The Impact of US-China Trade Tensions on Compliance in the Tech Sector

US-China Trade Tensions

In recent years, the trade tensions between the United States and China have influenced global markets, with the tech sector being one of the most affected industries. These tensions have led to compliance challenges for tech companies, especially those with a presence in both countries.

Read on to learn the impact of US-China trade tensions on compliance within the tech sector and how to navigate it.

Overview of US-China Trade Tensions

Trade tensions between the US and China have escalated in recent years due to concerns over national security and the balance of trade.

Here’s an overview of the impact on the tech space.

Tariffs and Trade Barriers 

The US and China have imposed multiple tariffs on each other’s goods. These tariffs have increased business costs for tech companies that rely on components or manufacturing in China.

Sanctions and Blacklisting 

High-profile sanctions and the blacklisting of major Chinese tech firms like Huawei and ZTE have disrupted supply chains and restricted access to critical technologies.

Legislative Actions and Policies 

Both nations have enacted legislation to protect their interests, further complicating the compliance for tech companies. These actions reflect the strategic competition between the US and China, particularly in advanced technologies like semiconductors and Artificial Intelligence (AI).

Now that you have a glimpse of the geopolitical environment, let’s explore the legislations that potentially impact these companies.

Key Legislations Impacting Tech Companies

If you’re a tech company based or operating in the U.S., you must comply with the following legislation.

Export Control Reform Act (ECRA) 

Enacted in 2018, the ECRA aims to restrict the export of advanced technologies that can be used for civilian and military purposes. This Act is a modification of the existing US Export Administration Regulations (EAR), under which the Bureau of Industry and Security (BIS) assigns an Export Control Classification Number to each technology. This number determines the restrictions that apply to the concerned technology. As an EAR extension, ECRA authorizes BIS to regulate the export of sensitive technologies like 3D printing, robotics, advanced surveillance technologies, and more.

Foreign Investment Risk Review Modernization Act (FIRRMA) 

Also enacted in 2018, this Act expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS). The CFIUS reviews transactions like the purchase of real estate near a sensitive military establishment, investments in U.S. businesses that can provide access to nonpublic technical information, foreign control of a U.S. business through investments. It also covers any transaction that aims to circumvent CFIUS jurisdiction.

CHIPS and Science Act of 2022 

This legislation aims to strengthen US semiconductor manufacturing capabilities and reduce dependency on foreign supplies, particularly from China. It provides historic investments into exploratory and translational research to increase American competitiveness and national security in the semiconductor space. Companies receiving funding under this act must comply with requirements related to domestic production, workforce development, and technology sharing. They must also navigate restrictions on engaging with certain foreign entities.

Secure and Trusted Communications Networks Act of 2019

This Act mandates tech companies to prevent communications equipment or services that pose a national security risk from entering the U.S. networks. Also, they are responsible for removing any such equipment that may be currently used in the U.S. networks. Moreover, communication providers must submit an annual report to the Federal Communications Commission (FCC) regarding the use of such prohibited equipment and a justification for the same.

As you can see, many of these legislations are complex and require drastic changes to tech companies’ operations. For example, the export controls, particularly those imposed under the ECRA, require tech companies to establish robust compliance programs. This involves continuous training programs for employees to understand export control regulations and identify red flags. Companies must implement controls to prevent unauthorized access to sensitive technologies, including encryption and access management systems. Additionally, screening all transactions for potential export control issues, including checking against the BIS Entity List, is essential.

The blacklisting of certain companies necessitates rigorous supply chain management changes. Tech companies must conduct regular audits of suppliers to ensure compliance with US regulations and to avoid links to forced labor.

Moreover, conflicting data privacy and security regulations in the US and China create a complex compliance environment. Tech companies must comply with China’s data localization requirements while ensuring that data transfers to the US do not violate US laws. Navigating restrictions on cross-border data transfers imposed by the US CLOUD Act and China’s Data Security Law is another challenge.

How do you navigate these challenges? Read on to explore the strategic measures.

12 Strategic Compliance Measures

Below are best practices that tech companies can follow to manage the compliance challenges posed by US-China trade tensions effectively:

  1. Provide continuous training for employees on relevant regulations and compliance procedures.
  2. Conduct regular internal audits to assess compliance with export controls, supply chain requirements, and data privacy regulations.
  3. Establish compliance committees to oversee the implementation and effectiveness of compliance programs.
  4. Perform background checks on partners and suppliers to identify any links to blacklisted entities or forced labor.
  5. Conduct risk assessments to evaluate the potential compliance risks associated with transactions and partnerships.
  6. Use third-party verification services to ensure the accuracy of due diligence findings.
  7. Stay informed about the latest regulatory updates and changes in US and Chinese laws.
  8. Receive expert advice on navigating complex compliance requirements and mitigating legal risks.
  9. Access legal support for resolving compliance-related disputes and challenges.
  10. Implement automated monitoring systems to track compliance with export controls, supply chain requirements, and data privacy regulations.
  11. Use reporting tools to generate compliance reports and identify potential issues early.
  12. Adopt risk management platforms to assess and mitigate compliance risks across the organization.

Final Words

The US-China trade tensions have created a challenging compliance environment for tech companies. Navigating this landscape requires a thorough understanding of key legislation, robust compliance programs, and strategic measures to mitigate risks. Tech companies must stay informed about regulatory developments and take a proactive compliance approach to ensure that their operations remain unimpacted.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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