It is time to become aware of the Chinese legal situation

In the ever-evolving long-term competition between the United States and China, it can be easy to lose sight of the quieter but more enduring risks lurking behind the headlines.

Case in point: China’s sweeping new export controls on rare earth magnets and related technologies, strengthening its grip on critical inputs for everything from electric vehicles to fighter jets. Under the new rules, any magnet containing even traces of rare earths of Chinese origin – or made using Chinese methods – now requires explicit approval from Beijing for export. This marks a significant development in China’s export controls and should be understood as the start of a Chinese version of the “direct foreign product rule”, an iconic tool that Washington has used for decades to exert its power and control and which is most relevant to China, to choke off the supply of semiconductors to Huawei and other Chinese companies.

But the latest movement in favor of rare earths goes much further than that. As attention turns to the expected meeting between Trump and Xi on the sidelines of the Asia-Pacific Economic Cooperation summit in South Korea later this month – or to crucial issues like Taiwan, the TikTok deal, tariffs or competition in semiconductors – the deeper structural tensions that shape the long-term relationship between the United States and China, and the rest of the international system, risk coming to a head in the background.

Amid these high-profile developments and the whirlwind of short-term tactical deals, a more subtle but profoundly consequential trend is underway and deserves sustained attention from boards, CEOs, investors and policymakers: the growing use of what is commonly referred to as “lawfare.” The deliberate and strategic deployment of laws, compliance regimes and regulatory standards is increasingly used by China to assert its power, shape global behavior and consolidate long-term advantages for itself and its businesses around the world.

It’s not just the laws themselves that are the problem. Many would also be right to point out that the United States and Europe have been doing these things for decades. The risk lies in the lack of serious understanding of what China is doing, and the lack of curiosity or forward-looking scenario planning in U.S. boardrooms and senior management. Too often, leaders are unprepared for situations in which compliance with U.S. laws – once commonplace – now comes into conflict with the obligations of China’s expanding legal and regulatory regime. These are no longer extreme case occurrences.

And while China’s regulatory framework is relatively new compared to that of the United States or Europe, it is increasingly effective in advancing its geopolitical objectives. Any nation with China’s level of capacity, action and ambition would use its legal system to expand its influence, even outside its territory. The timing of the latest restrictions on rare earths is no coincidence. With a Trump-Xi meeting planned in Seoul this month, China is showing that it is fully capable of adapting its legal toolkit to ensure it is fit for purpose and that it is prepared to use law and regulation to maximum effect, both to secure short-term negotiating leverage and long-term national interests.

China’s growing legal arsenal

The same strategic logic appears clearly in China’s recourse to a broader legal arsenal.

Beijing has used its antimonopoly law to launch retaliatory investigations – such as an antitrust investigation into Nvidia following US controls on chip exports. He used the Anti-Foreign Sanctions Act to sanction defense companies such as Raytheon and Lockheed Martin for their arms sales to Taiwan, even banning their executives from coming to China.

China’s Unreliable Entity List (UEL), once considered a theoretical threat, is now an effective tool. In 2025, U.S. companies including Calvin Klein owner PVH Corp. and Illumina were listed for alleged discriminatory practices, followed by a wave of U.S.-based drone companies including Skydio and Brinc.

The message is clear: mere respect for American law can now trigger sanctions from Beijing. And that scope expanded even further this week. On Thursday, China added 14 more Western entities to the UEL, many of which are linked to the defense, intelligence and semiconductor ecosystem. Among them is TechInsights, a Canadian leader in semiconductor intelligence, reverse engineering and market analysis. Beijing’s Ministry of Commerce has banned Chinese entities and individuals from engaging in any trade, cooperation or data sharing with listed companies.

This latest addition to the UEL list marks a new frontier in China’s legal strategy, targeting not only physical goods and technologies, but also the information infrastructure and analytical capabilities that support supply chain transparency, compliance assessments and competitive forecasting. This is a stark reminder that data is now a contested domain and that Beijing is willing to cut off information flows as aggressively as it once did mineral or equipment flows.

Other laws, such as the Data Security Act and the Personal Information Protection Act, have been used to restrict data flows and discipline companies operating in multiple jurisdictions. Didi Chuxing’s delisting and LinkedIn’s exit from China illustrate how regulatory pressure can be applied quickly and unilaterally to great effect.

But it is China’s export control law, applied in recent years to gallium, germanium and now rare earth magnets, which has become its main economic lever. By imposing strict licensing requirements on outbound shipments of these bottleneck materials, China is deliberately slowing the global flow of critical inputs to advanced manufacturing, clean energy, and defense supply chains. This law is no longer a mere technicality of an innocuous license application and approval process: it is an open and active instrument of governance.

This legal network is complex and sometimes vague and overlapping, giving Beijing the flexibility to exert pressure whenever and wherever it sees fit. China now has more than 20 such laws and regulations – covering cybersecurity, foreign investment controls, maritime security, the corporate social credit system and even combating food waste and religious activities – creating a dense framework designed to coerce, retaliate and reward in service of national goals.

Chinese governance and the power of “paper tigers”

There is also an even quieter, long-term battle that China is winning: setting global standards.

Through its China Standards 2035 initiative and strategic placements in key international bodies such as the International Telecommunications Union (ITU), the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC), China aims to define the technical standards that will govern the future of 5G telecommunications, artificial intelligence (AI), smart cities and others emerging and advanced technologies. Norms determine at what scale, who benefits, and what governance models are encoded into global systems.

Chinese companies like Huawei and Hikvision are aggressive participants. American companies often find themselves fighting alone. American regulators are, by and large, absent. If this continues, American businesses and consumers will increasingly operate under rules made in Beijing, not Washington.

These may not be sexy questions. And they probably won’t be on the agenda for the Trump-Xi meeting on the sidelines of APEC. But these are still crucial questions. It is not necessarily about choosing a geopolitical camp. It is about developing a plan to navigate a conflicting and fragmented global legal environment. The real challenge lies in how global businesses respond. Does a company know all its exposure? Are there red lines – scenarios in which it is clear which legal regime to obey, and are American companies prepared to make that decision and explain it to shareholders and regulators?

These are not platitudes. They form the foundation of a strategic framework that companies must build, refine, and iterate now before the next time they must choose between obeying U.S. law and remaining viable in the Chinese market. These are not easy questions to answer, and compromises are not easy to make. But ignoring them – or pining for the good old days – is not an option. As Chairman Mao might have said, they are not “paper tigers”. These are real, active tools used to pressure, coerce and protect Chinese companies from foreign competition – while putting Beijing’s national interest at the center of the global regulatory ecosystem.

—By Dewardric McNealmanaging director and senior policy analyst at Longview Global, and CNBC contributor