The US-China biotech trade war that isn’t

On October 22, the US Treasury proposed adding biotechnology to the list of Chinese sectors that American capital may no longer finance.

A week earlier, China’s Ministry of Commerce had proposed barring the foreign sale of five biomedical technologies, including cell and gene therapy platforms. Two governments that agree on almost nothing moved in the same direction within days of each other.

It is tempting to read the moves as another front in the US-China trade war. The fine print points elsewhere: both rules leave licensing alone. Treasury’s fact sheet says licensing deals are not off limits, so American drugmakers can keep buying the rights to medicines invented in China.

Beijing’s draft list likewise says its curbs do not apply to licensing, partnerships or contract research. In other words, both capitals drawn the same line: molecules may cross the Pacific, ownership may not.

That formula deserves more attention than the rhetoric around it, because it shows what each government actually fears, and what each is prepared to live with.

Neither side can afford to cut off licensing. China’s share of newly started clinical trials rose from 4% in 2015 to 30% in 2025, and it now accounts for roughly 30% of the world’s innovative drug pipeline.

The reason is not mysterious. A Phase I trial in China runs about seven months against 17 or more in the United States, and costs a third to a half less, because patients are recruited quickly and the first-in-human review is fast.

Licensing deals for Chinese-origin drugs reached US$137.7 billion in 2025, nearly ten times the 2021 figure. AstraZeneca, AbbVie and Pfizer have each signed deals worth billions for Chinese molecules.

Washington could not block that flow without telling its own industry to walk away from a third of the world’s pipeline. John Crowley, CEO of the Biotechnology Innovation Organization, the industry’s main US trade group, put it bluntly: “We cannot restrict our way to success.”

Beijing faces the mirror image. It has made biopharma a priority industry in its new five-year plan, yet the fastest way to turn a Chinese molecule into money is still a Western license, Western trials and FDA approval.

Cutting that off would starve the very firms the plan is meant to build. So Beijing’s rule aims to stop the uprooting of core platforms while still letting companies earn from them. If the Treasury rule is finalized as drafted, it will redraw the business model rather than end the relationship. Three shifts follow.

First, value migrates from equity to royalties. American venture funds that have been building companies around Chinese science will lose the ability to hold stakes in the Chinese developers themselves. Chinese firms lose a class of investor but keep the licensing income.

There is an irony here. The rule locks out the early-stage American investors who take the most risk, while leaving multinationals free to treat China as a discounted research and development supermarket, buying finished candidates off the shelf. The science will continue; only the shareholder register will change.

Second, the early stage gets lonelier. Licensing works for assets that already have data. It does not pay for the first experiments. Restricting American money at the seed stage while keeping the licensing stage open will push Chinese biotech toward domestic state and private capital, which is exactly the self-reliance Beijing has been chasing for years.

Third, capital looks for a third address. Singapore, Seoul, Tokyo and Hong Kong may soon see funds restructured so that the entity holding a Chinese stake is not American. Treasury will try to reach such structures. The history of export controls suggests the chase is long.

The deeper question is whether the semiconductor template fits biology at all. Chip controls work because a handful of chokepoints exist: lithography machines, advanced nodes, design software. Biology has far fewer.

Treasury’s draft defines biotechnology so broadly that it sweeps in vaccines, blood components, monoclonal antibodies and standard laboratory instruments, tools found in university labs worldwide. Even seasoned Washington analysts found the draft more aggressive than they had expected.

Even Treasury seems unsure. The proposal itself asks whether the restrictions could backfire by creating public health risks or harming American companies, and invites narrower alternatives. That is an unusual question to ask about a rule one has just written.

It reads less like settled doctrine and more like an opening position, in the same way the Trump administration has used tariffs. The trouble is that drug programs run for a decade. A deal structure chilled today decides which therapies exist in the mid-2030s, whatever the final text says.

On October 24, China’s commerce ministry said the proposal overstretches the concept of national security contradicts the consensus reached by the two presidents, and reserved the right to countermeasures.

Hawks in Congress, meanwhile, want Treasury to go further. Each side’s carve-out is, in effect, hostage to the other’s next move.

The honest test for both governments is not whether they can fence off a field whose raw material is published knowledge. It is whether they can win on the things that actually decide where medicines get made: trial speed, regulatory predictability and the cost of capital.

Washington’s Operation TrialBlazer, which aims to cut early trial timelines by six to 12 months, is a start, though industry says price controls and tariff uncertainty pull the other way. China’s lead in clinical trials is its real moat, and no American investment rule touches it.

Decoupling is the wrong word for what is emerging. Rather, it is a two-track system: an open track for finished science and a closed track for ownership and tools. Patients may notice little at first, but investors will notice immediately.

And whether the arrangement survives the months of lobbying before the rule is finalized will depend less on biotech than on what else the two presidents want to trade.

Y. Tony Yang is an endowed professor at George Washington University in Washington, D.C.