aluminum tariffs on Canada, EU, Japan, Korea strained relationships; forced allies to choose sides in U.S.-China competition

• WTO erosion: Normalization of security exceptions and dispute resolution bypassing undermined multilateral trading system; other states followed precedent (India, Russia, UAE invoking Article XXI)

• Fragmentation costs: Efficiency losses from dual supply chains serving separate markets; reduced economies of scale and innovation spillovers

Lessons for Economic Coercion Strategy

1. Objective Clarity Matters: U.S. articulated multiple objectives (structural reform, containment, industrial policy, signaling). Achieving structural reform (compellence) required credible threat of sustained pain exceeding target's tolerance. But political dynamics favored face-saving de-escalation (Phase One Agreement) over sustained pressure. Clearer prioritization might have improved effectiveness.

2. Asymmetric Vulnerabilities: Large, relatively closed economies (U.S., China) tolerate tariff costs better than small, trade-dependent economies. Neither faced existential threat from bilateral tariffs given large domestic markets and diversified trade partners. Tariff-based coercion more effective against smaller, more dependent targets.

3. Retaliation Certainty: Targets with capacity to retaliate will do so, creating domestic political costs offsetting coercive leverage. U.S. agriculture suffered from Chinese retaliation; Chinese manufacturing from U.S. tariffs. Successful coercion requires either retaliation-proof position (no vulnerabilities) or domestic political insulation from retaliation costs (authoritarian systems, compensation mechanisms).

4. Multilateral Gaps: Unilateral tariffs created competitive disadvantages for U.S. firms while Chinese firms sourced from European, Japanese, Korean suppliers unrestricted by tariffs. Effectiveness required broader coordination—difficult to achieve given allies' economic ties to China.

5. Strategic vs. Economic Logic: Trade war operated on strategic competition logic (relative gains, security considerations) not economic logic (absolute gains, efficiency). Evaluated purely economically, tariffs imposed net costs on both sides. But strategic logic—reducing Chinese capabilities, diversifying supply chains, signaling resolve—may justify economic costs if achieves security objectives. Assessment depends on weighing economic costs against security benefits—fundamentally political, not economic, calculation.

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Case Study 2: CoCom Export Controls Against the Soviet Union (1949-1994)

Background and Structure

The Coordinating Committee for Multilateral Export Controls (CoCom) coordinated Western export controls denying the Soviet bloc access to advanced technologies during the Cold War. This historical case clarifies current challenges in technology denial, demonstrating both possibilities and limitations of long-term multilateral export restrictions.

Formation and Members:

Established November 1949 in Paris, CoCom formalized Western export controls initiated after World War II. Seventeen members: United States, United Kingdom, France, Germany (West), Italy, Netherlands, Belgium, Luxembourg, Denmark, Norway, Portugal, Greece, Turkey, Canada, Australia, Japan (1950), and Spain (1985). NATO members except Iceland; included Japan and Australia for technology coverage.

Legal Status: Informal "gentlemen's agreement" without treaty, charter, or binding obligations. Enabled members to coordinate policies while maintaining domestic legal authorities. No international secretariat; small staff in U.S. Embassy Paris. Decisions by consensus.

Control Lists: Three embargo lists covering:

1. International Munitions List: Weapons, ammunition, military equipment - comprehensive prohibition

2. International Atomic Energy List: Nuclear materials, equipment, technology - comprehensive prohibition for military; restricted for civilian

3. International Industrial List: Dual-use items (electronics, telecommunications, computers, machine tools, materials, chemicals, transportation, propulsion) - case-by-case review, generally denial to Soviet bloc

Lists detailed: Multiple thousands of items specified by technical parameters (e.g., computers by processing speed, machine tools by precision). Updated periodically as technology evolved and members negotiated.

