ICAS Trade ‘n Tech Dispatch (online ISSN 2837-3863, print ISSN 2837-3855) is published about every two weeks throughout the year at 1919 M St NW, Suite 310, Washington, DC 20036.
The online version of ICAS Trade ‘n Tech Dispatch can be found at chinaus-icas.org/icas-trade-technology-program/tnt-dispatch/.
In One Sentence
Mark the Essentials
Keeping an Eye On…
The past few weeks have again yielded an unyielding reality in U.S.-China ties: even as ties continue to stabilize, negative undercurrents deepen.
First, the upside. U.S.-China political relations are well-anchored in the short term, especially in the run-up to President Xi’s late-September meeting at the White House. Both sides are making concerted efforts to translate the outcomes of the Beijing Summit into reality: dialogue mechanisms are active, functional cooperation has deepened, sensitive issues such as Taiwan are being carefully managed, and effort has been devoted to improving the relationship’s political optics. The range of senior officials’ meetings has been especially impressive, featuring, on the U.S. side, the Secretary of State and his deputy, the Treasury Secretary, the FBI Director, the Under Secretary of War for Policy, and the NSC Senior Director for Asia. President Trump’s China-whisperer in the Senate, Sen. Steve Daines, is due back in Beijing later this month or next. The Board of Trade’s charter and the law enforcement track—featuring four working groups on cyber fraud, violent crimes against children, counternarcotics, and fugitive rendition, as well as joint enforcement operations—appear to be the most advanced areas of functional cooperation. An AI working group meeting is also slated for early-to-mid September.
Next, the downside. U.S.-China structural decoupling is back in business. The strategic pause on export controls that the two sides had observed since mid-October 2025 is gradually crumbling. To be clear, the Commerce Department’s Bureau of Industry and Security, the key export controls administrator, continues largely to stay its hand on introducing new controls. Picking up the slack, however, is the Federal Communications Commission (FCC)—a hitherto backwater spectrum regulator—which has used authorities under the Secure and Trusted Communications Networks Act of 2020 and the Secure Equipment Act of 2021 to introduce import denials on Chinese-made drones and related components (December 2025), routers (March 2026), and power inverters and advanced robotic devices (July 2026). A denial of authorization for the import or sale of Chinese-made optical transceivers is expected in the near future as well. Because any device that emits radio frequency—which essentially covers the universe of electronic devices—is subject to FCC controls, and because the telecoms sector and connected devices are seen as a key vector of unwanted Chinese penetration, expect the FCC to become an increasingly key player in the U.S.-China decoupling saga.
Relatedly, the Commerce Department has strictly enforced the Biden administration’s connected vehicle rule, which requires automakers to strip out code written in China or by a Chinese company. In effect, this has ejected the Chinese-owned brand Polestar from American roads and raised the stakes for any new Chinese-made EV or hybrid planning to launch in the U.S. Earlier in June, the Pentagon updated its 1260H Chinese Military Companies List, thus heaping DoW procurement restrictions and Commerce and Treasury Department sanction-designation risk on the listed entities. Nor has China been idle: it has written a variety of countermeasure-laden regulations throughout the first half of the year, coupled with the actual implementation of a few such measures.
All told, the negative structural tendencies in the relationship continue to deepen and have lately begun to dominate. Although both sides have kept their decoupling-related actions beneath the threshold of provocation, so as to preserve the joint arrangement on economics and trade that Presidents Trump and Xi endorsed in Busan in November 2025, the chasm in strategic perceptions remains as wide as ever. In sum, the “new normal” in U.S.-China relations continues to take shape, one uncoupling at a time.
Expanded Reading
In One Sentence
Mark the Essentials
Keeping an Eye On…
Two policy documents, five days apart, and each replete with disingenuousness—such is the state of politicized analysis by governments on both sides of the Pacific.
Exhibit #1 is the semi-annual currency report issued by the U.S. Treasury Department on July 23. True to form, it solemnly intones that foreign exchange intervention by sovereigns should be reserved only for combatting excess volatility and disorderly movements in exchange rates. And why wouldn’t the Treasury want to hold this position in principle? As the issuer of the dominant reserve currency par excellence, it has an understandable interest in the laissez-faire workings of the global currency market. The problem is that when it comes to its own narrower political interests, it is happy to violate its own principles. Call it a case of “rules for thee but not for me.” Late last week, the U.S. and Japan coordinately intervened for the first time in three decades to bolster the value of the yen. Make no mistake: the yen was weak, drifting downward, and is fundamentally undervalued (as is the case with a number of capital-account-surplus East Asian currencies). But its movement was neither excessively volatile nor disorderly. To confirm this point, consider the Treasury’s own currency report, which highlights the yen’s generally stable value in 2025 despite large intra-year swings, as well as its secular downward trend over a longer period. By the Treasury’s own measure, the yen was not a candidate for foreign exchange intervention.
