With Tech Bans and Hong Kong Sanctions, Trump Hits China With a One-Two Punch

In the United States' pressure campaign against China, President Donald Trump's threshold for action is decreasing and his tolerance for risk of blowback to U.S. economic interests appears to be rising — a trend confirmed by the White House's move to both restrict transactions by U.S. entities with China's TikTok and WeChat apps, as well as impose sanctions against Chinese and Hong Kong officials involved in the Hong Kong crisis. Such blowback includes the impact of U.S. restrictions on U.S. businesses in China, as well as the threat of Chinese retaliation. Although both of these moves are part of a long-term bipartisan trend towards greater confrontation with China, U.S. President Donald Trump's electoral challenges will lead to an increasingly volatile dynamic ahead of the November vote, even as he tries to walk the line of preserving, at least in name, the U.S.-China trade deal as a key campaign promise.

Trump's move to ban transactions on TikTok and WeChat will contribute to a trend of deepening U.S.-China tech polarization, which over time will spur global tech companies towards increasing compartmentalization in order to continue operating in both countries' markets. On Aug. 6, the president issued two executive orders restricting U.S. individuals and entities from conducting certain transactions with ByteDance, the Chinese parent company of popular app TikTok, and the major Chinese tech player Tencent related to its WeChat app. The U.S. Department of Commerce's role in determining the precise nature of restrictions leaves broad latitude in terms of the next steps. The United States has previously scaled back initially aggressive sanctions pushes after weighing the second- and third-order impacts, and it has room to scale back this latest threat as well.

WeChat plays a central role for Chinese consumers, and the restrictions risk having a sweeping impact on business continuity for U.S. companies in China. As worded, the order bans certain transactions. But these transactions may be narrowly or broadly defined, and could include carveouts for communications where no value is transmitted or for use by U.S. companies inside China.
The U.S. Commerce Department will also have discretion on TikTok, leaving the door open for a more narrowly interpreted set of restrictions. The order established at least a 45-day window for a U.S. company (such as Microsoft or Apple) to acquire TikTok. The Trump administration's decision to invoke the International Emergency Economic Powers Act (IEEPA) instead of the Committee on Foreign Investment in the United States (CFIUS) to impose the restrictions suggests it may be trying to ensure that any U.S. acquisition of TikTok breaks the app's ties into China.
In terms of China's response, there is a range of options — including no response. Among other potential options, the Chinese government may retaliate against U.S. tech companies operating in Hong Kong. Retaliation in the economic realm is a double-edged sword for China, in that it risks jeopardizing foreign investment and business continuity. Beijing, for example, has not yet directly retaliated for U.S. pressure on Huawei.
As part of the Trump administration's broader push against Chinese tech, U.S. Secretary of State Mike Pompeo also called on U.S. companies to bar Chinese apps from their stores on Aug. 5, issuing a non-binding "clean network" guidance that included a call for restricting Chinese tech from accessing U.S. apps, app stores, cloud services, mobile networks and submarine internet cables. The White House may also increase pressure on U.S. allies to not only ban WeChat and TikTok (if not acquired by a U.S. company), but also Tencent Cloud, Alibaba Cloud and other Chinese tech services as well.

The White House’s recent actions against China’s TikTok and WeChat apps, as well as officials involved in the Hong Kong crisis, show its threshold for action against Beijing is decreasing.

Washington's recent targeting of officials over China's encroachment in Hong Kong also represents an escalation from its earlier focus on less hot-button human rights issues in Xinjiang. On Aug. 7, the Treasury Department sanctioned 11 Hong Kong and Chinese officials for their role in eroding the city's autonomy, including Hong Kong Chief Executive Carrie Lam, as well as other officials connected to mainland-Hong Kong affairs with oversight of the new national security law.

Trump signed the Hong Kong Autonomy Act into law in mid-July, but then issued a statement asserting his discretion in selecting sanctions targets, signaling a desire to carefully calibrate escalatory actions.
Hong Kong's decision to delay its landmark legislative council elections by a year to September 2021, as well as pressure on U.S. journalists in the city and the suggestion of potentially even closing the U.S. consulate in Hong Kong, have increased calls for a U.S. response in recent weeks.