Strategic Objectives and Implementation

CoCom served containment strategy: Deny Soviet Union and Warsaw Pact access to Western technologies that would strengthen military capabilities, enable economic competition, or sustain Communist system. Specific objectives:

1. Military: Deny weapons, military equipment, technologies enhancing Soviet conventional forces, nuclear capabilities, missile systems, submarines, aircraft

2. Dual-use: Restrict computing, telecommunications, manufacturing equipment, materials enabling both economic and military advancement

3. Economic: Impose costs through forcing indigenous development; delay Soviet capabilities; widen technology gap

Implementation Challenges:

Free-riding and cheating: Members had commercial incentives to approve sales others denied. Extensive evidence of "defections":

• France and Italy particularly willing to approve marginal items for commercial gains

• 1980s scandals: French sales of computer-controlled machine tools to Soviet Union; Italian sales of Ball bearing manufacturing to Soviets; Toshiba-Kongsberg (Japan-Norway) sale of submarine propeller milling machines to Soviets (1987) enabled quieter submarines, undermining U.S./NATO anti-submarine warfare advantage

Enforcement variation: Smaller members (Portugal, Greece) lacked resources for robust export controls. Some prioritized commerce over security. Transshipment through non-members (Austria, Switzerland, Finland) and neutral countries created evasion routes.

Technology evolution: Rapid advancement in computing, semiconductors, telecommunications meant controlled technologies proliferated beyond OECD countries. As items became commercially available globally, maintaining denial became impossible. Periodic control list updates lagged technology change.

Scope debates: Ongoing disputes over what to control:

• U.S. position: Broad controls covering maximum items; interpret dual-use categories expansively; focus on technology gap maintenance

• European/Japanese position: Narrow controls to avoid excessive commercial harm; focus on direct military applications; technology diffusion inevitable so prioritize commercial relationships

Consensus requirement meant controls represented lowest common denominator acceptable to all members, often narrower than U.S. preferred.

Applying the Four-Dimension Framework

Domain: Technology (export controls), with spillovers to trade (broader economic embargo) and finance (restrictions on credits/loans to Soviet Union)

Target: State-level (Soviet Union) plus Warsaw Pact allies (East Germany, Poland, Czechoslovakia, Hungary, Romania, Bulgaria); later extended to China (pre-1980), North Korea, Cuba, Vietnam

Objective: Multiple objectives spanning containment strategy:

1. Deterrence: Deny technologies enabling Soviet military threat to West

2. Containment: Limit Soviet economic and technological development; maintain Western advantage

3. Degradation: Impose costs through forcing expensive indigenous development

4. Signaling: Demonstrate Western unity and resolve in Cold War competition

Intensity: Level 4 (Major structural coercion) against Soviet Union:

• Comprehensive restrictions on military and dual-use technologies

• Covered vast range of items (thousands on control lists)

• Sustained for 45 years (1949-1994)

• Combined with broader economic embargo (U.S. prohibited most trade; Europeans maintained limited trade in non-strategic goods)

Effectiveness Assessment: Five Criteria

1. Target Compliance: N/A (Not Applicable)

CoCom's objectives were containment and degradation, not compellence. No specific behavioral changes demanded; goal was sustained denial of capabilities. Soviet Union never "complied" because no compliance mechanism existed.

However, can assess whether CoCom forced Soviet strategic adjustments:

• Soviet Union pursued autarkic indigenous development rather than seeking accommodation for technology access - indicates controls perceived as non-negotiable

• Soviet technology acquisition strategy shifted to espionage, smuggling, front companies, and reverse engineering - indicates controls were binding

• Soviet proposals for détente sometimes included technology transfer requests - indicates Soviet leadership valued Western technology

2. Capability Degradation: MODERATE-HIGH

Post-Cold War assessments (including Soviet archives and officials' testimony) reveal substantial impacts:

Delays: Soviet military and civilian technologies lagged West by:

• Computing: 5-10 years behind; Soviet computers in 1980s equivalent to early-1970s Western systems

• Semiconductors: 8-12 years behind; never achieved submicron fabrication at scale

