None unscathed by protection racket: China Daily editorial

The Bureau of Industry and Security of the US Department of Commerce is reportedly planning to add another 120 Chinese entities to its restrictive list this month citing "national security" concerns.

While the targeted Chinese entities, as well as those being targeted, are quickly adapting to the new normal by outsourcing their production to third-party countries, securing new markets and partnerships, or stepping up their efforts in pursuit of self-dependence for key parts and know-how, their US partners cannot substitute China as both a large market and a world manufacturing base.

A recent report by the Federal Reserve Bank of New York provides substantial evidence confirming the self-harming nature of the US administration's export control measures targeting China between 2012 and 2022.

Although they were originally intended to help US companies, the US moves have had a negative impact on them, the report notes, as they have caused supply chain disruptions, raised operating costs, and reduced the US companies' market competitiveness.

Chinese companies have sought to offset the negative impact of the US measures by finding new suppliers and strengthening their own research and development.

According to the report titled Geopolitical Risk and Decoupling: Evidence from US Export Controls, the longer the Entity List of the Bureau of Industry and Security becomes, the more US entities are actually being affected, particularly in the fields of telecommunications, transportation and electronic equipment.

Unable to establish new supply chain relationships with domestic or allied customers that are not export control targets, the profitability of US companies continues to be challenged. Data show that the export control policy of the US caused an average decline of 8.6 percent in the revenue of related US companies and an average decline of 25 percent in earnings before interest and taxes. The affected US companies were forced to cut jobs to adapt to the negative consequences of export controls. Data cited in the report show that the total number of employees in US companies affected by export controls fell by 7.1 percent.

The report also assessed the actual impact of US export controls targeting China on US companies in the fields of finance and financing, and found that the measures caused "significant collateral damage" to US companies. The total market value of all US companies affected by export controls on China has "evaporated" by an estimated $130 billion. As the Joe Biden administration has markedly reinforced its China-targeted export control measures over the past two years, the loss of the US companies will have been even larger, if the data after 2022 is taken into account.

In addition, US companies affected by export controls also have more difficulty in acquiring financing, and they face higher interest rates and shorter terms when applying for bank loans. This not only exacerbates the financial difficulties of these companies in the short term, but may also have a profound impact on the innovation and competitiveness of US companies in the long run.

As a close ally of the US, the European Union should heed the lessons of the US. The EU's desinicization in the fields of high-tech, manufacturing, trade and investment, which follows the US in the name of "de-risking", will not help improve the global competitiveness of EU companies. Against the backdrop of soaring energy prices and slowing global demand, doing so will only continue and accelerate the continuous decline of European manufacturing in recent years, leading to more serious unemployment and social problems.

Both US and EU decision-makers should consider the wisdom of continuing with their restrictive economic and trade policies toward China, which will only become more self-wounding the longer they are prolonged.