On August 5th, China dropped a new batch of retaliatory economic measures against various US entities.
And this time, officials did something they rarely do – naming exactly which US actions they were responding to and why.
On this episode of the Trivium China Podcast, Andrew Polk sits down with Cory Combs (Head of Supply Chain and Critical Minerals Research) to unpack:
What exactly landed in MofCom’s four-part policy package — from countersanctions on US biotech and compliance firms to China’s first ever foreign-trade national security investigation
Why this round of retaliation was aimed squarely at the FCC and DHS, and how it traces back to actions on robotics, drones, and forced-labor sanctions
Whether Beijing’s unusually direct language about the Busan detente is a warning shot or a sign the deal is really at risk
Why neither side seems ready to blow up the agreement just yet, even as both keep testing its edges
Transcript
Andrew Polk: Hi, everybody. Welcome to the latest Trivium China Podcast, a proud member of the Sinica Podcast Network. I’m your host, Trivium Co-Founder, Andrew Polk. And today we’re doing another quick reaction episode. I’m going to be talking with Trivium’s Head of Supply Chain and Critical Minerals Research, Cory Combs, about the latest economic coercion measures or retaliation measures, as they would see it, taken by China. But first, you know, Cory, how are you doing today, man?
Cory Combs: Doing very well. Thank you. Yeah. Happy to get into this.
Andrew: Yeah. Good to have you back. So, I already teased it — China dropped a large batch of retaliatory economic restrictions on August 5th. These were kind of against a range of U.S. actors and entities. The measures included some formal counter-sanctions and a spate of other things that we’re going to walk through. We’re going to talk about exactly what was done, what actions were taken by the Ministry of Commerce, which was the one officially putting these measures forth, the context that provoked these actions, and then talk about what it all means both for the short-term in U.S.-China relations and more broadly for that economic relationship. So, let’s get into it.
All right, Cory, like I said, August 5th. So, we’re recording this on August 10th in the afternoon, East Coast time, 5.45 p.m. It’s been a few days, but I was on vacation last week. So, I wanted to get you on the horn as quickly as I could once we were back to work. But why don’t you just start by walking us through what actually landed here? What actions did MOFCOM announce?
Cory: Yeah. So, on August 5th, we have two sets of documents. We have two orders and two announcements. And the orders are these kind of overarching orders signed by the minister. And the announcements are largely implementation of policy. So, I’ll kind of walk through all four documents in order. Order No. 2 has six counter sanctions. Specifically, these appear to be direct responses to the UFLPA, or Uyghur Forced Labor Prevention Act sanctions from the U.S. side.
And so, they’re applied to six different entities, including Applied Sciences DNA, Stratum Reservoir, Altana, folks in bio might recognize some of these names, as well as some compliance and human rights groups. So, we have Responsible Business Alliance, Verite Group, which is a labor practices group, among other things, and then Human Rights in China, HRiC. So, the order sanctions their business activities within China. So, they’re basically, they’re not on the ground anymore. It’s a sudden abrupt change, direct countermeasure against UFLPA.
We have Order No. 3, which is a countermeasure under the Anti-Foreign Sanctions Law. So this is, again, quite literally, a counter-sanction against the FCC measures in the U.S. Specifically, these are applied to U.S. Compliance Testing LLC. Beijing has accused this company, and let’s just be very clear, I’ve seen a couple places, it’s like someone has mistranslated this is applied to U.S. compliance testing companies. It is the name of an actual company, an actual LLC, Compliance Testing, right? Beijing has accused them of assisting in the FCC’s investigation and ultimate actions that in China’s, this is translated verbatim, ‘actions that harm China’s sovereignty, security, and development interests,’ right?
