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China threatens sanctions against U.S. companies: Is this the future?

22 Comments

China's recent threat to impose sanctions on U.S. defense companies that sell arms to Taiwan should come as no surprise to American officials or corporate executives: Washington has been issuing sanctions of these sorts for years. It was only a matter of time before U.S. competitors started copying its tactics.

Regardless of whether China follows through on its threat, Washington needs to be ready for a new normal in which the United States must defend against sanctions as well as impose them.

China is taking a page from the sanctions playbook Washington developed against Iran. Between 2010 and 2015, the United States effectively gave companies a choice: If they did prohibited business with Iran, like buying oil, they would get cut off from doing any business in the United States. Forced to choose between access to the world's most important financial system and an Iranian market less than 1/30th the size, most companies stuck with Washington and avoided Tehran.

China's threat mirrors this approach - trying to force U.S. companies to choose between defense sales to Taiwan and access to a Chinese economy that is nearly 20 times larger. While U.S. companies do not currently sell military equipment to China, many U.S. defense contractors do sell civilian passenger aircraft, aviation parts and other civilian equipment in China and could find their ability to continue those sales cut off by Beijing.

For Beijing, this is a change in official position. China has long argued that only sanctions imposed by the United Nations Security Council are legitimate. Yet, Beijing has not strictly adhered to this policy. In 2012, for example, it unilaterally limited imports of fruit and vegetables from the Philippines in retaliation for a dispute over claims in the South China Sea.

But China's public threat over Taiwan marks a major escalation in its apparent willingness to deploy sanctions of its own against U.S. companies engaging in business, particularly business that is expressly authorized by the Obama administration and publicly supported by many in Congress.

Chinese policymakers understand that their growing economic and financial clout makes sanctions threats more credible. China is a critical market for U.S. products from cars to computer chips, and companies like Wal-Mart, Apple, MasterCard and Starbucks are among the leading American firms that generate at least 10 percent of their business in China, according to data compiled last year by Factset Research.

Other countries, like Russia, have also begun to assess areas where they have economic leverage they can use against Washington and its allies.

There are several practical steps that the United States should take to respond to China's threat or to prepare for when other countries threaten sanctions.

First, U.S. officials need to begin systematically planning for sanctions defense. While Washington has strong analytic mechanisms to develop new sanctions against foreign targets, it does little to analyze U.S. sanctions vulnerabilities. This needs to change. Fast. The Treasury Department should, for a start, set up a defensive sanctions planning committee to research and report on U.S. sanctions vulnerabilities.

Second, Washington needs to make clear to Beijing that the U.S. government will support American companies threatened by sanctions. Senior U.S. officials should emphasize that Washington views China's threat as unacceptable and that the United States will encourage American companies to participate in the deal with Taiwan despite the threat.

If China follows through and imposes sanctions, Washington needs to look at mechanisms to protest China's action and to seek economic recourse for affected U.S. companies.

Third, companies need to do more to identify sanctions risks and to harden defenses against potential vulnerabilities. U.S. companies already engage in sophisticated analyses to ensure that far-flung events like earthquakes or other natural disasters do not disrupt global business. Companies should apply similar risk assessments and mitigation strategies toward potential sanctions by foreign governments.

Fourth, the United States needs to invest far more energy and diplomatic capital to build global standards defining when sanctions should and should not be used. There are currently few such standards - even among close U.S. allies like the European Union.

If Washington does not step up to shape such standards, China and other governments will likely try to do so. Developing standards about the use of sanctions will not, by itself, prevent China or other governments from misusing them. But just as global standards help constrain the misuse of military force by foreign governments, standards about the use of economic force will help Washington fight back against misuse.

Sanctions and other economic tools will likely play a central role in U.S. foreign policy in the years ahead. China's threat brings home the need to recognize that the United States has its own vulnerabilities, and Washington should take steps to address them.

© (c) Copyright Thomson Reuters 2016.

©2022 GPlusMedia Inc.

22 Comments
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The US has been guilty of a lack of strategic thinking for decades as it kept giving China MFN status to pander to US corporations and the promise of the profits they might make in China. There were always plenty of reasons not to do this, not least the numerous human rights problems that the US hypocritically ignored. Now China can call some of the shots but those same corporations that influenced policy are now being portrayed as victims. The US will never learn that plutocracy is not a viable way to create a good and fair society and that it can even be self-defeating.

2 ( +3 / -1 )

The sale of arms should be illegal.

The U.S.A. needs to learn that there are other countries in the world.

-1 ( +5 / -6 )

BertieWooster. China tries to bully Taiwan into compliance just because they think they can. They do the same to Tibet and other countries. So of course other nations sell them arms and offer them protection alliances. Yes, the US needs better policies, but China equally needs to learn that there are other countries in the world. Their bullying tactics in Asia are failing to do anything but align the entire region against them.

Now that the Chinese economy is showing the weakness that many have seen there for some time, it is time for the west to stop helping China evolve until it learns to stop land/ocean grabs and stops intimidating Hong Kong, Taiwan, Tibet and most of Asia. Otherwise they can expect a lot more arms to be sold to counterbalance their short sighted policies and everyone loses.

3 ( +9 / -6 )

So China takes a page from the playbook America has been using for years. Peter Harrell's response: Apparently we need a trade war. Because that will go well.

1 ( +3 / -2 )

If this is the case, the US has a strategic interest in preventing China's economy from growing any further, and becoming large enough to exert too much pressure on international commerce. But China is doing a pretty good job of doing this on their own, and without America's help.

China appears to be in the midst of it's own bubble, pumped up by record levels of public and private debt, and endless government intervention in it's markets. America, Japan, and European companies are already leaving, as they don't want to get too bloodied when the burst comes. Even Chinese (those who can), are moving their assets, or converting them while they can.

