Commerce Department Signals Tough Approach on China Under Controversial Trump Tech Supply Chain EO

The US Department of Commerce, on March 17, 2021, issued subpoenas on multiple Chinese companies that provide information and communications technology and services (ICTS) in the United States, signaling that the Biden Administration may continue the push to decouple US ICTS infrastructure from equipment and services providers over concerns that they might pose a national security risk to the United States.

The subpoenas were served “to support requirements for the review of transactions pursuant to Executive Order [(EO)] 13873” (the ICTS supply chain EO), in which President Trump declared a national emergency with respect to the threat posed to US national security, foreign policy, and the economy by foreign adversaries who are “increasingly creating and exploiting vulnerabilities in information and communications technology and services.”

The targeting of Chinese companies is significant, with new Commerce Secretary Gina Raimondo stating that “Beijing has engaged in conduct that blunts our technological edge and threatens our alliances.” This action also provides some indication that the Biden Administration does not intend to derail the ICTS Interim Final Rule, which implements EO 13873 and is set to take effect on March 22, 2021. Notably, this ICTS Rule lists China as a so-called “foreign adversary,” meaning that ICTS transactions with companies owned by, controlled by, or under Chinese jurisdiction can be the subject of a review by the Department of Commerce and even, in certain cases, blocked or undone.

The subpoena issuance suggests that the Biden Administration will continue the US Government’s assertive approach to China, with additional actions targeting Chinese companies potentially around the corner if the ICTS Rule takes effect on March 22 as expected. We believe the March 17 action is likely driven by US Government concerns involving ICTS that supports critical infrastructure, which is a key focus of the ICTS Rule itself.  Recent high-profile cyber breaches in the United States have also raised the stakes regarding ICTS, and we believe this may have played a role in the subpoenas being issued.

The Arent Fox team will be monitoring developments in this area.