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China Adds to Sanctions of U.S. Defense Contractors Over Taiwan Arms Sales

Beijing starts year with fresh warning to Trump of economic statecraft at its disposal

China started the year with a broadside against U.S. defense contractors, responding to recently ramped-up Taiwan arms sales by the Biden administration and laying down a fresh warning to President-elect Donald Trump of tools Beijing can use to protect national interests.

Beijing’s Ministry of Commerce on Thursday blacklisted 10 companies as “unreliable entities” barred from doing business in China and said it would block an additional 28 from buying unspecified components that could have dual civilian and military uses.

Most of the defense contractors named have previously been sanctioned by China and have little trade with the country, unlike some of the hundreds of Chinese entities with U.S. operations targeted in punishments by Washington, such as Huawei Technologies.

While the immediate impact is likely minimal, the measures are important as symbolic reminders of the kind of measures China could level more broadly against American corporations in any future conflict.

The ministry cited safeguarding national security in Thursday’s action and Xinhua News Agency said the targeted companies have engaged in military technology cooperation and arms sales with Taiwan in recent years, despite China’s strong opposition.

Beijing’s claim to Taiwan is its pre-eminent source of friction with the U.S., and under leader Xi Jinping, China regularly flexes military muscle with jet fighters and warships that demonstrate how it might conduct an invasion or impose a trade embargo of the island. In a New Year’s address, Xi issued a warning to the U.S. over Taiwan: “No one can ever sever the bond of kinship between us, and no one can ever stop China’s reunification, a trend of the times,” he said.

Despite Beijing’s admonishments, every U.S. administration has sold weapons to Taiwan, most recently Abrams tanks from General Dynamics ordered during Trump’s first term and recently delivered by the Biden administration. Under the 1979 Taiwan Relations Act, the U.S. is committed to providing Taiwan with defensive weaponry and is obligated to treat threats to the democratically run island as a matter of “grave concern.”

​During the Biden years through November, the U.S. has reduced a backlog of weapons sold to Taiwan but not delivered, according to a blog post last month by Eric Gomez​, a senior fellow at​ the Washington-based Cato Institute​. Gomez pointed out that the Biden administration has put more emphasis on asymmetric systems and maintenance services to Taiwan, which don’t necessarily cost as much as traditional weaponry.

“While the first Trump administration sold Taiwan more weapons, the Biden administration sold Taiwan a better mix of weapons for Taiwan’s self-defense needs​,” Gomez wrote.

The 10 companies labeled Thursday as unreliable by China are units of defense contractors General Dynamics, Lockheed Martin and RTX’s Raytheon, all of which have been sanctioned previously by Beijing. Some of those groups’ units are among those now blocked from dual-use item purchases, along with Boeing’s Defense, Space & Security unit, which likewise has previously been targeted by Beijing. The companies declined to comment or didn’t respond to questions.

The companies now cut off from dual-use components include some new names, including Texas-based sensor technology maker Intelligent Epitaxy Technology, which said it is studying the announcement.

In a separate notice on Jan 2, the Commerce Ministry said it was mulling export restrictions on certain technologies used to prepare battery components and process lithium and gallium.

China is a large producer and processor of many critical minerals and a draft of the proposed limits was circulated publicly this week to canvas public opinion. Lithium and gallium are metals commonly used in rechargeable batteries and semiconductors.

The measures build on Chinese sanctions in recent months against a number of American drone industry players. One of the companies, California-based Skydio, said the measure was aimed at its elimination in order to “deepen the world’s dependence on Chinese drone suppliers.” Beijing has also blocked specialty minerals germanium and gallium from export to the U.S., which appeared related to U.S. efforts to limit Chinese access to high-end semiconductors. And it has lashed out at critics of its human-rights record, banning some prominent American politicians from China, including Trump’s designee for secretary of state, Sen. Marco Rubio (R., Fla.).

After more than a decade of telling American companies they were at risk for participating in Taiwan sales, China in 2020 first sanctioned American defense contractors Lockheed, Raytheon and Boeing. Also during Trump’s first administration, China in 2019 said it would compile an unreliable-entity list after the U.S. blacklisted Huawei, then in 2023 added Lockheed and Raytheon following Biden administration sanctions on a clutch of Chinese enterprises blamed for building a spy balloon that traversed the U.S.

