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Containing the Collateral Damage of America’s China Policy

Despite US assurances, the Biden administration’s export restrictions could undermine much of China’s civilian economy and push China toward military intervention in Taiwan. To foster cooperation on issues such as climate change and fentanyl, the US must find ways to minimize the negative spillovers of its current policies.

NEW YORK – The United States’ recent restrictions on Chinese exports and direct investment in China are likely to cause substantial collateral damage to the Chinese economy, raising the risk of conflict. But if China and the US can agree on the concept of a special economic zone (SEZ), such as Hainan Island, the collateral damage and geopolitical risk may be mitigated substantially.

Jake Sullivan, US President Joe Biden’s National Security Adviser, has likened the US economic restrictions on China to a “small yard with a high fence.” While the administration aims to undermine the Chinese military’s capacity to fight US forces in the South China Sea, American policymakers still hope for bilateral cooperation on global issues such as climate change, fentanyl control, biodiversity, and nuclear non-proliferation. This is the message sent to China by both Treasury Secretary Janet Yellen, who recently concluded her visit there, and Secretary of State Antony Blinken, who visited the country last month.

The US and its allies’ trade restrictions against China focus on exports of high-end semiconductors and the materials and equipment needed to produce them. These include advanced insulants and lubricants, ultra-pure water, and 20-plus types of chip-making machines whose production is dominated by a small number of US, Japanese, and European firms.