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Unfinished Business and Potential New Directions: The Biden Administration Faces Many Decisions in Addressing Trump Administration Measures Targeting China and other National Security ThreatsJanuary 20, 2021
As President Joseph R. Biden Jr. takes office and forges his own national security strategy, his administration will need to determine how to approach existing Trump Administration national security measures focusing on protecting U.S. technology, supply chains, and critical infrastructure. Many of these measures are only partially implemented. The Trump Administration has focused particularly on China in its final weeks, reflecting a consistently aggressive approach to all aspects of the U.S.-China relationship. While President Biden has committed to taking a more multilateral approach to national security issues, there will be pressure to maintain a fair amount of continuity regarding China, given broad bipartisan consensus on the national security threats posed by China, and concerns about its record on democracy and human rights.
Key Open Trump Administration National Security Actions
The following summarizes key Trump Administration national security measures that President Biden and his administration will need to address. These measures are prompted predominantly by China, but some also target other national security threats. All of these measures were issued through Executive Order. As such, the Biden Administration has broad discretion to reassess the strategy underlying these measures:
- Information and Communications Technology and Services Supply Chain
On January 14, 2021, the Department of Commerce published an interim final rule implementing Executive Order 13873, which prohibits transactions that the Secretary of Commerce determines involve “information and communications technology or services designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary” and that pose an undue or unacceptable risk to national security. Our detailed analysis of this rule is forthcoming.
The rule, effective on March 22, 2021, establishes the process that the Secretary of Commerce will use to identify, assess, and address transactions between U.S. persons and foreign persons that involve ICTS designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a “foreign adversary,” and pose an undue or unacceptable risk to national security. Six foreign governments or foreign non-government persons as “foreign adversaries”: China, Russia, Iran, North Korea, Cuba, and Venezuelan President Nicolas Maduro.
The Biden Administration will have the opportunity to assess whether to make any changes to this rule.
- Prohibition on U.S. Investments in Companies with Ties to the Chinese Military
- Prohibitions on Transactions with Certain Chinese Apps
- Bulk-Power System Electric Equipment
- Hong Kong-Related Sanctions
- Export Controls Targeting Chinese Companies
On January 13, 2021, President Trump issued an Executive Order, amending Executive Order 13959, which prohibits U.S. persons from engaging in transactions in publicly traded securities of Communist Chinese Military Companies (“CCMC”). See OMM Alert President Trump Issues Executive Order Prohibiting US Investments in Companies with Ties to the Chinese Military. The new Executive Order clarified that U.S. persons are prohibited from holding CCMC securities subject to the Executive Order after November 11, 2021, (or one year after a new CCMC is designated), and addressed a legal defect in the initial Executive Order that would have prevented the Defense Department from designating additional CCMCs that would be subject to the prohibitions.
The Biden Administration may decide whether to continue, amend, or withdraw this measure.
On January 5, 2021, President Trump issued Executive Order 13971, prohibiting persons subject to U.S. jurisdiction, as of February 19, 2021, from engaging in any “transaction” with “persons” that develop or control Chinese software platforms Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office.
The Biden Administration may decide to continue, amend or withdraw this measure. If it is kept in place, the Administration will be responsible for implementing the Order. The Order directs the Secretary of Commerce to identify the transactions and persons that develop or control the Chinese software applications not earlier than February 19, 2021. The Order also directs the Secretary of Commerce, in consultation with the Attorney General and the Director of National Intelligence, to “provide a report to the Assistant to the President for National Security Affairs with recommendations to prevent the sale or transfer of United States user data to, or access of such data by, foreign adversaries, including through the establishment of regulations and policies to identify, control, and license the export of such data.”
Separately, the Trump Administration actions targeting TikTok and WeChat are pending, subject to the resolution of ongoing litigation. On September 18, 2020, the Commerce Department identified prohibited transactions for TikTok and WeChat, pursuant to Executive Orders 13942 and 13943, respectively. See OMM Alerts: President Trump Issues Executive Orders Prohibiting Transactions with TikTok and WeChat; Commerce Department Prohibits Transactions with TikTok and WeChat; Preliminary Injunctions Delay Implementation of Commerce Department Orders Targeting TikTok and WeChat. U.S. District Courts granted preliminary injunctions in favor of TikTok and WeChat, which are now being litigated in federal appellate courts.
The Biden Administration will need to assess whether to amend, revoke, or defend those orders in court.