As the world’s largest trading nation by value, its No. 2 economy and a consistently large absorber of foreign direct investment, China, like the U.S., has a vast ability to conduct economic statecraft. Its actions against American defense contractors, like special investigations into the safety of U.S. agricultural products like wheat and beef, plus thickets of regulation and its claims of final approval over multinational corporate mergers, provide tastes of how Beijing can try to match the U.S. in levering economic heft to pressure a foreign adversary.

More could be in store once Trump returns to the White House, as the president-elect has vowed significant new pressure on Beijing, including with tariffs.

Before his November election, Trump suggested he would like to see a more transactional relationship with Taiwan—raising the question of whether he would step up arms sales to the island—and separately vowed retaliation against China if it were to threaten Taiwan. Trump told The Wall Street Journal’s editorial board in October that Xi wouldn’t dare to move against Taiwan because, he said, Xi sees Trump as “crazy,” but that if he did, “I would say: if you go into Taiwan, I’m sorry to do this, I’m going to tax you at 150% to 200%.”

In addition to unleashing its full military power, Beijing would be expected to use a variety of economic strategies in a showdown over Taiwan.

“China has been using a wider range of economic statecraft tools in recent years, particularly in response to Taiwan-specific policy moves by other countries, and these new sanctions on defense contractors seem to be consistent with that same pattern,” said Logan Wright, a partner at Rhodium Group in Washington.

A 2023 study by Rhodium Group and the Atlantic Council’s GeoEconomics Center concluded that Beijing has been more systematic in preparing such defenses than Russia was to counter Western sanctions it faced as a result of invading Ukraine.

The study concluded that the major democratic nations that make up the Group of Seven depend on more than $477 billion in Chinese goods that could be restricted from export by Beijing. At least $460 billion in G-7 direct investment assets would be at risk, it said, though Beijing would also need to consider how such measures could undermine domestic employment and other economic factors.

Radar maker says bloc can use existing laws to bypass free trade rules and boost region’s defence infrastructure

Europe should emulate the US by pushing for more local procurement of military equipment to help boost the region’s defence infrastructure, a leading German contractor has said.

Oliver Dörre, chief executive of radar and sensor maker Hensoldt, said foreign defence contractors in the US had faced increased pressure to source locally since Donald Trump’s election victory, pushing them to partner with American rivals.

“A direct response to Trump’s election is that the call for local content in the US . . . is getting stronger,” said Dörre, who took the helm of the Bavarian defence contractor last year.

He added that German defence groups were developing strong partnerships with US peers as a result, which would help boost sales both in the US and Europe.

Dörre, who worked for the German military and the country’s defence ministry before switching to the private sector 15 years ago, said European governments should respond by making better use of EU rules to boost European suppliers.

“We should call for local content,” he said, arguing it would align the continent with the US and give a boost to the region’s defence capabilities. He added that EU law already permitted member states to bypass the bloc’s free trade rules in certain cases concerning defence and security.

Less than a quarter of the roughly €100bn worth of defence contracts announced by European governments in the 15 months after Russia’s full-blown invasion of Ukraine in February 2022 were signed with local companies, according to the French Institute for International and Strategic Affairs. Of the non-EU procurement, 80 per cent of funds flowed to the US.

Hensoldt, which produces air defence radars, has been a beneficiary of the “Zeitenwende”, or historical turning point, declared by Chancellor Olaf Scholz in 2022 when Europe’s largest economy pledged to create a special €100bn military fund to rejuvenate its military in response to Russia’s assault on Ukraine.

The Berlin-backed company’s shares have nearly tripled since early 2022 and it has amassed a record order backlog of €6.5bn in the first nine months of 2024.

The region’s defence groups are also expected to benefit as Nato members come under increasing pressure from lobbyists to raise the alliance’s target for defence spending from 2 per cent to 3 per cent of GDP, partly in anticipation of Trump’s return as US president.

Dörre did not see the prospect of peace in Ukraine as a threat to midterm revenue and profit growth, saying only about 6 per cent of the company’s sales were going to Ukraine.

“I definitely see a decade, at least a decade, of defence spending ahead of us — no matter if we have peace in Ukraine or not,” he said, adding that even if an end came soon to the conflict, which had acted as a brake on the wider growth of Russia’s military capabilities, “that will require Europe and Nato to build up their arsenal”.

