How Serious Is China’s Threat to Sanction US Companies Over Taiwan Arms Sales?

Will Chinese retaliation have spillover effects?

How Serious Is China’s Threat to Sanction US Companies Over Taiwan Arms Sales?
Credit: Patrick A. Albright/MCoE PAO Photographer

China is using stronger than usual language to express its displeasure with the United States over arms exports to Taiwan. Specifically, Beijing is threatening to sanction the U.S. firms that produce the arms that Washington has decided to transfer. This threat comes as the United States continues to contemplate harsh action against Chinese technology giant Huawei.

The three most obvious targets for sanction, according to the New York Times, are General Dynamics, Oshkosh, and Raytheon, which administer production of the Abrams tank, heavy transportation vehicles, and the Stinger missile, respectively. General Dynamics sells Gulfstream jets all over the world, Oshkosh sells a variety of emergency vehicles in China, and Raytheon, through its proposed merger with United Technologies, has some exposure in the Chinese market. However, given the vast array of contractors and subcontractors that contribute to the production of modern military equipment, Beijing could almost certainly find other firms to blacklist.

While China has threatened such sanctions in the past, it has not followed through. Circumstances have changed, however, with the U.S. threats against Huawei. China may view the U.S. defense firms as sufficiently closely tied to the U.S. government to be appropriate targets of sanction. Or Beijing may merely be indicating to the Trump administration (and to the U.S. Chamber of Commerce) that aggressive steps in the trade war carry a high price.

Weaponizing its relationships with Western firms carries obvious risks for China. Technology and aerospace firms remain prime targets for technology transfer, and rich Chinese businessmen like Gulfstream jets as much as rich people anywhere else. As the appearance of South Korean disentanglement suggests, the mere possibility of political retaliation may drive some U.S. firms out of the Chinese market.

That said, the situation remains in flux. Many U.S. firms seem utterly unenthusiastic about participating in President Trump’s trade war, even in the high technology sector, and the willingness of the U.S. government to constrain American companies is unsettled. Fear of Chinese retaliation may also have affected the willingness of partners, such as the Philippines, to yield in the face of U.S. pressure. Finally, Trump’s waffling on Huawei has left everyone guessing as to what the U.S. might do next. In any case, Beijing is trying to indicate that it, too, is willing to use trade as a weapon to accomplish broader political ends.