China's main threat is not Taiwan, nor Japan, nor America; China's main threat is itself. It can try to divert the attention of the Chinese people by blaming other countries, but that can only work for so long. China has land, resources, and industrious people; what it doesn't have is an efficient and effective political system. The people may learn what is holding them back, and take steps to free themselves.

6 ( +9 / -3 )

If this is the case, the US has a strategic interest in preventing China's economy from growing any further, and becoming large enough to exert too much pressure on international commerce.

The reverse can be said for China - they have a strategic interest in preventing the US from being able to exert pressure on international commerce, to further their own ends.

While a militarily strong China makes me nervous, on an economic level I like the idea of having a counter-balance to the US. Something to keep the checks and balances. The US for two long has thrown their economic strength wherever they want, damned be anyone else. Now China can act as a balance on that. It makes the world a more even place.

Can't wait to see how many thumbs down I get for this one! :)

0 ( +5 / -5 )

They do the same to Tibet and other countries.

Tibet is not a country, no matter what Robert Redford says.

-6 ( +3 / -9 )

China the monster the west has helped create since the 80s is coming home to roost.

As sangetsu says China is a massive bubble combined with huge debt that has been obvious for at least a decade that now seems may cause some real grief domestically in China.

I have long referred to it as the firecracker that has already been fired, only question will it explode, implode, or BOTH.

Seems pretty clear the biggest problem for the commies who run China isn't outside China but its economy & people INSIDE China.

I doubt China will go down quietly

1 ( +2 / -1 )

China has a lot to lose by getting into a trade war with the USA. Actually, both countries have a lot to lose, but other nations would be happy to take up the slack for any manufacturing that China is not allowed to ship to the USA, while the USA has a hugely unfavorable trade imbalance with China.

Forcing the USA to go elsewhere for its cheap labor might not be to China's long term benefit, but might be good for the world economy.

1 ( +2 / -1 )

If China wants to issue sanctions then there's not a lot the US or anyone else can do about it.

3 ( +3 / -0 )

If China wants to issue sanctions then there's not a lot the US or anyone else can do about it.

Except watch China collapse spectacularly as a result. Walmart can get their junk made in Myanmar or Vietnam, or a dozen other places. China has far more to lose than America or other countries which already have developed economies.

0 ( +2 / -2 )

Love it! Those who live by the sanction die by the sanction.

1 ( +2 / -1 )

Gee I rather hope they do it to as many American corporations as possible. Nothing that I would like to see more than American corporations with their tails between their legs being forced to do their manufacturing back in the United States. I think that would do a lot to end our trade deficit and improve our economy and improve salaries for our workers. Go for it China.

1 ( +2 / -1 )

Gee I rather hope they do it to as many American corporations as possible. Nothing that I would like to see more than American corporations with their tails between their legs being forced to do their manufacturing back in the United States.

And have consumers pay $30 for a T-shirt at Wal Mart? All those American workers need their $25 an hour wage, health insurance and 401(k) too, you know. Unless you're proposing that manufacturers hire illegals at $6 per hour?

-4 ( +0 / -4 )

And have consumers pay $30 for a T-shirt at Wal Mart? All those American workers need their $25 an hour wage, health insurance and 401(k) too, you know. Unless you're proposing that manufacturers hire illegals at $6 per hour?

If it means Americans are gainfully employed, I'll happily pay a $30 T-shirt. As opposed to the alternative, which involves Americans going further into debt to prop up consumer spending, which is totally unsustainable. $10 T-shirts don't do much good when you don't have a job in the first place. This isn't a matter of conservatism versus liberalism, but nationalism versus globalism. I value the well-being of my fellow citizens before that of foreign nationals and globe-trotting elites.

-1 ( +0 / -1 )

I agree with Illyas. For years there has been a race to the bottom - everything needs to be cheaper cheaper cheaper. And that has resulted in huge profits for corporations, and a hollowing out of wages and the middle class for the people.

2 ( +3 / -1 )

Wow it hard to get out of PRC with various corporate laws prohibiting corporations exiting without paying dues and making them leave most of the manufacturing tools behind and now they are making it difficult to enter?

Basically PRC is strangling themselves if you ask me.

-1 ( +0 / -1 )

Basically PRC is strangling themselves if you ask me.

That depends on whether or not they have overplayed their hand. They may not have.

1 ( +2 / -1 )

@AsianGaijinYesWeExist

Tibet is not a country, no matter what Robert Redford says.

But the Republic of Ryukyu would be?

have consumers pay $30 for a T-shirt at Wal Mart? All those American workers need their $25 an hour wage, health insurance and 401(k) too, you know. Unless you're proposing that manufacturers hire illegals at $6 per hour?

You may have a point worth considering - a thought exercise which would include examining the "$30 for a T-shirt at Wal Mart" case which you pose as a thing to fear. Manufacturers already hire workers at (much less than) $6 per hour, probably even within a few hours drive from the US.

My question is, how many $3 T-shirts does one need?

Assuming you live in Japan, you can around you see the equivalent of $30 for a T-shirt at Wal Mart, while trying to provide health insurance, pensions, etc. Certainly things are not perfect, but to much of the world it looked like an enviable system - at least until Chinese goods were allowed to flood the local market..

-1 ( +0 / -1 )

Use middle men

-1 ( +0 / -1 )

"Is this the future?"

No, this is the joke and just a noise. How can one ignore US, still the biggest consumer in the world?

0 ( +0 / -0 )

Is this the future for the US LOLOLOLOL when China can't figure out how to go about doing any kind of business with out cheating. Most of the chinese with any sense is leaving the country their goes China future!

0 ( +0 / -0 )

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