China’s Turn to National Security Lawfare

Three weeks before President Trump and China’s President Xi Jinping’s October meeting in South Korea, China announced a sweeping expansion of export controls on rare earths and related technologies—including new license requirements for exports of foreign-produced rare earth items manufactured using Chinese-origin technologies or containing Chinese-controlled content. These announcements sent shock waves across the globe, threatening to disrupt global supply chains for rare earths that are critical to industries such as electrical vehicles, semiconductors, and defense.

Beijing’s actions are the latest example of its exchange of national security-based economic restrictions with Washington. In a forthcoming article, I show that geopolitical rivalry between the U.S. and China has facilitated the diffusion of national security legal institutions across borders. China has been following the U.S. playbook by rolling out new laws that mirror the very national security legal tools Washington has deployed against it.

Take Beijing’s latest export controls on rare earths as an example: They are based on the 2020 Export Control Law and the 2024 Regulations on Export Control of Dual-Use Items, which provide the legal basis for applying export controls to items produced overseas that use Chinese-origin technology or contain Chinese-origin content. These rules replicate the foreign direct product rule under U.S. export controls, which was first amended in 2020 to restrict Huawei’s access to foreign-produced products that rely on U.S.-origin technology or software. This is just one example of how China’s export control rules closely track those in the U.S. A close examination of the 2020 Export Control Law and the 2024 Regulations on Export Control of Dual-Use Items reveals striking similarities to the U.S. Export Administration Regulations—from Entity List-style designations to concepts like “deemed export” and “reexport.”

Export controls are not the only area where China is borrowing from the U.S. playbook—similar patterns are emerging across other areas of national security-based economic restrictions. China has closely followed the U.S. model in its newly established sanctions regime. It has established blacklists that subject entities to visa denials, asset freezes, and transaction bans, which resemble similar lists under U.S. sanctions programs. In the area of national security reviews, China’s investment review process closely mirrors the Committee on Foreign Investment in the United States (CFIUS) process. China has also established a cybersecurity review process that requires reviews of transactions involving network products—resembling the U.S. Information and Communications Technology and Services (ICTS) review process. In each of these areas, Chinese companies have found themselves in the crosshairs of U.S. national security-based economic restrictions. China is responding by replicating these legal institutions, and U.S. companies are increasingly feeling the impact.

By borrowing from the U.S. playbook and formalizing these actions within a legal framework, Beijing signals its high resolve to take systematic countermeasures. In the past, when Huawei was added to the Entity List—an action that followed its criminal indictment—or when the U.S. first imposed sanctions related to Xinjiang and Hong Kong, Beijing relied on political statements condemning these actions. Compared to political rhetoric, lawmaking is more costly. Establishing and administering new legal institutions require administrative resources and impose significant compliance costs on market participants. Once laws are enacted, they also raise the political stakes at home. The public is more likely to expect the government to follow through on threats that have been formalized in legal terms. These higher associated costs render lawmaking a more credible signal than political statements, making it more likely to be taken seriously by foreign governments and businesses.

At the same time, lawmaking is less economically costly than ad hoc retaliatory measures. When China shut down South Korea’s Lotte supermarkets after Seoul agreed to deploy the Terminal High Altitude Area Defense (THAAD) system, the move caused economic disruption and undermined foreign investor confidence. By codifying threats of countermeasures into law, China signals its willingness to retaliate without bearing the full economic costs upfront.

This approach is shaped by the complex external and internal reality that China faces today. Externally, China is contending with a growing wave of national security-based economic restrictions imposed by the U.S. and other countries, with Chinese companies being cut off from access to advanced technologies and encountering increasing obstacles in international business deals. China needs to find more effective ways to deter foreign governments from imposing further restrictions and to discourage market participants from complying with them. Internally, both nationalism and economic growth are important sources of legitimacy for the Chinese party-state. Nationalism calls for a strong response to foreign economic restrictions, while the imperative of economic growth cautions against ad hoc countermeasures.

Assembling its own legal toolkit allows China to demonstrate deterrence and channel nationalism, while mitigating the associated economic costs—at least for now. This approach is reflected in three features of China’s national security legal framework. First, these legal tools are designed for retaliation. The legal texts contain near-identical provisions that underscore the retaliatory purposes of these legal tools. In practice, China has sanctioned U.S. companies for complying with U.S. sanctions on China, imposed export controls on rare earths and critical minerals in response to the U.S.’s expanding use of export controls targeting China, and launched cybersecurity reviews of U.S. companies allegedly involved in lobbying for stricter controls on chip exports to China.

The second feature is the broad flexibility built into these legal tools. For example, under the export control regime, authorities can adjust—via licensing—how much of a controlled mineral to export, and where it goes, based on shifting geopolitical and economic conditions. Customs data indicate that changes in export volumes of rare earths vary by country following the imposition of export controls, with some countries experiencing a rebound after an initial collapse. In other words, sweeping export controls still leave Beijing with ample flexibility to calibrate actual export flows. Finally, the use of these legal tools has been selective. For example, Chinese sanctions initially targeted entities with limited business presence in China, many of which are U.S. defense companies. Similarly, China rolled out its export controls on critical minerals and rare earths in stages, beginning with a small, carefully chosen set of items.

However, as a signaling mechanism, China is expected to expand the use of these legal tools to maintain credibility if the signal fails to achieve the desired deterrent effect. Recent developments suggest a shift in this direction. China’s recent expansion of export control measures on rare earths is widely seen as a retaliatory response to the U.S.’s new “50% rule,” which significantly broadened export restrictions on Chinese firms. Unlike previous export control measures, this time China has invoked the extraterritorial provisions in the 2024 Regulations on Export Control of Dual-Use Items, applying them to rare earths—a sector where China holds a dominant position in global supply chains. This move is a demonstration of China’s leverage ahead of a possible meeting between Trump and Xi on the sidelines of the APEC summit. The new measures carry sweeping extraterritorial reach and mark a major escalation in China’s deployment of legal tools of national security.

While Trump and Xi reached a temporary truce after their meeting in South Korea, with China agreeing to shelve its new export controls on rare earths for a year in exchange for the U.S. suspending its “50% rule,” the national security legal framework remains in place for China to deploy the next time the bilateral relations go off the rails. A temporary truce is unlikely to reverse the shifting legal landscape on both sides, with companies facing proliferating trade policing and third countries bearing the brunt of collateral damage.

Just as countries amass arms and mobilize troops in traditional warfare to signal their resolve to fight, in today’s lawfare, China has developed a full arsenal of legal tools modeled on the U.S. system to signal its resolve to strike back against foreign economic restrictions. In today’s interdependent world, the threat of deploying these legal tools gives China leverage in bilateral negotiations. The goal is deterrence—which, if successful, would allow China to balance nationalism with economic interests. However, if deterrence fails and further economic restrictions continue, nationalist pressures may intensify, pushing the party-state toward more aggressive responses that carry significant economic costs for both sides. Such escalation could lead to an unpredictable path of Sino-U.S. decoupling.