So why did Washington and Tokyo intervene together? Because the Bank of Japan’s potential need to raise domestic interest rates to stem the yen’s weakness threatened to pile selling pressure on, and drain large Japanese-invested sums from, the Treasury market. Japan’s Government Pension Investment Fund and Japan Post Bank are among the world’s largest institutional investors, hold almost $1.5 trillion in foreign securities, and are overweight in their U.S. allocations. A repatriation toward Japanese government bonds (JGBs) would have pushed U.S. long-term interest rates higher, in turn affecting mortgage and other rates at a time of aggravated affordability concerns at home. So, for domestic political and electoral reasons, Washington chose an activist turn in currency policy, despite the fact that past interventions in currency markets have historically occurred mainly during major global financial crises or periods of major emergency or disaster. “Do as I say, not as I do” is Washington’s new currency policy mantra. It is another matter, of course, that this coordinated intervention is no more than a bandage. The pressure on the yen stems from Prime Minister Takaichi’s “(ir)responsible and proactive public finances” stance, which plans to spray public money and cut taxes without identifying funding sources, all while pretending that Japan’s teetering fiscal ship—already taking on water—is being steadied on an even keel. So long as Takaichi sticks to her game plan and the Bank of Japan is hesitant to cross her, expect continuing pressure on the yen.
Exhibit #2 is the position paper on overcapacity issued by China’s Ministry of Commerce on July 28. True to form, it proclaims that there is no structural overcapacity problem in China, that temporary supply-demand imbalances are a function of technological transformation, that China is transparent and even-handed in disbursing industrial subsidies and procurement, and that what passes as subsidized overcapacity should instead be viewed as an industrial success story stemming from innovation.
These arguments are hard to square with the facts on the ground. China’s own National People’s Congress Standing Committee (NPCSC) meetings have recently noted that disorderly capacity expansion and “involution”-type behaviors are rampant, including in the new energy sectors (silicon wafers and PV cells; lithium-ion batteries; electric vehicles); that WTO-illegal subsidy practices occur locally and have become a prominent bottleneck to creating a national market; that illegal investment-promotion violations leading to excess capacity have shifted from overt to covert; and that bidding and procurement procedures unfairly favor local enterprises at the expense of non-provincial—let alone foreign—enterprises. The central government has, in fact, compiled a negative list of prohibited fiscal subsidies and shared it with local governments, but it will not disseminate the list publicly. For its part, the latest WTO Trade Policy Review of China’s policies and practices notes that the Chinese government’s subsidy notifications to the WTO Secretariat do not offer a clear picture of China’s support programs—especially in sectors, both frontier and primary, where such support has global repercussions, such as aluminum, EVs, solar modules, glass, shipbuilding, semiconductors, and steel. The incentives provided by China’s Government Investment Funds (GIFs), a key means of late for guiding investment to preferred sectors, have generally not been notified to the WTO either.
It is understandable that China seeks to cultivate a pipeline of battle-hardened, technologically advanced firms in emerging and frontier industries that will define the next industrial cycle and beyond. Enabling surplus capacity, and thereafter encouraging competition and innovation, is part of the recipe for cultivating such industries, as China’s macro-planner, the National Development and Reform Commission (NDRC), itself attests. The failure to once again acknowledge the obvious on “overcapacity” thus risks painting China as not only disingenuous on the issue but also dismissive of finding a solution to what has become a global challenge—and one that has stoked the ire of key trading partners. Not a good look by any means, especially as Beijing gears up for high-stakes negotiations with the EU on trade, investment, and industrial policy issues. And, by the way, centrally issued administrative disciplinary measures will never be enough; what must change, rather, is the cadre incentive—and disincentive—structure that abets the wild excess capacity in targeted industries. Beijing understands this well: it recently rolled out a KPI-based make-or-break framework for cadre promotions as part of achieving its carbon-peaking and carbon-neutrality goals. The same template should be applied on the industrial policy and consumption fronts.
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Legislative Developments
Hearings and Statements
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