China Responds to Pentagon Blacklist, Dozens of US Companies Face Trade Sanctions

Economic and technological rivalries are heating up again after Beijing retaliated against the Pentagon's blacklist with restrictions on dozens of US companies. (Illustration by AI)

JAKARTA - China is again retaliating against pressure from the United States. Beijing restricted trade and government procurement access for dozens of US companies after the Pentagon included a number of Chinese technology giants on a list of entities accused of helping Beijing's military.

In a CNBC report quoted Monday, June 22, China's Ministry of Commerce on Monday included 10 US industrial suppliers on an export control list. The list includes rare earth metal companies MP Materials Corp and USA Rare Earth, as well as drone makers Teal Drones and Jaia Robotics.

Export control means that the government restricts the shipment of certain goods to those on the list. In this case, the companies are prohibited from receiving dual-use goods from China. Dual-use goods are products that can be used for both civilian and military purposes.

Other names on the list include Aveox Inc, a California-based electronics manufacturer, Ball Aerospace & Technologies Corp, as well as Oshkosh Defense, a military equipment supplier.

Beijing's moves did not stop there. The Chinese Ministry of Finance also banned 46 US companies, mostly defense contractors, from participating in government procurement projects. However, foreign-invested entities that are locally registered and related to those companies are exempt from the ban.

This retaliatory action came after the Pentagon updated the 1260H list at the beginning of the month. The list contains companies that Washington considers to help the Chinese military. In the latest update, Alibaba Group, Baidu, and electric car manufacturer BYD were included.

The 1260H list does not directly mean full sanctions. However, the impact is still serious. The US Department of Defense is prohibited from directly awarding contracts to companies on the list starting June 30. Indirect procurement restrictions will follow in 2027.

Other effects could emerge through the attitude of federal institutions and business partners who choose to stay away because they are afraid of being dragged into political and security risks.

Han Shen Lin, director of China at consulting firm The Asia Group, told CNBC that Beijing's move was more symbolic than a major escalation in US-China relations. According to Han, most of the US companies targeted only have little, if any, meaningful business exposure in China.

In other words, Beijing sent a loud signal without directly slamming the door. The message is clear. If Washington makes a list, Beijing can also make a list.

The Chinese government previously stated that it would take all necessary measures to protect the legitimate rights and interests of Chinese companies. Beijing also accused the US of drawing up a discriminatory list under the pretext of national security.

And Wang, Director of China at Eurasia Group, told CNBC that China's latest move is an example of how Beijing is likely to respond to light pressure from the US while still keeping the relationship between the two countries from heating up. He said that Trump and Xi's meeting last month had brought relations in a more positive direction.

Even so, the Pentagon's decision shows one important thing. Washington is now drawing a very wide line against Chinese technology that is considered sensitive. Its coverage is not only military, but also artificial intelligence, consumer electronics, biotechnology, and electric vehicles.

For the global market, this tug-of-war is important. The supply chain of technology, rare earth metals, drones, chips, and electric vehicles is highly interconnected. If the world's two largest economies continue to restrict each other, the impact could spill over into prices, supplies, and corporate strategies in many countries.

A number of Chinese companies on the Pentagon's list have denied the allegations. They also said they would take legal action to remove their names from the list.

The move is not without precedent. Xiaomi has sued its designation in a US court and won. The status of the Chinese smartphone maker was then removed from the list in May 2021.