And so, these compliance efforts are deemed anti-China, right? So, the broad question here is, first, you have all the Chinese entities are now prohibited from engaging with that LLC in any business activity. That obviously means they can’t do much on compliance work of Chinese companies or anyone working with Chinese companies. So, one of the questions immediately is, is this going to be a broader issue with compliance? So, we’ll get to that. So, those are the orders. The announcements: the first is Announcement 33 of 2026. These are numbered annually.
And this starts a national security investigation into foreign trade regarding, and this is a really interesting one, imported printing, copying, and office equipment. So, this is not exactly what you’d think of, at least for me, as kind of a national security imperative, but it’s under the hood. What’s really targeting is foreign-developed software. And that software is used in imported office equipment. They’re not naming specific entities, but there’s a lot of prime candidates here. I mean, in the U.S., you have things like HP, you have Lexmark under Ninestar, you have Xerox.
In Japan, you’d have entities like Canon, Ricoh, Kyocera, Konica, right? So, just to be clear, it didn’t name those entities. I don’t want everyone to be like, “Okay, this is happening to this company.” But this is a broad national security investigation into foreign trade associated with those foreign office equipment and other products. So, it sounds a little bit niche, but I want to flag, this is China’s first-ever foreign trade national security investigation of this type. So, it’s kind of an odd one, but it’s also the first in this front.
So, very notable. I think it’ll be referenced a lot as we move forward as we’re trying to piece… trying to take out the lessons from this will be tricky. And then finally, you have announcement 34, which strengthens the export control specifically on dual-use items “related to drones,” right? So that’s pretty broad. You might imagine a few things. You have propellers, you have the batteries, you have all that stuff. Every affected export to the U.S., specifically, will undergo strict review.
And it also makes very clear there’ll be no fast-tracking or simplified approvals. Basically, we’re looking at a very high-friction process.
Andrew: Okay, great. Thanks for laying out the details. I want to get into the implications of each of those, but maybe before we do that, we start with the trigger. Why did this happen now? Why did China take these actions? Walk us through the thinking there. I mean, this isn’t conjecture. They were pretty forthright about this, right?
Cory: Yeah, MOFCOM’s spokesperson, they had a press conference and they were very clear that these are all responses to, again, China’s language, ‘negative China-related measures,’ and particularly the FCC and DHS. So I’ll talk about those two in particular. But the concerns here from China’s part, from Beijing’s part, date back to a number of things, a number of actions on drones, optical cables, and others. So, the FCC regulations in particular, it’s the July 28 ban on imports of Chinese humanoid robots, quadruped robots, power inverters, etc. Basically, the FCC has build this as a way to protect the U.S. AI industry, including not just power inverters is really talking about batteries and energy supply for data centers, but then you have the embodied AI, the humanoid robots and all that stuff.
So, the FCC is explicitly targeting this to “protect” the U.S. from Chinese capabilities there. This is also, by the way, there are reports that the administration is drafting a much broader ban on Chinese data center components and various other things. Of course, this is very problematic for China from its view, because those are very high-value exports in things it’s very good at and trying to develop. So again, very much in China’s economic model is increasing exports of these high-value things. Then you have July 31st, you have the Department of Homeland Security announced an expansion of the UFLPA entity list.
And again, that’s the Uyghur Forced Labor Prevention Act entity list. And so, these are companies that the U.S. alleges are involved in human rights abuses in Xinjiang, basically. It added 43 companies, and they span a whole bunch of different areas, a lot of them in minerals. I mean, we have steel, copper, lithium, caustic soda, and some other stuff. Also, notably, there are several biopharma and biochemicals companies as well. So, bio is in the list for the first time ever, but it is a notable issue.
Anytime you’re targeting Chinese bio right now, it’s very sensitive because that is one of the future industries that Beijing is really looking to develop. Those are the two main sets of actions that I think triggered all of this.
Andrew: Yeah. And we’ll get into this a little bit more in a minute in terms of how this may impact the Busan Agreement that occurred in November of last year and is expected to be renewed in the upcoming, you know, talks between the U.S. and China with Xi Jinping coming to Washington, D.C. in September, of course, next month. I will just say, I think from the U.S. side, I had heard that various parts of the U.S. government were looking for ways to continue pressing China that was “outside the eye of Sauron,” by which they mean, frankly, the White House.