On May 1, 2020, President Trump issued Executive Order 13920 on securing the U.S. bulk-power system, which authorized the Secretary of Energy, in coordination with other government officials, to prohibit transactions initiated after May 1, 2020, related to any bulk-power system electric equipment involving a foreign adversary where he determines the transaction poses an undue risk of sabotage or subversion of the bulk-power system, catastrophic effects to U.S. critical infrastructure, or U.S. national security. See OMM Alerts: President Trump Issues Executive Order on Securing the United States Bulk-Power System; Trump Administration Takes Further Actions Targeting China as Term Nears End.
The Biden Administration will need to implement this measure, assuming it remains unchanged. Executive Order 13920 called for implementing regulations to be issued in September 2020, but the Energy Department has yet to issue them. While the rulemaking process continues, on December 17, 2020, the Secretary of Energy issued a prohibition order, effective January 16, 2021, prohibiting electric utilities that own or operate Defense Critical Electric Infrastructure (DCEI) that actively serves a Critical Defense Facility (CDF) (“Responsible Utility”) from acquiring, importing, transferring, or installing certain BPS electric equipment that (i) has been manufactured or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of the PRC, and (ii) is for use by the Responsible Utility as a component of its DCEI serving the CDF at a service voltage level of 69 thousand volts (kV) or higher, from the point of electrical interconnection (at a service voltage level of 69 kV or higher) with the CDF up to and including the next “upstream” transmission substation.
On January 15, 2021, the Office of Foreign Assets Control (“OFAC”) published Hong Kong-Related Sanctions Regulations implementing Executive Order 13936, which eliminated different or preferential treatment of Hong Kong in relation to the People’s Republic of China and authorized the imposition of sanctions on individuals determined to be involved in undermining Hong Kong’s autonomy and democratic processes. OFAC announced it intends to supplement the Hong Kong-Related Sanctions Regulations with a more comprehensive set of regulations, which may include additional interpretive and definitional guidance, additional general licenses, and statements of licensing policy.
The Biden Administration will have the opportunity to assess whether to amend the underlying Executive Order and shape its implementation.
The final month of the Trump Administration included a flurry of activity at the Commerce Department imposing broad restrictions on exports of U.S.-origin goods and technology to numerous Chinese companies for reasons related to military ties and human rights abuses. This included adding the Chinese National Offshore Oil Corporation (CNOOC), the Semiconductor Manufacturing International Corporation (SMIC), and other Chinese companies to the Entity List, and the addition of a Military End User List to the Export Administration Regulations with more than 60 Chinese companies. These actions followed the Commerce Department’s long-running targeting of Huawei, which included the expansion of U.S. export controls to prevent Huawei&rsquo’s access to U.S. technology by broadening the foreign-produced direct product rule. See OMM Alerts: Trump Administration Takes Further Actions Targeting China as Term Nears End; Trump Administration Continues to Target TikTok and Huawei; United States Expands Export Controls Targeting Huawei’s Access to US Technology.
The Biden Administration will have the opportunity to reassess the effectiveness and breadth of these measures.
Biden Administration Approach
There will be many differences between the Trump and Biden administrations’ approaches to national security challenges; most notably, the Biden campaign promised a more multilateral strategy. That said, there is likely to be a degree of continuity in their approaches to China, particularly with respect to protecting U.S. technology. Secretary of State nominee Antony Blinken acknowledged in his confirmation hearing that “President Trump was right in taking a tougher approach to China.” Blinken said, “I disagree, very much with the way that he went about it in a number of areas but the basic principle was the right one and I think that’s actually helpful to our foreign policy.”1 At the same time, Secretary of the Treasury nominee Janet Yellen noted in her confirmation hearing that the U.S. would seek to work “with our allies rather than unilaterally” in its China policy.2
Initiatives such as the ICTS Supply Chain Executive Order and the Bulk-Power System Executive Order have strong support from national security officials, although the particulars of implementation could change in the respective rulemaking processes. The Biden Administration will likely review China-specific export control actions, but may keep many of them in place. The TikTok and WeChat actions have been viewed as more controversial, with court challenges to their constitutionality. The prospects for those measures is thus less clear.
Even in cases of differing views or approaches, the Biden Administration is unlikely to rush to abandon tools and authorities developed in the Trump Administration, particularly when there are so many issues requiring immediate and sustained attention, such as the pandemic and economic recovery. We expect the Biden Administration to take a deliberate and coordinated approach to China and technology issues, potentially delaying implementation of Trump Administration executive orders so that decisions regarding recession, modification, or implementation can be fully informed. It will likely take a few months for the new administration’s strategy to take hold, but companies should anticipate that the Biden Administration will maintain pressure on China.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, David J. Ribner, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, John Dermody, an O’Melveny counsel licensed to practice law in the District of Columbia and California, and Paras Shah, an O’Melveny associate licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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