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How blacklisting companies became a trade war weapon

[GENEVA] Tariffs aren't the only weapon in a trade war. Countries are also turning to "blacklists" to restrict the economic activities of certain foreign companies. While such steps are often described as necessary to preserve national security, they're increasingly being deployed as policy tools to gain leverage in trade negotiations.

1. Where is this happening?

US President Donald Trump has placed dozens of Chinese companies on the US Commerce Department's "entity list" - a classification that restricts their ability to purchase US software and components. China's government is mulling ways to hit back with a blacklist of its own. The use of targeted trade restrictions to settle scores has also been deployed by export powerhouses Japan and South Korea in a renewal of their generational feud dating back to Japan's colonization of the Korean peninsula.

2. Who is on the US list?

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The most prominent Chinese company on the list is Huawei Technologies Co, the giant telecommunications firm at the global forefront of fifth-generation, or 5G, mobile technology. The US most recently added 28 Chinese companies - including eight technology giants - for alleged human rights violations against Muslim minorities. Those companies include two of the world's largest manufacturers of video surveillance products, Hangzhou Hikvision Digital Technology Co and Zhejiang Dahua Technology Co, and a pair of artificial-intelligence companies, SenseTime Group Ltd and Megvii Technology Ltd.

3. What does it mean to be blacklisted?

Those on the entity list are prohibited from doing business with American companies without first obtaining a US government license. Targets can be "businesses, research institutions, government and private organizations, individuals, and other types of legal persons," according to the US Commerce Department's Bureau of Industry and Security, which administers the list as part of US Export Administration Regulations.

4. What's the purpose of the list?

It was created in 1997 as a way to sanction companies that helped build weapons of mass destruction. It's since been expanded to cover activities considered "contrary to the national security or foreign policy interests of the United States."

5. How is China responding?

By compiling its own blacklist of foreign companies, organizations and people it calls "unreliable entities." These are defined as having "severely damaged the legitimate interests" of Chinese firms by not obeying market rules, violating contracts or blocking or cutting off supply for noncommercial reasons. China has already launched an investigation into FedEx Corp for mis-routing some parcels sent by Huawei and has pledged to retaliate against the Trump administration's sanctions related to human rights violations.

6. What explains the increased use of blacklists?

It's part of what trade hawks in both governments see as a generational fight for technological and economic supremacy of the 21st century. The Chinese government has leveraged its massive state resources to support industrial policies like "Made in China 2025," and a 2017 development strategy that aims make China the world's primary artificial intelligence innovation center by 2030. The Trump administration views this as a threat to America's economic and national security and has actively sought to curb China's technological ambitions.

BLOOMBERG