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China has placed leading U.S. defense contractors Lockheed Martin Corp. (NYSE: LMT) and Raytheon Technologies Corp. (NYSE: RTX) on its "unreliable entities list" over arms sales to Taiwan, effectively banning the duo from exporting or importing to China.
China has also banned the companies from making any further investments in China; imposed fines that are double the contracted amounts of their arms sales to Taiwan, canceled residence permits for any staff in China and also barred senior management from entering the country.
The bans come amid worsening relations between the United States and China, with the latest spat between the two countries coming after a Chinese spy balloon and several other unidentified flying objects were spotted flying over American skies and shot down.
It is not immediately clear how Beijing intends to enforce the fines that are to be paid within 15 days considering that no American company sells weapons to China.
The U.S. does sell arms to Taiwan since it is bound by the 1979 Taiwan Relations Act, which requires that “…the United States shall provide Taiwan with arms of a defensive character and shall maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or social or economic system, of the people of Taiwan.”
Relations between the U.S. and China took a dramatic turn for the worse under the Trump administration, and the Biden Administration is under pressure to view China as a fast-encroaching enemy. Relations have continued to sour since Washington announced its diplomatic boycott of the Beijing Olympics and added more Chinese companies to its trade restriction list.
The U.S. and Taiwan have maintained cordial relations, with the world’s biggest semiconductor chip manufacturer, Taiwan Semiconductor Manufacturing Company (NYSE: TSM), currently building a second fab in Arizona as part of its $40 billion commitment that will greatly beef up the U.S .domestic semiconductor sector.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.