US-China Trade Volatility: Tariffs, Export Controls, Sanctions, CFIUS, BIOSECURE Act

The trade relationship between the United States and China continues to evolve as both countries pursue their economic imperatives, industry autonomy, and geopolitical positioning. Each side is deploying a range of trade policy and regulatory tools, including tariffs, market access restrictions, export controls, sanctions, and counter sanctions. For companies, this shifting landscape presents mounting challenges like monitoring and complying with frequent regulatory changes, mitigating supply chain and tariff risks, and addressing conflicts of laws.

Melissa Duffy, Robert Slack, and Carrie Schroll from Fenwick’s trade and national security group recently presented a CLE webinar examining the dynamics shaping the U.S.-China trade relationship and offering practical insights for managing compliance and ongoing uncertainty. Below are key takeaways from their discussion.

A Fragile Trade Framework

The October 2025 meeting between President Donald Trump and President Xi Jinping resulted in a “trade framework” intended to pause escalation, rather than establishing a binding trade agreement. Each side suspended previously announced actions, with China pledging to increase its purchases of certain U.S. goods. However, as with the Phase One trade deal signed at the end of the first Trump administration, China appears to be falling short on purchase commitments, and both sides continue to take targeted actions restricting trade. A lasting détente remains uncertain. A follow-up meeting is scheduled for April 2026.

Tariff Policies in Transition

The U.S. trade environment remains highly volatile. In a series of executive orders issued from February to April 2025, Trump announced tariffs on Chinese-origin goods pursuant to the International Emergency Economic Powers Act (IEEPA). That statute is more commonly used as a basis for sanctions and other national security-based trade controls. The administration reduced these tariffs as part of the trade framework with China, and then the Supreme Court ultimately struck down all tariffs issued under IEEPA in February 2026. In response, the Trump administration imposed a temporary 10% global tariff under § 122 of the 1974 Trade Act and has announced the intention to raise the tariff to 15%.

Other current or imminent sector-specific tariffs are not impacted by the trade framework and can apply to Chinese-origin imports. Companies should anticipate further movement on China-specific tariffs, and tariffs in general, as trade policy continues to evolve.

Navigating Export Controls

The Commerce Department’s September 2025 Affiliates Rule expanded export restrictions for companies owned by Entity List and Military End User (MEU) entities. Those lists restrict exports to designated parties, but they are not asset freezing or sanctions restrictions, and unlike sanctions, they have not historically flowed down to non-listed subsidiaries of listed entities. After the October 2025 trade framework, the rule was suspended in November 2025 but is set to return in late 2026.

If the rule is reinstated, companies will need to determine how to adequately diligence ownership and affiliation with Entity List and MEU entities, including many impacted commercial partners in China.

The Bureau of Industry and Security (BIS) continues to refine controls on advanced computing and artificial intelligence. Following the May 2025 rescission of the Biden-era AI Diffusion Rule, the administration issued guidance documents identifying red flags associated with Chinese access to advanced computing chips and AI technologies. Companies must navigate evolving “red flag” expectations around computing infrastructure and end use concerns. Additional restrictions related to AI may be forthcoming, as a replacement AI Diffusion Rule is considered by the administration.

Foreign Investment Scrutiny Tightens

Two recent forced divestments underscore that the Committee on Foreign Investment in the United States (CFIUS) continues to take a hard line on Chinese involvement in sensitive U.S. technology and real estate. The Fiscal Year 2026 National Defense Authorization Act (NDAA) expands CFIUS authority and strengthens outbound investment controls, covering transactions involving high-performance computing, semiconductors, hypersonic systems, and frontier AI capabilities.

Even U.S.-based investments can trigger review when Chinese ownership or control, direct or indirect, is present. Companies should expect continued heightened diligence requirements for acquisitions, joint ventures, and venture capital activity tied to China.

The BIOSECURE Act and Expanding Supply Chain Controls

The 2026 NDAA also included the long-anticipated BIOSECURE Act, restricting U.S. government contracting and funding relationships involving “biotechnology companies of concern” associated with China or other “foreign adversaries.” Federal agencies and grant recipients are prohibited from using such biotechnology products or services, signaling an intensified focus on biotech supply chains.

Companies should assess their exposure to Chinese suppliers of biotechnology equipment or services and prepare for forthcoming Federal Acquisition Regulation (FAR) amendments implementing these prohibitions.

China’s Countermeasures: Rare Earths, Port Fees, and the Unreliable Entities List

Following U.S. tariff escalation, China introduced export restrictions on rare earth metals and announced higher port fees for U.S. ships, but these measures were later suspended under the trade framework. The rare earth export controls echoed the U.S. Foreign Direct Product Rule, underscoring China’s willingness to assert extraterritorial control over foreign production of items using critical materials as a key point of leverage.

The Unreliable Entities List also remains an active response tool. October 2025 designations targeted additional U.S. defense contractors, and while some names were later removed, new entries reflect growing operational risk for multinational firms maintaining operations in China.

Compliance in an Era of Uncertainty

To balance obligations under both U.S. and Chinese international trade regimes, companies should consider taking the following steps:

• Evaluate exposure to China in sectors that are a U.S. regulatory focus, such as advanced computing, AI, semiconductors, and biotechnology.
• Ensure diligence procedures are designed to identify key risks, such as restricted end uses, ties to designated entities, or beneficial ownership that triggers foreign investment regimes.
• Approach risks strategically, taking into account broader agency practice and reputational risks that may arise.
• Stay updated on new developments and take proactive measures to reduce the impacts of possible reescalation and shifting enforcement priorities.
• Engage both U.S. and local Chinese counsel to navigate areas where compliance obligations may conflict.

Looking Ahead

Despite modest signs of thaw, like limited export licensing for some advanced AI chips, tension remains between the two countries. U.S. domestic politics and bipartisan support for a tough-on-China agenda point toward ongoing volatility. With additional meetings and regulatory actions expected through 2026, companies should proactively monitor evolving restrictions across export controls, investment screening, procurement, and sanctions policy.