Client Alerts

“Stuck in the Middle With You”: U.S.-China Relations and the Impact on European Businesses

November 24, 2020

By Scott Flicker & David Prowse

With the result of the U.S. Presidential election all but certain, the implications of the election of Joe Biden as the next President of the United States will be closely analysed and monitored over the coming weeks and months. One area of foreign policy which will be subject to particularly close scrutiny is the extent to which the impending change in the U.S. Presidency will impact U.S.-China relations.

A number of the highest-profile U.S. measures relating to China, including the imposition of punitive trade tariffs and U.S. actions directed against the Chinese-owned apps TikTok and WeChat, were imposed by the Trump administration via executive orders.

One might therefore assume that the election of Joe Biden is good news for those who want to see a normalisation of relations, a dialling-down of rhetoric, and a scaling back of commerce-dampening trade controls and sanctions imposed by both countries.

However, it is not that simple.

Whilst it may be the case that we will see the removal of a number of the more confrontational trade-related measures imposed by the Trump administration more for their political value than for their effectiveness as economic policy, there remain a series of other measures which are borne out of strategic national security concerns and have cross-party support. Those measures, including the significant increase in the number of Chinese companies on the U.S. Commerce Department Entity List, look set to stay.

A Biden administration may even look for wider international support and cooperation to impose further sanctions on China, particularly in response to human rights violations.

What does this mean for our European clients?

It would be easy to assume that organisations based in Europe or the Middle East without a significant U.S. or Chinese presence would be able to operate unencumbered by the myriad of recent restrictions imposed by the U.S. and Chinese governments.

However, the reach of these restrictions is truly global, crossing national borders and infiltrating supply chains.

A Middle Eastern manufacturer of widgets incorporating U.S. technology might be prohibited under U.S. rules from selling its widgets to a Chinese entity on the U.S. entity list. At the same time, that very same widget manufacturer might be prohibited under Chinese rules from selling those widgets to a U.S. entity if its widgets are designated as a controlled item under the new Chinese Export Control law.

If the anticipated “decoupling” between the U.S. and China accelerates, organisations will increasingly find themselves “stuck in the middle,” the impact of which may hasten their decision making as to where to pivot strategically. However, most companies will want to continue to do business with both the U.S. and China and will hope to avoid a situation where doing so becomes a mutually exclusive luxury.

How can Paul Hastings help?

The rules and restrictions here are extensive, detailed, and prohibitive. However, with careful guidance, they can be navigated.

Our global reach, across the U.S., Europe, and China, and extensive experience in this area allow us to advise our European and Middle Eastern clients on the effective implementation of processes and procedures to ensure compliance on a day-to-day basis with the relevant rules and restrictions.

We also regularly advise our European and Middle Eastern clients on ad-hoc matters involving U.S. and China sanctions and export controls, to provide the reassurance required to continue to operate their businesses globally in an effective and compliant manner.

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Talya Hutchison

Associate, Litigation Department

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Quinn Dang

Associate, Litigation Department

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Scott M. Flicker

Partner, Litigation Department

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David Prowse

Partner, Corporate Department

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Matthew Poxon

Partner, Corporate Department

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Anu Balasubramanian

Partner, Corporate Department

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