The White House has been, I mean, this public reporting, very, or has taking a strong interest in tamping down any actions towards China in order to maintain stability, to maintain the Busan Agreement, to have a productive and well-received trip to the U.S. by Xi Jinping. And I think the thinking was basically the FCC’s a little bit more ancillary. It’s not a big legislative move. It’s not a tariff. It’s not an export control. So maybe we can get away with this, right? Both get away with this by effectively end-running the White House’s desire or, you know, command for more stability. And sort of same on DHS, right?
This is kind of like, it’s not a new action per se. The legislation’s already been put in force, and they’re just adding a few more names to the list. So these are not kind of what we-
Cory: Which happens regularly.
Andrew: Yeah. It’s kind of like, these aren’t the big lead moves. They’re the AAA moves, if you will. And that’s, I think, what the people who were kind of in charge of these were thinking, right?
Cory: Were thinking, yeah.
Andrew: There are ways we can continue to press China without kind of disrupting the core of what was agreed to in Busan and the core of the ongoing negotiations. China saw it differently, which we’ll get into in a minute. So, you know, people thought they were being nuanced, maybe, or I don’t know, being, I don’t know what the right word is, that they were able to get around kind of the White House desire. And I think some of them may have thought, you know, also China wouldn’t respond.
Or maybe there are elements out there that want China to respond because they don’t like the stability, but that’s conjecture.
Cory: But one can imagine that there’s this view that you can be tough without being provocative. And maybe that’s, you know.
Andrew: Yeah. Good point. Good point. You can imagine that.
Cory: I’m not sure I’d buy that, but one could imagine.
Andrew: I’m with you. Yes. Okay. But we’ll get more into that in a second. Before we do that, talk to us about the real ramifications of this. So, there’s MOFCOM Order No.2, which sanctioned the six entities you talked about. Then there’s the counter-sanctions order, which was in response to the FCC enforcement. Then there’s the Announcement 33, which is the national security investigation on foreign software or in the printing industry. And then there’s the tightened export controls on drugs. So, those are the four things. Start with thus No. 1, MOFCOM Order No.2 on those six entities. What are the real-world implications here?
Cory: Yeah, I think a couple of the main ones for a lot of MNCs is just that, I mean, some of these entities are essential to getting facts on the ground for their compliance efforts. And so, I mean, at risk of stating the very obvious, a lot of the entities or several of the entities in question were involved in UFLPA compliance. And so, if they’re not on the ground, they probably can’t be involved in compliance.
And so, all these American companies and anyone else operating in the U.S. who has to comply, they to figure out, if they’re working with some of these entities, what their backup plan is. So, that’s a very concrete, and it is distinct from the type of counter-sanction out of the Anti-Foreign Sanctions Law, but effectively, it is a means to undercut the ability of foreign companies to comply with American law. I mean, that’s effectively what this does. And obviously, it makes things a little harder for the bio side on those companies that are affected on that side as well.
Andrew: Okay. What about Order No.2, the compliance testing LLC piece?
Cory: You know, still working through this one, but I mean, long and short is that I think the medium-term risk here is that compliance itself becomes a battleground. That is not good for anyone because compliance, by necessity, when it comes to this type of trade, you need… the whole point of compliance is to verify what’s happening on one side from the other side. I mean, it’s probably not going to work for most countries outside of China to be like, well, we had a local Chinese body, you know, certified compliance with something that like you copy or whatever else.
So, you need reciprocity, bilateral access when it comes to this type of compliance. And so, if compliance and testing types of companies are getting squeezed by counter sanctions, that’s a dangerous path to go down. And so, the implications aren’t super clear to me yet, honestly. I’m sure someone in an office somewhere is, “This is what it means for me.” And I know there are going to be specifics that we’re still working through, but I’m mostly concerned about that medium term.