• Telecommunications: 10-15 years behind; telephone penetration, switching equipment, fiber optics far inferior

• Manufacturing: Precision machine tools, computer-aided design/manufacturing, automation lagged significantly

Forced indigenous development: Soviet Union invested massive resources achieving technological self-sufficiency:

• Computer industry: Substantial investment in Soviet mainframes, minicomputers, microprocessors - achieved limited success but at enormous cost and with poor reliability

• Semiconductor fabrication: Built domestic equipment for chip manufacturing - consistently generation(s) behind Western/Japanese equipment

• Manufacturing: Domestic machine tool industry produced lower precision tools than Western equivalents; poor quality control

Economic costs: Technology gap contributed to chronic Soviet productivity problems:

• Manufacturing efficiency 40-50% of Western levels (partly due to systemic factors like central planning, but technology played role)

• Consumer goods quality poor compared to Western products

• Military equipment: Often technologically inferior to Western equivalents (though sometimes Soviet systems emphasized different attributes like ruggedness over precision)

Military impacts:

• Naval: Submarine quieting technology lag enabled Western ASW advantage throughout Cold War

• Air: Avionics, precision manufacturing, materials lagged; Soviet aircraft less capable until late Cold War

• Space: Initial Soviet advantage eroded; microelectronics gap hindered sophisticated systems

• Nuclear: Soviet nuclear complex successful but at enormous cost; reliance on espionage for some key technologies

3. Cost Imposition: MODERATE-HIGH

CoCom imposed substantial costs but didn't cripple Soviet economy or military:

Research and development costs: Forced indigenous development required massive R&D spending:

• Soviet R&D expenditures estimated 3-4% of GDP (vs. 2-2.5% for U.S.) - higher percentage of smaller economy

• Much R&D directed to replicating Western technologies rather than genuine innovation

• Inefficiencies in Soviet science/technology system amplified costs

Economic inefficiency: Technology lag perpetuated Soviet productivity problems contributing to long-term stagnation

Military disadvantages: Technology gaps required compensating through mass (more weapons compensating for inferior quality) and alternate approaches (emphasis on quantity over sophistication)

However, costs were tolerable:

• Soviet Union sustained competition for 45 years without capitulating due to technology denial

• Soviet military remained formidable throughout Cold War despite technology gaps

• Technology controls alone didn't cause Soviet collapse; systemic economic problems (central planning, political repression, Afghanistan war costs) more significant

4. Sustainability: HIGH

CoCom sustained for 45 years (1949-1994), demonstrating high political sustainability:

Factors supporting sustainability:

• Existential threat perception: Cold War nuclear confrontation created shared Western interest in limiting Soviet capabilities

• Alliance cohesion: NATO integration and shared security guarantees aligned members' interests

• Gradual liberalization: Control lists narrowed over time as détente progressed and technology proliferated; prevented excessive commercial harm maintaining political support

Periodic challenges:

• Détente (1970s): Pressure to relax controls as East-West relations improved; some liberalization occurred

• Commercial interests: Ongoing industry lobbying for narrower controls and exceptions

• Technology change: Proliferation of controlled technologies made restrictions less enforceable

Despite challenges, members sustained basic framework until Cold War ended. Dissolution (1994) followed Warsaw Pact collapse (1991) and Soviet dissolution (1991), indicating controls sustainable as long as security threat perceived.

5. Collateral Damage: LOW-MODERATE

Compared to modern trade wars, CoCom generated modest collateral damage:

Western firms: Lost sales to Soviet bloc but compensated through Western markets; Soviet market small relative to OECD commerce Neutral countries: Austria, Switzerland, Finland benefited from transshipment opportunities but faced Western pressure for enforcement Global technology diffusion: Some controls on dual-use items temporarily slowed proliferation to neutral/developing countries Alliance tensions: Periodic disputes over control lists strained intra-alliance relations but never threatened fundamental cooperation

Overall, collateral damage limited due to:

• Relatively small size of Soviet market

• Focus on technology rather than broad trade

• Ability to adjust controls over time preventing excessive commercial harm

Relevance to Contemporary China Export Controls

CoCom's lessons for current U.S./Allied export controls on China:

Similarities:

• Long-term strategic competition requiring sustained technology denial

• Multilateral coordination challenges (free-riding, commercial interests, enforcement gaps)

• Dual-use technologies with legitimate civilian applications complicating controls

• Target pursuing indigenous development as counterstrategy

Key Differences:

1. Economic integration: Soviet Union had minimal trade with West; China is deeply integrated in global economy, complicating controls and raising costs

2. Market size: Soviet market small relative to West; China's market ($17 trillion GDP) rivals U.S./EU, creating greater commercial incentives to defect

3. Technology position: Soviet Union lagged West substantially; China near technological frontier in many domains, making technology denial more difficult

4. Alternative suppliers: Soviet-era controls covered most advanced producers; today India, Israel, Brazil, others outside control regimes

5. Alliance structure: NATO provided institutional framework for CoCom; no equivalent for China controls (no formal alliance, ad hoc coalitions)

Strategic implications: CoCom demonstrates that sustained multilateral technology denial can impose meaningful costs and delays on adversaries but cannot prevent determined states from eventually developing capabilities, especially when targets are large, technologically advanced, and economically integrated globally. Effective technology denial against China requires broader participation, tighter enforcement, and greater willingness to accept commercial costs than CoCom achieved—a challenging standard.

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Data Sources and Further Research

Trade Data and Statistics

U.S. International Trade Commission (USITC): DataWeb (https://dataweb.usitc.gov)

• Comprehensive U.S. import/export data by country, commodity (HS code), value, quantity

• Tariff rate data including MFN, preferential, and Section 301/232 rates

• Monthly updates; historical data back to 1989

• Essential for tracking bilateral trade flows and tariff impacts

UN Comtrade Database: (https://comtrade.un.org)

• Global bilateral trade statistics from 190+ countries

• Harmonized System (HS) commodity classifications at various digit levels

• Annual and monthly data; coverage varies by country

• Enables comparison of U.S.-China trade patterns with global trends

U.S. Census Bureau Foreign Trade Statistics: (https://www.census.gov/foreign-trade)

• Monthly U.S. trade balance data by country and commodity

• Advance monthly trade deficit/surplus reports

• Historical data and interactive tools

• Source for official U.S. trade figures

World Trade Organization Statistics Database: (https://stats.wto.org)

• Global trade statistics and tariff profiles

• Trade policy review reports for member countries

• Dispute settlement case database with panel/Appellate Body reports

• Tariff Analysis Online tool showing applied MFN and preferential rates

Export Control Data and Documentation

Bureau of Industry and Security (BIS): (https://www.bis.doc.gov)

• Export Administration Regulations (EAR) full text

• Commerce Control List with Export Control Classification Numbers (ECCNs)

• Entity List, Denied Persons List, Unverified List (updated continuously)

• Federal Register notices of rule changes, Entity List additions

• License exception guidance and frequently asked questions

• Annual reports on export license applications and denials by country/item

Wassenaar Arrangement: (https://www.wassenaar.org)

• Munitions List and Dual-Use List (updated biannually)

• Public statements and communiqués (annual plenary meetings)

• Best practices guides for implementing export controls

• Denial notifications database (members-only but some aggregate data public)

Congressional Research Service Reports:

• "Export Controls: Overview and Issues for Congress" (updated regularly)

• "The Export Administration Regulations: Overview and Related Issues"

• "Section 232 Investigations: Overview and Issues for Congress"

• "U.S.-China Trade Issues" (updated regularly)

• "The WTO Dispute Settlement System: Status and Reform"

• Available through congressional offices or FAS.org (Federation of American Scientists)

U.S. Government Official Documents

Federal Register: (https://www.federalregister.gov)

• All BIS rule changes, Entity List additions, temporary denial orders

• Commerce Section 232 investigation reports (steel, aluminum, automobiles, uranium)

