Navigating the Dueling Sanctions Regimes: A Guide For Businesses Operating in The United States and China

[1] On April 9, 2024, I shared a panel discussion on Crucial Compliance Updates: What’s on Your Radar?, a program that was hosted by the Madison International Trade Association (MITA). My presentation explored the intricacies and challenges that global companies now face when trying to maintain compliant operations amidst conflicting U.S. and China laws. At the heart of the issue lies a fundamental question: how can a company comply with both U.S. and China regulations when they directly contradict each other? This challenge is particularly acute because the US and China, the world’s two largest economies, are increasingly enacting laws with overlapping reach but divergent objectives. This legal tug-of-war forces businesses to navigate a labyrinth of regulations that can have severe consequences for their business continuity, reputation, and financial well-being.

The Dueling Sanctions Landscape

Dueling sanctions refer to the tit-for-tat measures enacted by the United States and China against each other in response to various issues ranging from human rights concerns to trade disputes to geopolitical tensions. When one country imposes sanctions on the other, the targeted nation typically retaliates with its own set of sanctions, leading to a cycle of escalation. These sanctions come in various forms, including additional tariffs; asset freezes; import and export control trade restrictions; travel bans; and financial penalties targeting individuals, entities, and even entire sectors.

With regards to United States sanctions regime, these sanctions have been notably expansive, targeting entities and individuals worldwide for activities deemed contrary to U.S. interests. In recent years, the U.S. has escalated sanctions against Chinese companies and officials over issues such as alleged human rights abuses in Xinjiang; national security concerns related to Huawei and other Chinese tech firms; and perceived infringement of Hong Kong’s autonomy.

China on the other hand, and in response to U.S. sanctions, has implemented its own retaliatory sanctions, targeting U.S. individuals, companies, and organizations deemed to have interfered in its internal affairs or threatened its sovereignty. These measures have included visa bans and asset freezes on US individuals critical of China’s policies, and restrictions on US defense contractors involved in the sale of arms to Taiwan.

Implications for Businesses

For businesses with operations or interests in both the U.S. and China, navigating the dueling sanctions landscape is akin to walking a tightrope. These sanctions can have far-reaching consequences, impacting supply chains, trade relations, and investment opportunities. Here are some key implications:

1. Disrupted Supply Chains: Sanctions can disrupt supply chains by limiting access to critical components or materials from sanctioned entities. This can lead to delays, increased costs, and operational challenges for businesses reliant on these inputs.

2. Market Uncertainty: The uncertainty surrounding dueling sanctions creates a volatile business environment, making it difficult for companies to plan and execute long-term strategies. Fluctuations in regulations and trade policies can affect market access and consumer demand, adding another layer of complexity for businesses.

3. Reputational Risks: Businesses may face reputational risks if they are perceived to be on the wrong side of the sanctions debate. Associations with sanctioned entities or allegations of complicity in human rights abuses can tarnish a company’s brand image and erode consumer trust.

Navigating the Challenges

Despite the daunting challenges posed by dueling sanctions, there are steps that businesses can take to mitigate risks and protect themselves:

1. Stay Informed: Keep abreast of developments in US-China relations, including new sanctions announcements and regulatory changes. Understanding the evolving landscape is crucial for anticipating potential impacts on your business operations.

• Enhance Due Diligence: Conduct thorough due diligence on your business partners, suppliers, and customers to identify any potential exposure to sanction risks. Implement robust compliance measures and monitoring mechanisms to detect and address red flags proactively.

3. Diversify Suppliers and Markets: Reduce dependency on single-source suppliers or markets that are vulnerable to sanctions. Diversifying your supply chain and exploring alternative markets can help mitigate risks and ensure business continuity.

4. Engage with Authorities: Maintain open channels of communication with relevant government agencies and regulatory bodies in both the US and China. Seek guidance on compliance obligations and proactively address any concerns or queries to ensure alignment with applicable sanctions regulations.

Conclusory Remarks

The future of US-China sanctions remains uncertain. Businesses should be prepared for a prolonged period of tension and potential for additional sanctions. As dueling sanctions will continue to shape the US-China relationship, businesses must adapt to the evolving landscape and proactively manage sanctions risks.

[1] Ngosong Fonkem is an International Trade attorney at Harris-Sliwoski LLP.