And to be very clear, I do not see this as Beijing trying to systematically target compliance or testing or anything like that. This is a specifically targeted thing. But if this becomes a center point of U.S.-China lawfare and economic coercion and counter-sanctions of anything, that becomes rather dangerous very quickly. So, I’d rather we not go down that particular route.
Andrew: Okay. So before we move to the other two pieces, how big, scale of one to 10 in terms of real-world implications are these first two things we’re talking about? I guess another way to say it is, you know, what’s Beijing’s intention here? Is Beijing really trying to hit back with full force? Or is this something that’s marginally disruptive for some companies?
Kind of like not symbolic, but a little bit of a more sort of protest type retaliation to throw some further friction in the works, but not fundamentally make it so that… I mean, Beijing doesn’t want these companies to leave. They’re going to have to do compliance. Is it more of a disruption or how do you see it?
Cory: Yeah, no, I think on one hand, these are intended to demonstrate that China’s very serious. I mean, Beijing did not view this as tough, but not provocative. This was very clearly provocative. These FCC and DHS actions at the same time, exactly as you said, they’re not trying to escalate the situation per se, and they’re not looking to destroy the Busan truce or détente, right? And so that’s a fine line to walk or find a kind of tightrope there.
But I do think that is the intent. Not escalate, but show that we take this very seriously. I think it shows the willingness. In some ways, you could argue it’s increasingly creative. I know creative is probably too positive a term for this kind of action. I’m not trying to, you know, it’s not a good thing. But in terms of it’s not so straightforward as, well, if you do this, we’ll just hit the next rare earth. You know, it’s much more dynamic. It’s much more involved. There’s much more optionality, basically, so I’d put it. And I think that demonstrates that willingness to be serious, but also not escalating.
Andrew: Yeah, I think the challenge with these moves, as we’ve seen in our work, is almost by design, not almost by design, by design- these moves have asymmetric impact. And I don’t just mean asymmetric to U.S. moves. What I mean is they impact you as a company. They impact you pretty significantly, potentially. But if you’re not dealing with one of the compliance testing LLC, maybe it has no impact on you whatsoever. And so, unlike a tariff that kind of impacts all companies in that industry equally, these kinds of moves impact companies disproportionately. And that’s the challenge, I think, for companies.
I think, originally, Beijing was trying to use that as leverage. When I say originally, like months ago in the U.S., China back and forth to try to get the U.S. business community to go to the White House and say, listen, “We as X company are getting absolutely hammered here.” I think Beijing now realized that doesn’t work as a piece of leverage per se to get companies to change the White House’s approach. But the ultimate impact for companies is still quite disproportionate, depending on where you happen to land on that.
Cory: Absolutely. You know, there’s not perfect visibility on Beijing’s side either. You can’t guarantee anything, but I would nearly guarantee that Beijing does not have a perfect mapping of all the companies that rely on… right? And so, all their consumers and clients and everything. So, I think in that kind of environment of uncertainty about like, how serious is this? One counterfactual that is helpful for understanding Beijing’s positioning is if Beijing wants to do more, what could it have done?
And it could have done after everyone who does publicly work with the Responsible Business Alliance. It did not. And I do not anticipate it doing that. So, that’s a good example, I think, of just kind of ordinal ranking of actions it could have taken and kind of contextualizing. But absolutely. And this is not equally deployed. And it is a huge problem for individuals. But at a macro level, we tend to, and I recognize, that as you’re saying, you’re absolutely right, we tend to think of these things in terms of kind of broad macroeconomic impacts.
And a lot of the times they aren’t. These particular moves won’t have that type of impact, but that doesn’t mean they’re not incredibly impactful for individual. Yeah. A hundred percent with you.
