By Reshma Kapadia
Washington and Beijing are stocking their tit-for-tat toolboxes on the eve of trade talks between U.S. and Chinese officials.
The U.S. opened a probe Friday into whether China complied with the trade deal struck during the first Trump term, marking the latest in a series of retaliatory measures the rivals have been preparing. The result is mounting concern among global companies, who expect significant effects on their businesses in China, even if the two sides achieve a new detente, or forge a trade pact.
Treasury Secretary Scott Bessent and Trade Rep. Jamieson Greer are set to meet with their Chinese counterparts Saturday to de-escalate a flare-up in tensions. Greer's opening of a Section 301 investigation into China's compliance with the first trade deal is the most recent move, but Trump also has threatened 100% tariffs on top of those in force now. And a pause on three-digit tariffs the U.S. imposed earlier expires Nov. 10.
China, meanwhile, has stopped buying U.S. soybeans and said it would further limit access to rare-earth metals, among a plethora of other measures that have received less attention in the press. China has also added U.S. companies to its blacklists that limit trade and transactions with named companies, opened antitrust probes into U.S. companies and laid the groundwork to extend its rare-earth restrictions to foreign companies that sell products to the U.S.
Investors are betting the trade delegation will reduce the friction enough to allow for Chinese leader Xi Jinping and President Donald Trump to meet on Thursday and stabilize the relationship. The hope is they will be able to outline the contours of a potential deal.
It could be some version of Beijing buying soybeans, approving the sale of TikTok's U.S. business, and softening, if not scrapping, export controls on rare-earth metals. In exchange, the U.S. could lower tariffs related to fentanyl, delay the deadline for a tariff increase, and ease restrictions on Chinese companies and access to critical technology. A change in U.S. language about Taiwan is a possibility as well.
Even with a deal, companies in the crossfire won't forget the increase in tensions. Lester Ross, a partner at WilmerHale who has spent decades representing companies operating in China, says the backdrop for western companies ranks as one of the toughest in his career.
"The prospects for American companies doing business in China are diminishing," Ross says. He argues that companies with supply chains in China need to be serious about diversifying, or tapping government support to bringing production onshore, if they can.
The pressure comes from both sides. Though the Trump administration so far has taken a more transactional approach and Trump has spoken warmly of his relationship with Xi, analysts say many in Trump's orbit are intent on a managed de-risking, if not a decoupling, from China. They have prepared proposals for months and started unveiling them, including expanding the universe of Chinese companies on the U.S. entities list from about 3,000 to more than 10,000 by adding companies that are 50% or more owned by the firms already on the list.
U.S. companies wouldn't be able to do business with those firms without seeking a license from the Commerce Department. "It could destroy billions of dollars of commercial opportunities for U.S. companies, which is particularly troubling to those U.S. companies if their non-U. S. competitors don't face similar restrictions and are able to gain market share," says Andrew Shoyer, an international trade lawyer at Sidley Austin.
The U.S. has also looked at expanding export restrictions, analysts say. Curbs could expand to include semiconductor-design systems, or even all items made globally that use U.S.-developed software. That could include the programs used in aircraft engines.
The Bureau of Industry & Security could also reinstate a rule imposed under former President Joe Biden, but withdrawn by the Trump administration, that restricts Chinese customers from using U.S. data centers. That would limit China's ability to train its artificial-intelligence models with the most advanced chips.
"The move to restrict infrastructure as a service was controversial given the money in data centers but it's now in interagency review," says Shoyer, who expects a decision in coming weeks. "If reinstated even in a modified form, that would be very significant in its economic impact, especially if BIS extends the restriction to Chinese companies accessing data centers abroad using U.S. technology."
The U.S. also could turn to financial sanctions and impose penalties on Beijing for its purchases of Russian oil. Trump has raised that possibility after earlier focusing on penalizing India, another big buyer of Russian crude.
A spokesperson for the Commerce Department's Bureau of Industry & Security didn't immediately respond to requests for comment.
China is putting its own pressure on global companies with several measures similar to those the U.S. has introduced. For example, its new regime of export controls for critical minerals, scheduled to take effect Nov. 8, included its first assertion of extraterritorial jurisdiction. That means it is essentially extending restrictions to foreign-made, commercial products using Chinese rare earths or technology. It could affect semiconductors, autos, imaging machines for life sciences companies, and military equipment.
China also recently added companies to its version of the U.S.'s entity list, which restricts transactions between Chinese companies and those that are targeted. It has launched antitrust probes into Qualcomm and Nvidia.
Increasingly, U.S. companies are worried that by obeying U.S. laws, they could run afoul of Chinese rules. "Up until the past few weeks, most clients understood these laws were on the books, but the perception was that the Chinese government didn't want to pull the trigger," says Shoyer.
" But that perception has changed. Where this was a check-the-box type of exercise, it is now a point of real discussion of the risk. There's a palpable risk of being stuck in the middle."
A spokesperson for the Chinese embassy in Washington, D.C. didn't immediately respond to a request for comment.
Whether it is saber-rattling or not, the unveiling of these retaliatory tools reinforces the countries' desire to build up their self-reliance. Beijing stressed that in its latest Five-Year Plan, while the U.S. flurry of rare- earth deals has the same aim.
The rivalry is only intensifying and each kerfuffle, even if smoothed out, erodes trust between the two rivals.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
October 24, 2025 17:57 ET (21:57 GMT)
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