US uses ‘poison pills' to isolate China from supply chains
A trade deal signed by the US and the United Kingdom on May 8 showed that Washington wants veto power in China's acquisitions of British steel and drug firms. Some Chinese commentators expected the US to include such 'poison pills' in its coming trade deals with other countries.
Meanwhile, the US Commerce Department said in three guidelines that companies worldwide should not use Chinese advanced computing chips, allow the training of Chinese AI models with US artificial intelligence chips or re-export American high-end chips to China.
In a joint declaration announced Monday, the US and China agreed to a 90-day pause for 'reciprocal' tariffs. The US reduced its tariffs on Chinese goods from 145% to 30%, in addition to an average 20% tariff imposed by the US during the Trump administration's first trade war against China in 2018. In return, China lowered its tariffs on US goods from 125% to 10%.
US Treasury Secretary Scott Bessent said Monday that the US does not want a generalized decoupling from China but a strategic decoupling. He said the US will build resilient supply chains for steel, critical medicines, and semiconductors.
On March 12, US President Donald Trump imposed a 25% tariff on all imports of aluminium, steel, and derivative goods, hitting the UK's metal industry. The UK exports about £700 million (US$931 million) of steel and aluminium and £2.2 billion of machinery and gym equipment to the US annually.
According to the newly signed US-UK 'economic prosperity deal' (EPD), the US will provide forcertain key UK imports modified reciprocal tariff treatment, based on the two countries' 'balanced' trading relationship and shared national security priorities. Any modifications will be consistent with those shared national security priorities, including those identified in future US Section 232 investigations.
Here are the key points of the agreement:
The US will create a quota of 100,000 vehicles for UK automotive imports at a 10% tariff rate.
The US will construct a quota at most favored nation (MFN) rates for UK steel and aluminum and certain derivative steel and aluminum products.
The US and the UK intend to negotiate significantly preferential treatment outcomes on pharmaceuticals and ingredients.
The US and the UK will negotiate regarding other sectors subject to Section 232 investigations or other tariff measures with a view to a significantly preferential outcome.
The UK agreed to work to meet US requirements on the security of the supply chains of steel and aluminum products and drugs intended for export to the US and on the nature of ownership of relevant production facilities.
The Telegraph said that under the agreement, the current Labor government in the UK allows the US to veto Chinese investment in the UK's steel and drug sectors.
In 2018, the US Commerce Department's Bureau of Industry and Security (BIS) initiated Section 232 investigations into the effects of steel and aluminum imports on US national security. It added the so-called 'poison pill' clause in the US-Mexico-Canada Agreement (USMCA) to limit China's access to the steel and aluminum markets in North America and potentially influence its economic relationship with Canada and Mexico.
In March and April 2025, the BIS launched new Section 232 investigations on imports of copper, timber and lumber, semiconductors and chip-making equipment, medicines and their ingredients, trucks, and processed critical minerals and derivative products.
'This type of 'poison pill' clause is actually worse than the tariffs,' Zhang Yansheng, a senior researcher at the China Academy of Macroeconomic Research, told the Financial Times.
Zhang said the US-UK trade deal showed Washington's attempt to isolate China by forcing other countries to accept similar terms in trade negotiations. He said China should 'bluntly raise the issue in talks with the UK,' but at this point, it should hold off from immediate retaliation.
'China is seriously concerned about the media reports and has made representations to the UK, asking for clarification,' a spokesperson of the Chinese Embassy in the UK said in a statement on Wednesday. 'Cooperation between countries should not target or harm the interests of any third party. China is firmly opposed to any party seeking a deal at the expense of China's interests.'
The Chinese Embassy said it will continue to follow the situation and respond as necessary.
A Shandong-based columnist said the UK's getting a tariff-free export quota of 100,000 cars to the US annually is not worth sacrificing the opportunity to collaborate with China in the chip and pharmaceutical sectors.
Rescinding the AI diffusion rule
On January 15, the Biden administration announced the AI diffusion rule, a new regulatory framework to ensure the responsible diffusion of advanced AI technology.
The framework requires US companies, mainly Nvidia and AMD, to apply for export licenses if they ship high-end AI chips to foreign countries other than 18 US allies. Its compliance requirements were set to take effect on May 15.
However, the US Commerce Department said Tuesday that the BIS will not enforce the AI diffusion rule.
'These new requirements would have stifled American innovation and saddled companies with burdensome new regulatory requirements,' the department said. 'The AI diffusion rule also would have undermined US diplomatic relations with dozens of countries by downgrading them to second-tier status.'
At the same time, the BIS announced three actions to strengthen export controls for overseas AI chips:
Alerting the industry to the risks of using PRC advanced computing ICs, including specific Huawei Ascend chips;
Warning the public about the potential consequences of allowing US AI chips to be used for training Chinese AI models; and
Urging US companies to protect supply chains against diversion tactics (China's tactics to obtain AI chips via third countries).
Also on Tuesday, Trump led a group of technology gurus, including Nvidia's Jensen Huang and AMD's Lisa Su, on a visit to the Middle East. Nvidia said it plans to ship 18,000 Blackwell chips to Saudi Arabia.
'Why did the US take action against Huawei's Ascend AI chip?,' a Shaanxi-based columnist asks. 'The Ascend 910C chip is comparable to some of Nvidia's chips. It won't be long before it can compete with Nvidia.'
She says Washington's action to suppress the Ascend chip in the global market is meaningless, as the chip now targets mainly domestic customers. She says China will continue to ban the exports of its critical minerals to the US.
Chinese media said the performance of the Ascend 910C is equivalent to that of Nvidia's H100 chip. Still, Huawei has a limited production capacity as its contract manufacturer, Semiconductor Manufacturing International Corp (SMIC), does not have extreme ultraviolet (EUV) lithography to make high-end chips.
Read: US eases trade war, pursues 'strategic decoupling' from China
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