Andrew: Yeah. And I mean, I think additionally, like Beijing is probably trying to limit the collateral damage to the extent it can, but kind of probably is like, there’s going to be some collateral damage. If you’re going to make an omelet, we have to break some eggs kind of thing. So, I think, you know, they’re going to probably try to map it out best they can, but they’re not going to do a ton of work to make sure no major company’s impacted. It’s just going to whack some folks, right? And that’s just part of it.
Okay. So quickly, the last two, practical impacts of Announcement 33, which is national security investigation into the software piece, and then Announcement 34, the export controls and drone-related. Both of these strike me as, as you said, the foreign trade national security or investigation is a brand-new mechanism, but both of these strike me as pretty tame. Yeah. Real world impacts. Tell me if I’m wrong.
Andrew: No, I agree. And I think, I think specifically we’ve seen a number of national security investigations and other types, or other types of commercial investigations, pardon me, that tend to get used as leverage, right? This is the kind of thing that Beijing is willing to trade more of. When it comes to a counter-sanction, that’s serious. So, like, okay, as long as the sanctions in place, the counter sanctions in place is the default presumption.
Whereas investigations, obviously with commercial investigations, trade investigations, that is obviously a little bit less… I mean, we don’t really have precedent for this, as noted. So, it’s hard to say with too much confidence, but I do think that, one, the national security investigation is inherently a bit more serious, frankly, than some of the trade investigations. But at the same time, most of these investigations have been opened in response to something, and then once that issue is kind of tamped down or there’s discussion, negotiation, those investigations tend to lead nowhere or be repealed or formally or informally. Assuming things don’t get worse, that’s what this strikes me as. And that could be proven otherwise, but that’s my default.
Andrew: Right. Well, that’s assuming things don’t get worse is an important caveat.
Cory: Right. Always a caveat.
Andrew: Yeah. Well, a couple of things. One is Beijing has shown a clear pattern, putting up countermeasures so that it can roll them back, right? Like putting entities on the Unreliable Entity List so that it can take them off as part of a negotiation, opening investigations so that it can roll them back as part of a negotiation. I think that might be part of it here. But your other question, again, we’ll get to your point that we’ll get to again later on, assuming things don’t get worse. A lot of our clients are saying, “Well, is this the first in a series of moves?” And the answer is totally path dependent.
Does the U.S. ramp things up? Do the FCC take more moves? China is not trying to, in my view, up the ante. Officials feel compelled to respond. But the point is we don’t really know where things go from here. Beijing is highly unlikely to continue ratcheting up without further provocation from the U.S., we can say that, I think.
Cory: Yes, I agree with that.
Andrew: Okay, so let’s talk through some of this stuff. So, you’ve written in some of your work, writing about some of this stuff, just how Beijing’s being more direct. They didn’t hold punches, they were very clear, this is retaliation. Talk to us about how you kind of think about that piece.
Cory: Yeah, I mean, I think there’s a couple ways to look at this. I mean, I think fundamentally, the strategy around messaging has become, the clearer, the better, not in every single instance, right? There’s definitely some obfuscated policymaking. I don’t want to overstate that argument. But when it comes specifically to countermeasures against the U.S., I mean, we used to have, you know, well, no, the export controls aren’t retaliatory. You know, they’re in the interest of national security, and say, okay, given three days after the action that you’re very symbolically nearing, okay, sure.
And now we have the MOFCOM spokesperson saying, since Busan, I’m paraphrasing from my personal translation here, the FCC has ignored strong opposition from China, right? Continuously broadening the concept of national security, and particularly the U.S. has repeatedly ignoring China’s negotiations, yada, yada. And so, we’re doing this, you know, these actions. And direct quote, “I want to emphasize that China’s countermeasures have generally been restrained. China values the hard-won stability of China-U.S. economic and trade relations,” referring to Busan on that list.