French red wine in sharp decline as tastes change among young drinkers

Domestic consumption falls as consumers switch to beer, spirits and alcohol-free options

French red wine is facing an “existential” decline if it does not adapt, according to people working in the industry, as younger generations increasingly opt for different beverages or shun alcohol altogether.

Consumption of red wine in France has fallen by about 90 per cent since the 1970s, according to Conseil interprofessionnel du vin de Bordeaux (CIVB), an industry association.

Total wine consumption, spanning reds, whites and rosés, is down more than 80 per cent in France since 1945, according to survey data from Nielsen, and the decline is accelerating, with Generation Z purchasing half the volume bought by older millennials.

“The issues with wine — particularly red wine — are becoming existential now, and have been problems for more than a decade,” said Spiros Malandrakis, drinks analyst at Euromonitor International.

The industry was suffering from “a lack of connection with younger generations”, and had previously fallen into “a sense of complacency” because of wine’s popularity with the baby boomer generation, he added.

The change in French consumption exacerbates global trends hurting the sector, such as people drinking less and changes in tastes. Red wines in particular are falling out of fashion among young people in favour of rosé, beer, spirits and alcohol-free options.

“With every generation in France we see the change. If the grandfather drank 300 litres of red wine per year, the father drinks 180 litres and the son, 30 litres,” said CIVB board member Jean-Pierre Durand.

The industry is also grappling with a sharp fall in demand from China, one of its main export markets, and the impact of climate change.

The challenges have not hit all categories of wine equally. “High volume, heavily tannic reds are in strong decline, and it’s accelerating with generational change,” said wine buyer Thomas Castet. 

Some industry leaders expect producers to respond by focusing on higher quality wines or expanding their offering from reds to other products, such as white or low alcohol wines — although the latter requires investment in new vines and equipment.

Durand, who also heads wine producer AdVini in south-west Bordeaux, forecast that there would be little demand in future for bottom-of-the-range wines as younger generations prioritise quality over quantity. Some wines are sold for as little as €2.50 a bottle in France. 

But Durand said overproduction and the presence of many lower-end wines had hurt Bordeaux’s image, although the region is also known for the Saint-Émilion area, which produces top-quality and expensive wines.

Business is also challenging for some higher-end wineries. The 2024 harvest at Château Mauvinon, a small family-run business in Saint-Émilion, was affected by high heat and mildew — problems encountered across the region as the climate changes.

Brigitte Tribaudeau, who owns and runs the winery, said high-quality grand cru reds were still the core of Château Mauvinon’s production but that she had noticed changes in younger drinkers’ habits years ago and started to adapt.

She began producing a white wine in 2018, as well as a trendy orange wine popular among younger drinkers. She is now experimenting with low-alcohol wine, which will be ready to sell this year.

The winery has also been certified as organic since 2017, which appeals to younger consumers. 

“I sensed quite early on that drinking patterns were changing — seeing that women and especially younger women around me were drinking less, and a lot less red,” said Tribaudeau.

Some wineries are reluctant to innovate, either because of the cost or adherence to tradition. Changing from red to white wine production takes heavy investment in both new vines and different equipment, and not all growing areas are suitable for different grapes.

Most winemakers had been resistant to making products such as wine mixers and canned wine, which could be used to recruit new drinkers, said Malandrakis. Many have also been slow to embrace wine tourism and personalised marketing, which can appeal to younger consumers who want an experience and a story when they make purchases. 

The pressures have led the Bordeaux region to begin uprooting up to 9,500 hectares of vines to curb overproduction and prevent the spread of disease through under-maintained vineyards. The two-year plan, initiated in 2023, offers €6,000 per hectare to be uprooted, from a total budget of €57mn funded largely by the government and the CIVB.

“We can’t continue to produce wines that don’t get drunk,” said Durand. “When the model is broken, we adapt.”

Syrians accuse rulers of imposing Islamist agenda in new curriculum

Critics fear that rebel-backed government is pushing religious vision on to what has long been a secular country

Syria’s new government has triggered outrage after introducing an overhaul of the education curriculum that critics argue will impose an Islamist agenda on school students.

Anger spread after the ministry of education this week published 12 documents listing adjustments and omissions to the schoolbooks of topics including Arabic, history, sciences, social studies and religion.

Most changes involved removing references to the regime of ousted president Bashar al-Assad and his late father Hafez, who between them ruled with an iron fist for five decades, such as photographs and mentions of the army and national anthem.

