Beijing imposed retaliatory tariffs on US imports of oil, gas and farming equipment this month, but it was its threat to sales of Calvin Klein underwear that sent the biggest chill through the American business community in China.

The addition of clothing maker PVH and California-based biotech group Illumina to an “unreliable entity list” marks the first time China has blacklisted US businesses with substantial interests in the country on national security grounds.

The blacklisting allows Chinese officials to impose a wide range of sanctions and makes clear that US multinationals — including some household brands — are closer than ever to the front line of the brewing trade conflict between the world’s two biggest economies.

“Other companies are asking us to help them make sense of it,” said Michael Hart, president of the American Chamber of Commerce in China. “They are trying to assess both ‘are we likely to be targeted’ and ‘if we did exit China, what immediate impact and knock-on effects would that have’. It certainly puts a chill on the business environment.”

China blacklisted Illumina and PVH, which also owns the Tommy Hilfiger brand, after US President Donald Trump imposed an additional 10 per cent tariff on Chinese imports. Beijing responded with targeted retaliatory tariffs and announced an antitrust probe into Google.

Beijing accused PVH and Illumina of taking “discriminatory measures” against Chinese companies but has given no details of the sanctions it might impose, leaving the US groups’ fate in the country uncertain.

US companies in China, like their Chinese counterparts in America, were already struggling to navigate rising tensions between Beijing and Washington.

Even before Trump’s return to the presidency, a survey by the US chamber found a record 30 per cent of member companies were thinking about moving some operations out of China or already doing so.

Beijing’s first blacklisting of companies with major in-country operations increases the potential corporate exposure.

China introduced its “unreliable entity list” in 2020 and has blacklisted a number of US defence contractors and military-related companies. Skydio, the US’s largest drone maker, suffered a supply chain crisis last year after being cut off from Chinese suppliers.

The list mirrors Washington’s “entity list”, which targets companies accused of human rights abuses or deemed national security threats, among other issues. It has been used to block access to US and other western countries’ technology for hundreds of Chinese companies.

Executives at PVH and Illumina are awaiting information on the implications of the blacklisting, which could result in fines and bans on trading into and out of China, investing in the country or allowing staff to visit or remain.

“To be honest, we’re a bit worried about our jobs,” said a Tommy Hilfiger sales clerk in Beijing, one of about 1,000 PVH staff in China. “We don’t [yet] know any more.”

China’s commerce ministry on Thursday declined to specify what sanctions might be imposed. “Foreign entities that operate with integrity and comply with the law have nothing to worry about,” said ministry spokesperson He Yongqian.

When the commerce ministry threatened to blacklist PVH in September it accused the company of “unreasonably boycotting” cotton from China’s western region of Xinjiang.

The US has banned imports from Xinjiang, where the UN High Commissioner for Human Rights and independent monitors have reported widespread human rights abuses against the mainly Muslim Uyghur ethnic group. Beijing vehemently denies the allegations.

PVH said it was “surprised and deeply disappointed” by the blacklisting and that it had complied with all relevant laws. “We will continue our engagement with relevant authorities and look forward to a positive resolution,” the company said.

In 2023, China accounted for about 6 per cent of PVH’s revenue and 16 per cent of income before interest and taxes.

Illumina, a $16bn San Diego-based biotech company, has previously had legal disputes with a Chinese competitor in the US. Last week, its chief executive Jacob Thaysen said the company hoped to resolve the blacklisting issue and that it was “in dialogue with the relevant parties”. China contributed 7 per cent of sales, equating to about $300mn a year, he said.

The commerce ministry did not provide details of the “discriminatory measures” it accused Illumina of taking.

The US company, whose shares have fallen 23 per cent since the blacklisting, makes the pharmaceutical industry’s leading gene sequencing machines. The devices are used by many Chinese drug developers, and the blacklisting could threaten those partnerships.

An employee of a major Chinese contract drug manufacturer said their supplier was stockpiling sequencing kits. Switching to another manufacturer “would be time-consuming, labour-intensive and costly”, the person added.

Illumina’s local competitors have leapt in to capitalise on the uncertainty. MGI, which faces its own market access threats in the US on national security grounds, and GeneMind, China’s top sequencer producers, are offering free or discounted equipment to Illumina customers.

Zhou Zhiliang, chief operating officer of GeneMind, said many Illumina customers were worried and had approached his company. “This is a golden opportunity for domestic sequencing machine makers,” he said.

Analysts said despite the geopolitical tensions, Beijing might want to limit the economic impact of its retaliation against the US.

Regarding the move against PVH, a person involved in the fashion industry said China had a history of “targeting companies to make an example out of them”, adding that it rarely aimed at “the leader of a category to avoid potential unemployment consequences”.

For US and European companies that have often complained about lack of access and competitive disadvantages in the mainland Chinese market, the blacklisting has highlighted the uncertainty of their presence there.

“Publicly China is saying they want more foreign investment, but moves like this have the opposite effect,” said Hart.

Additional reporting by Nian Liu and Wenjie Ding in Beijing and Xueqiao Wang in Shanghai

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