So, I mean, there’s no playing coy there. It’s like, “Hey, we’ve worked really hard for stability. You’re only screwing it up.” I mean, you don’t have to agree with it, but that is the messaging, right? And it’s just such a turn. And I think a logical turn. I mean, this is probably, I think I’ve been saying this for a long time. I think we’ve all on the side been saying, if you want to get through to the White House, don’t play coy. Tell them exactly what you’re trying to do and what you’re mad about. And I don’t think subtlety is the name of the game in this context.
And they seem to have gotten a memo. At least MOFCOM has been very straightforward in this case.
Andrew: Yeah. And I think that’s a really important piece to point out. We had been hearing that Beijing was frustrated about these ancillary moves, the moves outside of the eye of Sauron, as we said. And, again, you know, whatever the motivations were, it was pretty clear this was coming to a head, and Beijing felt as though it had to respond. So, let’s talk a little bit then about how you think this impacts the Busan détente. I mean, how seriously should we take Beijing’s claim that the U.S. is abrogating the Busan agreement? And what should we expect moves like this to mean for that agreement, which is, up until last week, kind of expected to be pretty smoothly rolled over for at least six months, if not to the end of Trump’s term?
Cory: Yeah, I think bottom line, there are positions on both the optimistic and pessimistic side of the spectrum that I think would be reasonable here. For me personally, I’ll be very curious to get your view. I take this very seriously. I think Beijing genuinely views, you and I have discussed this before, Beijing views these types of affairs out of the U.S., whether by the White House or not, whether with a direct approval or not, they view this as directly violating the spirits of the stability that the U.S. and China have formed. And they view this as a direct attack on, especially when it comes to like biotech and things like that. These are direct attacks against China’s economy in the perception of Beijing.
And so, the motivation there doesn’t really matter. They have to hit back. And that phrase, the relationship that undercuts the spirit of Hussain. Now that said, I don’t think we’re at the breaking point yet. Personally, I think it’s quite clear to me that Beijing is very broadly committed to, or really wants the stability to be maintained. They want to have an agreement to postpone export controls further by November. They want to move forward with more constructive trade and economic relations. And they’d really like to see the relationship not fray further. And in fact, that it will get better.
And I think in the White House, you see a lot of interest in that direction too. And so structurally, I think the case for optimism is that both sides have structural strategic interests in maintaining the state option. I think that is essential. If we didn’t have that, there wouldn’t be much room for optimism, but I do think that is still there. The question now is, to me, and there’s many other ways of looking at it, but my question is, first and foremost, do we continue forward with FCC and some congressionally directed actions that just fray the relationship too far where Beijing kind of, it’s like, “Look, we’ve had enough. We need to start from scratch. We’re not playing this game anymore.” Do we hit that or not?
And I think that’s largely, but not entirely in the White House’s control as of right now. That could change. Obviously, Trump can be more or less personally involved in things. But I take it very seriously. Beijing is putting up a warning flare. It’s saying, “If this path continues, we will not end up where we want to be.” So, I take it seriously, but not a doomer about it. So anyway, I’m curious of your take here.
Andrew: Yeah, yeah. I think that’s all right. I mean, I would say it’ll be really interesting to see if we start to get some reporting that the White House is putting the FCC on a tighter leash, and maybe DHS as well. DHS has its own political challenges among the leadership with MAGA and all the immigration stuff that’s happening. So, you know, that might be one way to… even another reason to rein in DHS. I don’t know, just speculation.
But I guess the way I think about it is the White House, as far as we understand, has been very clear to Treasury, not that they need to be as clear with Treasury, but to USTR, to the Department of Commerce — hey, we are putting actions against China on pause while we try to negotiate some kind of stability. So, all the entities, the U.S. government entities that were told explicitly, hey, it’s time to pause have paused. But now it’s the ones just outside the circle, right? Who weren’t explicitly told that are now moving.