But authorities also alarmed many by removing references to pre-Islamic deities — and even the word “deities” itself — and scaling back criticism of the Ottoman Empire. Also omitted were the text for Syria’s citizenship law, a section on the evolution of vertebrates’ brains, and mention of Zenobia, a famed pre-Islamic queen of the ancient city Palmyra.

Critics feared the changes represent a slippery slope in which the Islamist rebel faction Hayat Tahrir al-Sham, which dominates the new government, would seek to impose their religious worldview on what has long been one of the Middle East’s most secular countries.

“The erasure of the defunct regime’s glorification is understandable, but deleting historical facts and events from our people’s struggle, and milestones of ancient civilisations . . . [is] not a coincidence,” Rima Flihan, a Syrian writer and human rights activist, wrote on Facebook. “Therein lies the danger.”

Bassam al-Kuwatli, president of the anti-Assad opposition Syrian Liberal Party, or Ahrar, said the caretaker government should not be decreeing such big, non-urgent changes to implement “something that suits it ideologically”.

While removing Assad’s legacy “is not controversial”, he said, the reforms should be undertaken by committees staffed with experts.

Following rampant anger over the amendments, education minister Nazir al-Qadri said on Thursday that, while the old curriculum will remain in place until the formation of committees to audit schoolbooks, he had ordered some changes to delete “what glorifies the defunct Assad regime” and replace the old Syrian flag with the opposition flag.

He added authorities would also modify “some of the incorrect information . . . in the Islamic education curriculum”, including the interpretation of Quranic verses.

Qadri was previously education minister in the HTS-backed de facto government of Idlib, which ruled the north-western corner of Syria for years before ousting Assad in a sweeping, largely bloodless campaign last month following a brutal 13-year civil war.

Religious studies, a mandatory topic in Syrian schools, teaches two books, one for Muslims and one for Christians. One of the adjustments, made in a first-grade Islamic Studies schoolbook, added an interpretation of a Quranic verse mentioning “those who have earned [Allah’s] anger” and “gone astray” as a reference to “Christians and Jews”.

In the first-grade science book, “nature’s bounty” was changed to “Allah’s bounty”, while in a 12th-grade history book, a sentence mentioning an infamous 1916 mass execution of Arab nationalists under the Ottomans — marked as a public holiday in Syria and Lebanon — was removed.

By law, Syria mandates that private and public schools teach the same curriculum, with inspectors dispatched to private schools under Assad to ensure the government-published schoolbooks were being taught.

The Assads ran a pseudo-secular state that often villainized conservative Islam, with Hafez’s supporters in the 1980s sometimes ripping headscarves off women’s heads in the streets. Public prayer rooms were allowed when malls opened in the 2000s, but quickly shut down.

Both conservative and non-conservative Syrians criticised the recent amendments, piling comments on the ministry’s announcement post on Facebook. “What is this clear education of incitement?” said one commentator of the reference to Jews and Christians. “Who gave you the right to delete Syria’s history?” said another.

Kuwatli, of Ahrar, warned that the unilateral change “creates societal rifts”. “This is the last thing we need in this period when we need to unify Syrians and bring them together and get them to accept to disarm,” he added.

Environment commissioner Jessika Roswall says bloc must urgently address water shortages affecting business

The EU must urgently address water shortages and find new ways to finance improvements to its leaky pipes, the bloc’s environment commissioner has said.

Jessika Roswall, who took up the role in December, told the Financial Times that the EU’s relentless focus on securing energy after Russia’s full-scale invasion of Ukraine had come at the expense of efforts to address a water supply crisis that was set to have a big impact on business.

“We have talked too little about water and we have talked about energy efficiency and energy, energy, energy. This is really important, of course, but water is also really important and we have a scarcity in Europe,” she said.

“Businesses understand this now because we have had droughts in Europe and then we see that nuclear plants don’t really function and we see the transportation on big rivers doesn’t function . . . this is an urgent question,” Roswall added.

Water scarcity affects a fifth of EU land and almost a third of its population each year, according to the biggest survey yet of the state of the bloc’s water published by the European Environment Agency in October.

Droughts have also “dramatically increased” in number and intensity in the EU, with the areas and people affected rising almost 20 per cent between 1976 and 2006, according to the World Meteorological Organization.

