Will More Sanctions on China Also Backfire?

 

The United States has been on a collision course with China for more than two years thanks to Joe Biden. One symptom of the fraying relationship is the repeated threat by the U.S. to impose economic sanctions on China. It started in March 2021:

The United States, the European Union, Britain and Canada imposed sanctions on Chinese officials on Monday for human rights abuses in Xinjiang, the first such coordinated Western action against Beijing under new U.S. President Joe Biden.

Beijing hit back immediately with punitive measures against the EU that appeared broader, including European lawmakers, diplomats, institutes and families, and banning their businesses from trading with China.

Instead of confining sanctions to human rights issues, Biden’s Secretary of Treasury, Janet Yellen, confirmed in April 2022 of:

the Biden administration’s intention to use sanction tools against China if Beijing ever “moved aggressively toward Taiwan.”

I guess it has something to do with Spring. Just as the swallows return to Capistrano, it is March and the Biden Administration is feeling the need to keep upping the ante by threatening China with new sanctions if it provides military aid to Russia. Helping Russia in its Ukraine war is the latest thing China should not do lest it incur the wrath of cranky old Joe Biden. Once again the diminutive and rotund Janet Yellen was the messenger:

The 76-year-old said that Chinese efforts to support Russia were a “very serious concern”, adding Beijing should not help Moscow evade US sanctions.

Yellen said: “We will certainly continue to make clear to the Chinese Government and the companies and banks in their jurisdiction about what the rules are regarding our sanctions and the serious consequences they would face for violating them.”

The ex-Federal Reserve chair also warned that the US would “continue to impose further sanctions on Russia” and would curb the Kremlin’s ability to evade sanctions which are already in place.

I suspect this is a last straw for China. Xi Jinping is not a moron. Besides watching the United States send billions of dollars in lethal aid to Ukraine, the inept Biden team now is promising openly to provide Taiwan with significant military equipment whose only purpose is to kill Chinese soldiers.

On the economic front, China is more vulnerable than Russia to Western sanctions. Consider the following:

• China’s exports for 2021 was $3,553.51B, a 30.17% increase from 2020.
• China Exports to United States was US$577.13 Billion during 2021, according to the United Nations COMTRADE database on international trade.
• China exported 472 billiion in Euros to the European Union in 2021.

Sanctions are a two edge sword. It is true that almost one third of China’s exports goes to the United States and Europe. However, the United States and Europe also rely on China for key pharmaceuticals, electronics and rare earth minerals. If history is any guide, sanctions are only good for pissing off the sanctioned country and forcing it to seek alternatives.

There are more signs that China, inspired apparently by Mohamed Ali’s rope-a-dope strategy, is starting to punch back:

Mark Mobius, a pioneer in emerging markets investing, said China is restricting investment outflows from the country, a move that would be taking place as the world’s second-largest economy is trying to shake off pressure from COVID-19 lockdowns.

“I’m personally affected because I have an account with HSBC in Shanghai. I can’t get my money out. The government is restricting the flow of money out of the country,” Mobius said on Thursday on the Fox Business show “Mornings with Maria”. “So I would be very, very careful investing in China,” the founder of Mobius Capital Partners said.

The U.S. and Europe discovered that sanctions are an impotent tool against Russia. It looks like they are going to double down on China. One thing is certain, regardless of the economic impact on China, further sanctions will solidify relations between Russia and China and will alienate China from the West. This is not a recipe for peace and prosperity.