And so, do those folks get slapped down a little bit and said, “Hey, we didn’t tell you before, but now we’re just making it crystal clear.” So, I wouldn’t be shocked if we saw some kind of messaging or reporting about that kind of messaging from the White House. And then the other thing I was just thinking as you were talking was, you know, for anybody who thinks that China might be trying to blow up the deal, I mean, this just wouldn’t be the path they would take. If they, for some reason, wanted Busan to blow up, they would just reinstitute export controls.
That’s the path of least resistance. They don’t need to create some kind of cover for blowing the deal up. They don’t need to create some reasoning, some rationale. They would just blame the U.S. no matter what and say, “Guess what? You guys are being jerks. We don’t think you’re living up to what we agreed and we’re reinstating export controls.” They wouldn’t be coy about it.
Cory: Yeah. I’d say they already have enough, like, if that were the path they’re going to do, they’d say that what we’ve seen so far is enough to do that. And they’re actively trying to say, again, you don’t have to agree with the statement, but they’re like, China’s measures or countermeasures have been restrained, right? Like they’re trying to, you know… they wouldn’t say that. They would just go for it.
Andrew: Yeah. They’re trying to be as clear as possible. I think that’s right. So, I mean, all that is to say, of course, you have to… with any government readout from China or many places, but China in particular, you got to sort of understand the Party speak and the goals and kind of what the angles are. But I think this one’s pretty straightforward. They’re trying to say…
Cory: Usually, yeah.
Andrew: Yeah, yeah. We don’t want this to blow up, but we feel compelled to respond. And so, this is the response. So, I think we can leave it there. I’ve already taken up more of your time than I expected, so I appreciate that. Just one quick 30 seconds if you’ve got it. The next day after these announcements on August 5th, on August 6th, the cybersecurity regulator announced an investigation, or not an investigation, a review of products sold by Palo Alto Networks, a cybersecurity firm. Do you think that’s related to this or is that separate?
Cory: I think that probably is separate. I mean, this is very similar to the CAC’s cybersecurity review into Micron in 2023, right? It fits a different pattern. It is very confusing when these things overlap, obviously. But I think broadly, Beijing has been expanding its reviews into foreign technology it considers risky to use. And so, there’s a lot of different motivations for that kind of review. And the tech team, I think Kendra will have so much to say about that. That’s beyond me, but I do think that’s kind of separate.
But on the other side, I mean, one thing that you do see as, I think, very specifically interesting about where Beijing retaliated and why Beijing retaliated against these efforts were, one, again, the MOFCOM spokesperson specifically singled out U.S.-restricted measures against China covering telecoms, covering consumer-grade routers. These are pure kind of core tech when we think of tech. And then submarine optical cables, right?
These are more a little bit further afield, but also kind of in that core space. And then AI. The other side of it is biotech. And so, I think there’s going to be a lot more overlap. There are going to be these cybersecurity reviews, these kind of broad technology reviews. For much the same way that FCC is arguing that Chinese technologies pose a risk to the U.S., I mean, a lot of Chinese authorities are looking at this the same way. Like, yeah, U.S. technologies that China’s dependent on have back doors, right?
We’re going to start being a bit more cautious about that and reviewing this stuff more carefully. And so again, Kendra and the tech team have much more to say about that than I will. But on that, you have that piece of it, which is a whole separate dimension of tech review, in addition to these retaliatory kind of actions. And then on biotech, it’s probably up there with embodied AI in terms of… I think embodied AI is certainly the sexiest, if you will, in terms of getting the most attention. But biotech is an industry that Beijing hopes is on the precipice of a massive development spurt, with huge TFP gains and just total value add for the economy.
And if it starts facing tight restrictions that either undermine development of the domestic biotech industry or that prohibit or prevent the export of key technologies or key products really using those technologies, Beijing’s going to hit back very hard against those because they’re such strategic industries. And that’s going to overlap with all the cybersecurity, data protection, all these other governance regimes. They’re going to all be stacking up on each other. And it’s probably going to get difficult to tell some of them apart. And it’s going to be essential that we do because those reviews will all serve different functions. It’s going to be important that we don’t mix the signal there.