• USTR Section 301 investigation reports (China, EU, others)

• Presidential proclamations imposing tariffs and quotas

White House Statements and Fact Sheets:

• Presidential memoranda and executive orders on trade and export controls

• Fact sheets explaining semiconductor export controls (October 2022, October 2023)

• National Security Strategy documents

• Readouts of leader-level meetings on trade issues

Office of the U.S. Trade Representative: (https://ustr.gov)

• Section 301 reports (China technology transfer investigation, subsequent reviews)

• National Trade Estimate Report on Foreign Trade Barriers (annual)

• Trade agreement texts (Phase One U.S.-China Economic and Trade Agreement)

• WTO filings and dispute settlement submissions

Department of Commerce Reports:

• Section 232 investigation reports on steel, aluminum, automobiles, uranium

• Supply chain assessments (100-day supply chain review, 2021)

• International Trade Administration industry reports

• Trade statistics and analysis

Economic Analysis and Impact Studies

Peterson Institute for International Economics: (https://piie.com)

• Chad Bown's trade war tracker (updated monthly): tariff data, import values affected, retaliation tracking

• Policy briefs analyzing tariff impacts, trade diversion, economic costs

• Research on WTO disputes, export controls, trade agreements

• China Economic Watch monitoring Chinese policies and responses

National Bureau of Economic Research Working Papers: (https://www.nber.org)

• Academic studies on tariff incidence, trade war impacts, supply chain effects

• Key papers:

  • Amiti, Redding, Weinstein: "The Impact of the 2018 Tariffs on Prices and Welfare" (AER 2019)

  • Fajgelbaum et al.: "The Return to Protectionism" (QJE 2020)

  • Flaaen and Pierce: "Disentangling the Effects of the 2018-2019 Tariffs" (Fed Working Paper)

  • Cavallo et al.: "Tariff Pass-Through at the Border and at the Store" (AEJ 2021)

Federal Reserve Economic Data (FRED): (https://fred.stlouisfed.org)

• Trade balance time series

• Import/export price indices by country

• Manufacturing employment and output data

• Exchange rate data (including CNY/USD)

Policy Think Tank Analysis

Center for Strategic and International Studies (CSIS): (https://www.csis.org)

• Briefs on export controls, technology competition, supply chains

• ChinaPower project tracking Chinese economic/trade policies

• Technology and Security Program analysis of semiconductor controls

Center for a New American Security (CNAS): (https://www.cnas.org)

• Economic statecraft program publications

• Analysis of export controls, investment screening, sanctions coordination

• Reports on allied coordination in technology restrictions

Council on Foreign Relations: (https://www.cfr.org)

• Backgrounders on U.S.-China trade war, WTO, export controls

• Expert analysis and policy recommendations

• Global Economics Program publications

Brookings Institution: (https://www.brookings.edu)

• Order from Chaos blog covering trade and economics

• China Strategy Initiative papers

• Global Economy and Development Program research

Chinese Government Sources (English)

Ministry of Commerce (MOFCOM): (http://english.mofcom.gov.cn)

• Press releases on trade disputes, countermeasures

• Trade statistics (China Customs data)

• Policies on export controls, Unreliable Entity List

State Council Information Office:

• White papers on trade, technology, China-U.S. relations

• Official Chinese government positions on trade disputes

National Development and Reform Commission (NDRC):

• Industrial policy documents (Made in China 2025, strategic emerging industries)

• Five-Year Plans (English summaries)

Global Times (state media, English): (https://www.globaltimes.cn)

• Nationalist perspective on trade disputes

• Commentary reflecting Chinese government views

WTO and International Organizations

World Trade Organization Dispute Settlement: (https://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm)

• Panel and Appellate Body reports (full text)

• Dispute status tracking

• Legal interpretation of GATT Article XXI (security exception), Article XX (general exceptions)

