China retaliates against US defence sanctions by blocking dual-use exports to ten named American military companies, escalating trade and compliance disputes
China's Commerce Ministry on Monday announced sanctions on ten named American military-related companies, blocking Chinese firms from exporting dual-use items (goods with both civilian and military applications) to those targets. The action is a direct response to a recent US move adding Chinese tech companies — including Alibaba and Baidu — to the US Defence Department's list of firms with alleged links to the Chinese military, which bars them from receiving US military contracts. The ten named US companies subject to the Chinese export ban include: AVEOX, Red Cat Holdings, Teal Drones, IMSAR, Jaia Robotics, Ball Aerospace & Technologies, Oshkosh Defense, L3Harris Maritime Services, MP Materials, and USA Rare Earth. China's Finance Ministry separately announced that government entities are prohibited from purchasing products from 46 American companies, including multiple units of Lockheed Martin, Raytheon and General Dynamics. Critically, the Commerce Ministry also stated that companies or individuals in third countries are prohibited from transferring dual-use items from China to the sanctioned American firms — a significant extraterritorial reach that directly affects non-US and non-Chinese intermediaries, including UK and European companies. The escalation came despite the Xi-Trump consensus reached during Trump's Beijing visit in May. China's ministry described the US sanctions as contradicting that consensus and as a 'wrongful expansion' of its Chinese Military Companies list.
Why this matters
The extraterritorial reach of China's third-country transfer prohibition is the most legally significant element for UK and European firms: any company in the UK, EU or elsewhere that supplies dual-use goods originating in China to the named US defence companies could now be in breach of Chinese export control rules — a genuine conflict-of-laws problem for companies with supply chains spanning both jurisdictions. This creates immediate demand for trade compliance and export control legal advice, as in-house and external counsel must map supply chain exposure and assess the risk of secondary sanctions. The designation of Alibaba and Baidu by the US adds further complexity for tech sector clients: these are major cloud and AI infrastructure providers, and their listing affects downstream commercial relationships beyond defence. For disputes lawyers, the framework creates conditions for future regulatory enforcement actions in China against third-country intermediaries, as well as potential investor-state claims if regulated businesses suffer losses from conflicting compliance demands.
On the Ground
A trainee on a trade compliance matter triggered by these sanctions would be preparing sanctions screening memos mapping client supply chain exposure to the named entities, drafting choice-of-law summaries where Chinese and US export control regimes conflict, and coordinating local counsel instruction letters to Chinese, US and UK counsel to assess extraterritorial application of the third-country transfer prohibition.
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“How would you advise a UK manufacturing client that supplies components originating in China to an American defence company that has now been named on China's dual-use export restriction list?”
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