Andrew: Yeah, great points. I’m glad that you pointed out that you think that the Palo Alto networks thing is separate. I think that’s an important point. We may or may not have a chance to pick that up with Kendra at some point. But it just also brings up the point that China is still also hitting back in certain ways. Like that Palo Alto thing may have happened even absent this retaliatory back and forth. And so, both sides are trying to test the limits of where they can continue to assert their interests without blowing up the Busan deal.
So, that’s an interesting dynamic. And then the other piece I was just thinking is, I also wonder if, to an extent, maybe taking the action against the FCC on the back of their move against robotics. The reporting is that the FCC is also looking at a ban for certain inputs into data centers. Right?
Cory: Yes, it is. That’s correct.
Andrew: And once you take these actions into the realm of AI, which is one of the key things propping up the Chinese economy and exports of those components into data centers are a real big driver, or one key driver, China’s export performance recently. Maybe China’s trying to head that off. Like, hey, we can see more and more coming out of the FCC. We want to nip this in the bud. I don’t know. Maybe that’s part of it as well.
Cory: No, I think that that stands to reason. And it’s especially because the reporting, the public reporting around this has been so clear that it seems like there’s a much broader interest in not even decoupling, but preemptively making sure that Chinese tech is not throughout the data centers, which on the energy side, at least, is difficult because a lot of what you need is made best and cheapest by China. And so, that is just a difficulty for hyperscalers. And it’s a practical challenge and a security challenge and all this stuff.
And the problem is when we decouple the technical and security reviews, like the legitimate kind of teardowns and then figuring out any backdoor issues, that’s stuff you just do as a matter of course, versus kind of general narrative and geopolitical. There are a lot of things that frankly do not need to be banned, right? But there are things that do, right? We’re in that middle space where your value set kind of dictates. But if everything gets lumped together, that would definitely be viewed as excessive harm to China’s economy and an ideological as opposed to market-driven approach.
And so, that’s where things start to get very complicated. And unfortunately, policy, one, often doesn’t play with that type of nuance in many cases for political reasons. But also, even if it does, it can be very difficult to actually execute in a nuanced way. I understand that. And I know it’s very easy for us analysts to kind of be like, “Well, actually, you really should have a 17-point framework for analyzing every component.” That’s not realistic. We get that. For all the policymakers listening to the naive people, we get that, right? At the same time, separating out things that bear technical risk and need to be handled on a technical basis versus things that we don’t want it because we don’t want it, those are different things.
And so, I think for Beijing, being able to signal which actions are on which side is very geopolitically and practically important in terms of how they might counteract, what measures they might respond with.
Andrew: Yeah. Yeah. All good points. All good points. Well, we’ve already, like I said, gone over a little bit longer than we…
Cory: Sorry.
Andrew: No, no, not you. This is a great discussion. The only other thing to talk about is sort of where all this goes. But I think time will tell and we’ll have plenty of chances to kind of discuss that with the Xi Jinping meeting coming up. I think we’ve already touched on enough to say we still think both sides, despite showing some cracks, have a strategic interest in maintaining the Busan deal, extending the Busan deal. Whether or not someone on either side decides we want to blow this thing up, we don’t seem to be at that point yet.
Cory: 100%.
Cory: So, I think we can say that with confidence. Great. And also, I think the main point here was just to lay out the key details of what happened for listeners. And this was all kind of a complicated mishmash of stuff. So, I appreciate you just laying out the details and making it clear as to what exactly happened and what the likely near-term impacts are. So, thanks for that, Cory. I really appreciate it, man.
Cory: Absolutely. Always a pleasure.
Andrew: Yeah. Well, this has been great. Thanks for your time, Cory, and thanks, everybody, for listening. We’ll see you next time, everybody. Bye.