• Key cases: DS544 (U.S. Steel and Aluminum), DS543 (U.S. Tariff Measures on China)

Organization for Economic Cooperation and Development (OECD): (https://www.oecd.org)

• Trade policy reports and statistics

• Export credits and officially supported export credits data

• Digital Economy Papers on technology competition

Legal Resources

International Trade Law Materials:

• 19 U.S.C. § 1862 (Section 232 of Trade Expansion Act of 1962)

• 19 U.S.C. § 2411 (Section 301 of Trade Act of 1974)

• 50 U.S.C. § 4801 et seq. (Export Control Reform Act of 2018)

• 15 C.F.R. § 730-774 (Export Administration Regulations)

Court of International Trade Decisions: (https://www.cit.uscourts.gov)

• Transpacific Steel LLC v. United States (Section 232 judicial review)

• License denial and Entity List designation challenges

• Tariff classification disputes

Justia and Cornell LII: Free legal databases providing:

• U.S. Code sections on trade and export controls

• Code of Federal Regulations (CFR) for EAR and other trade regulations

• Case law on trade disputes

Industry and Business Sources

Semiconductor Industry Association (SIA): (https://www.semiconductors.org)

• Industry statistics (production, sales, R&D)

• Policy positions on export controls

• Factbooks and market analyses

U.S. Chamber of Commerce: (https://www.uschamber.com)

• Business perspectives on tariffs and export controls

• Impact studies on trade policy

• Policy recommendations

National Association of Manufacturers: (https://www.nam.org)

• Surveys of manufacturing sentiment

• Analysis of tariff impacts on member companies

• Trade policy advocacy positions

Academic Journals

American Economic Review Quarterly Journal of Economics Journal of Political Economy

• Rigorous empirical studies on trade policy impacts

Journal of International Economics

• Specialized research on trade, tariffs, trade policy

Foreign Affairs Foreign Policy

• Policy-oriented analysis accessible to practitioners

The China Quarterly Journal of Contemporary China

• Specialized research on Chinese economic policy and politics

Tracking Tools and Databases

Chad Bown's Trade War Tracker: (https://www.piie.com/research/piie-charts/us-china-trade-war-tariffs-date-chart)

• Interactive visualization of U.S.-China tariffs

• Updated monthly with new policy changes

• Tracks retaliation and exemptions

HS Code Lookup Tools:

• USITC HTS (Harmonized Tariff Schedule) lookup: Determine applicable tariffs by product

• UN Trade Statistics Knowledgebase: HS code descriptions and conversions

Historical Resources for CoCom Study

Cold War International History Project (Wilson Center): (https://www.wilsoncenter.org/program/cold-war-international-history-project)

• Declassified documents on CoCom operations

• Soviet responses to export controls

• Allied coordination and disputes

National Security Archive (George Washington University): (https://nsarchive.gwu.edu)

• Declassified documents on Cold War export controls

• Presidential decision memoranda on CoCom policy

For Practitioners

Export Compliance Training Institute: (https://www.ectionline.org)

• Training materials on EAR compliance

• Updates on regulatory changes

• Best practices for corporate export control programs

Law Firm Client Alerts:

• Akin Gump, Covington & Burling, Steptoe & Johnson, Hogan Lovells, Gibson Dunn

• Timely analysis of new export control rules, Entity List additions, enforcement actions

Research Strategy Recommendations

For Understanding Tariff Impacts:

1. Start with UN Comtrade or USITC DataWeb for bilateral trade data

2. Use Peterson Institute tracking tools for policy timeline

3. Consult NBER working papers for rigorous economic analysis

4. Check Federal Register for official tariff proclamations and legal basis

For Export Control Research:

1. Begin with BIS website for current EAR, CCL, and Entity List

2. Review Federal Register notices for rule changes and justifications

3. Consult CRS reports for policy overview and congressional perspectives

4. Track industry responses through SIA and business association statements

For WTO Disputes:

1. Access dispute case files on WTO website for panel/Appellate Body reports

2. Review government submissions for parties' legal arguments

3. Consult academic analysis in trade law journals

4. Track implementation and retaliation through USTR and WTO announcements

For Chinese Perspectives:

1. Official sources: MOFCOM, State Council white papers for government positions

2. State media: Global Times, China Daily for nationalist commentary

3. Think tanks: Carnegie-Tsinghua Center, Brookings China experts for analysis

4. Academic journals: China Quarterly, Journal of Contemporary China for research

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References and Further Reading

Essential Books

Chris Miller, Chip War: The Fight for the World's Most Critical Technology (Scribner, 2022)

• Definitive history of semiconductor industry and geopolitics

• Essential background for understanding semiconductor export controls and technology competition

Henry Farrell and Abraham Newman, Underground Empire: How America Weaponized the World Economy (Henry Holt, 2023)

• Theoretical framework for weaponized interdependence

• Applications to trade, finance, and technology competition

Paul Blustein, Schism: China, America, and the Fracturing of the Global Trading System (CIGI Press, 2019)

• Inside account of U.S.-China tensions at WTO

• Negotiations, disputes, and trading system breakdown

Chad P. Bown, Self-Enforcing Trade: Developing Countries and WTO Dispute Settlement (Brookings Institution Press, 2009)

• WTO dispute resolution mechanics

• Enforcement challenges and power asymmetries

Michael Mastanduno, Economic Containment: CoCom and the Politics of East-West Trade (Cornell University Press, 1992)

• Definitive academic study of CoCom

• Alliance politics, enforcement, effectiveness assessment

Key Academic Articles

Mary E. Lovely and Jeffrey J. Schott, "The US-China Trade War: A Breakdown," Peterson Institute for International Economics Working Paper (2019)

Pablo D. Fajgelbaum, Pinelopi K. Goldberg, Patrick J. Kennedy, and Amit K. Khandelwal, "The Return to Protectionism," Quarterly Journal of Economics 135:1 (2020): 1-55

Mary Amiti, Stephen J. Redding, and David E. Weinstein, "The Impact of the 2018 Tariffs on Prices and Welfare," Journal of Economic Perspectives 33:4 (2019): 187-210

Aaron Flaaen and Justin Pierce, "Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector," Federal Reserve Board Finance and Economics Discussion Series (2019)

Emily J. Blanchard, Chad P. Bown, and Robert C. Johnson, "Global Supply Chains and Trade Policy," NBER Working Paper 26153 (2019)

Policy Reports

U.S. Trade Representative, "Findings of the Investigation into China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974" (March 22, 2018)

U.S. Department of Commerce Bureau of Industry and Security, "The Effect of Imports of Steel on the National Security" (January 11, 2018)

Congressional Research Service, "Section 232 Investigations: Overview and Issues for Congress" (Updated regularly)

Congressional Research Service, "U.S.-China Trade and Economic Relations: Overview" (Updated regularly)

Congressional Research Service, "The Export Administration Regulations: Overview and Related Issues" (Updated regularly)

White House, "Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth: 100-Day Reviews under Executive Order 14017" (June 2021)

Think Tank and Policy Analysis

Chad P. Bown and Douglas A. Irwin, "Trump's Assault on the Global Trading System—And Why Decoupling from China Will Change Everything," Foreign Affairs (September/October 2019)

Jennifer Hillman, "Three Approaches to Fixing the World Trade Organization's Appellate Body: The Good, the Bad and the Ugly?" Institute of International Economic Law Issue Brief (2018)

Emily Kilcrease and Megan Lamberth, "Assessing the State of U.S. Export Controls: Towards Better Policy, Process, and Resources," Center for a New American Security (2021)

Kevin Wolf, "The ECRA and the New World of Export Controls," Akin Gump Trade Blog (2018)

Wendy Cutler and Aidan Arasasingham, "The U.S. Section 301 Investigation into China's IP Practices: Two Years Later," Asia Society Policy Institute (2020)

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