Farmers in particular have suffered steep drops in crop yields, but the impact of water stress will impact industries from textiles to hydrogen production, which requires water for the electrolysis process.

Despite the concerns about increasing pressure on industry and agriculture, little has been done to improve the bloc’s notoriously leaky pipes.

Almost a quarter of treated water is lost during distribution, according to European Commission figures.

Asked whether consumers would have to pay higher water bills, Roswall said that this was a matter for municipalities but added that “we need to look at new innovative ways of financing” pipes and purification facilities.

Roswall, a centre-right Swedish politician, whose party opposed a landmark law to restore and protect nature in the EU, is also responsible for chemicals legislation, recycling and reuse of materials and preserving biodiversity.

The bloc’s ambitious environmental legislation is among the most contested by member states and industries that complain it has resulted in too much red tape. It was also a key concern of farmers in major protests that brought European capitals to a standstill earlier this year.

Businesses wanted “predictability and certainty”, Roswall said. “I hear from various directions that there are laws that don’t seem to fit together, they are overlapping, but they don’t function together . . . we need to see that the regulations are as simple as possible.”

“It will not be easy,” she added. “I didn’t take this job because it’s going to be easy.”

Slowdown watch

Unhedged’s base case is that the US economy is strong at present — with a real rate of growth of 2-3 per cent — and that this strength will decline only gradually toward the long-term trend. That’s why our guess is that inflation will move only gradually to 2 per cent, leaving the Fed little room to cut this year. 

But economic predictions, while a useful mental discipline, are generally wrong to the degree they are specific. So we’re alert to indications that our view requires revision. High valuations across risk assets mean that a supportive economic backdrop is important for continued high returns. All the more so after markets digested the Fed’s hawkish message last month, driving yields higher and taking cyclically sensitive small-cap stocks down a peg.

Might there be a not-so-gradual slowdown afoot? Well, have a look at the Citi US economic surprise index, which rises and falls as economic data beats or misses expectations. It appears to have turned over in mid-November: 

This might indicate a change in the economic momentum but (as you can see) the series is noisy. Confirmation is needed. 

Bob Elliott of Unlimited funds, writing in his 2025 outlook, thinks that high rates have been “slowly eroding the momentum in the economy, driving some expansion indicators towards a renewed softening in recent months”. He sees softening in construction in particular. The number of housing units under construction have been falling steadily for months; investment in non-residential buildings has been slowing, too. To this one could add a very recent rapid drop in mortgage applications.

All of this is fair enough, but rates have been relatively high for several years. We know that construction and housing, the most rate-sensitive sector of the economy, has felt the pain. But what has been remarkable about this economic cycle (if it is a cycle) is how well the rest of the economy has done despite this. Consumption has been robust and investment has been overall OK. It is a change in this pattern that we need to be vigilant for. 

US purchasing managers surveys from the Institute for Supply Management show little if any change in the general trend in the past year or so. In the latest reading, the sluggish manufacturing component ticked up (but remained in contraction) and the resilient services component ticked down (but remained in expansion). But if there has been a trend break since the start of 2023, it’s hard to make out. ISM’s Chicago business survey does seem to have broken down. Whether that is an omen for the rest of the country remains to be seen. 

(It should be noted, at least in passing, that growth outside of the US is weakening — from China to the Eurozone to emerging markets. But, as we have written, unless this translates to unsustainable deficits or a resurgence of inflation in the US, slower global growth is not an imminent threat to US expansion.)

Don Rissmiller of Strategas sees weakening momentum in key employment indicators, in particular continuing jobless claims — a timely indicator that shows workers staying unemployed for longer. Continuing claims picked up through the autumn, and this is indeed worrisome, but the upward trend reversed in December. Like the low-but-rising unemployment rate and the soft pace of hirings, this is one to watch, but not a red flag yet. 

On the credit side of the ledger, sentiment among small businesses, which have a higher exposure to the domestic economy and do most of the hiring, jumped after the election in November to the highest level since 2021. Morgan Stanley’s Business Conditions Monitor, which gauges its analysts’ assessments of business conditions in the industries they cover, rose to a two-year high in November, too. Perhaps the honeymoon between business and the Trump administration will not last, but it’s a plus for now. 

The economy rarely sends an unambiguous batch of signals, and there is always plenty of noise, too. But for now, despite a few indicators turning south, we think the broad picture remains unchanged.

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