CSR 2020: The Role of Sanctions in US-China Economic Competition

By Jennifer Conrad

Jennifer Conrad is a master of arts candidate in China Studies at the Johns Hopkins University School of Advanced International Studies (SAIS). In the summer of 2019, she interned for the State Department at the American Institute in Taiwan. Prior to SAIS, she was the head of fact-checking for Vogue and spent three years covering art and youth culture in China, including editing the music section of Time Out Beijing.


Going back to the 1949 founding of the People’s Republic, China has frequently been affected by American unilateral sanctions, whether as a target or as a party carrying out actions against third countries – willingly or not. In recent years, sanctions have become an increasing point of contention between the United States and China, especially as companies in strategic sectors, such as telecommunications giants ZTE and Huawei, face U.S. accusations of espionage. America’s centrality to the global financial system limits China’s ability to avoid compliance, but Beijing appears to be working to build international opposition to the sanctions and developing its own forms of economic pressure. This paper describes the mechanisms behind U.S. sanctions and traces the history of Chinese experience with and responses to U.S. sanctions; it suggests that a more aggressive US posture is pushing China to work within the international system toward a global financial system less dependent on the dollar and the leadership of the United States, which in turn could weaken the effectiveness of American sanctions.

Department of Justice puts Chinese firms on notice: the Huawei case

On December 1, 2018, Meng Wanzhou, CFO of Chinese telecom company Huawei and daughter of its founder, was arrested by Canadian authorities, carrying out a request from the United States.[1] Meng faces extradition to the United States for allegations that from 2009 to 2014 her company used a Hong Kong subsidiary to deceive banks— “victim institutions,” in the words of John Gibb-Carsley, an attorney for the Canadian Justice Department—into clearing Huawei transactions that violate American sanctions against Iran.[2] Some journalists have suggested the Huawei charges have less to do with reining in Tehran’s nuclear ambitions than with intensifying U.S.-China economic competition and fears that Huawei equipment could present a security risk to the United States. “One can say, without exaggeration, that this is part of an economic war on China, and a reckless one at that,” wrote Columbia University economist Jeffrey Sachs.[3] Nationalistic Chinese newspaper the Global Times called the case a “U.S. political game against Huawei, forged to look like a lawsuit.”[4] President Donald Trump fueled such speculation with public statements that he might intervene in the case to secure a better trade deal with China.[5]

Similarly, in April 2018, partly state-owned Chinese telecommunications company ZTE, which like Huawei has been flagged for espionage concerns,[6] faced being banned from buying products from the United States for seven years, as punishment for violating U.S. sanctions on selling items to Iran and North Korea.[7] The ban would likely have put ZTE out of business, but after a personal appeal from China’s President Xi Jinping, President Trump decided to take the pressure off, insisting the sanctions be removed in return for ZTE paying a fine. “Too many jobs in China lost. Commerce Department has been instructed to get it done!,”[8] he tweeted. Many in Congress were outraged, including Senator Marco Rubio who said at the time, “I fought so hard to put ZTE out of business.”[9] Since then, bills have twice been introduced in Congress to reinstate sanctions on ZTE.[10] Senator Tom Cotton, introducing a similar bill that targets Huawei, wrote that such companies deserve “nothing less than the death penalty” for violating U.S. sanctions.[11] Yet the tenor of the official statements from American leaders suggest the enforcement was less about stopping commerce with Iran and North Korea than with targeting specific Chinese companies, which are seen as an extension of the Chinese state.

In November 2018, the Department of Justice announced a China Initiative to combat economic espionage,[12] part of the department’s “strategic priority of countering Chinese national security threats.”[13] Soon after, in January 2019, the law firm Skadden, Arps, Slate, Meagher & Flom LLP released a memo highlighting a quiet but aggressive increase in enforcement efforts aimed at Chinese companies. The authors believe that the moves are aimed at “putting Chinese companies on notice that it will vigorously pursue export-related violations, particularly those involving U.S.-embargoed countries, and has expressed a willingness…to choke off critical supplies of U.S.-origin hardware, software and technology.”[14]

Writing just after President Donald Trump’s election, York University political science professor Gregory Chin posits that “punitive trade measures” will push China to “reconsider its global monetary strategy,” including “a stronger push to use its own currency internationally.”[15] Such measures could ultimately weaken America’s ability to impose unilateral sanctions.

How the U.S. Developed Unique and Powerful Methods to Impose Sanctions

Financial sanctions are an effective form of pressure when they completely cut a country or group off from international trade and banking. International trade is most often denominated in dollars, and international banks often have correspondent accounts in major U.S. banks, such as Citibank, to facilitate those transactions. Therefore, transactions that pass through the U.S. financial system or use dollars are subject to U.S. jurisdiction. A bank found to work with a sanctioned entity can be cut off from the American financial system and dollar—making it virtually impossible to do business globally. This is also the mechanism through which a foreign company, such as Huawei, can get caught up in enforcement issues over alleged transactions with Iran.

Though the United States has imposed unilateral sanctions and supported UN efforts since the start of the Cold War, the use of financial measures intensified after 9/11. In Treasury‘s War, Juan C. Zarate writes of how he and a group of “guerrillas in gray suits”[16] at the Treasury Department created a newfound mission for the department through “a novel set of financial strategies that harness the international financial and commercial systems to ostracize rogue actors and constrict their funding flows, inflicting real pain.”[17] Treasury relied on Section 311 of the USA PATRIOT Act to label and isolate “bad banks” anywhere in the world that facilitate transactions for sanctioned groups. Less common but more controversial secondary sanctions target non-U.S. entities that do business with sanctioned countries or entities.[18] “The twenty-first-century financial and commercial environment had its own ecosystem that could be leveraged uniquely to American advantage. In this system, the banks were prime movers,” writes Zarate.[19]

What Zarate calls a “new financial-warfare paradigm”[20] grew out of a desire to find a new way to put pressure on international actors without resorting to military action. “What else fills in the gap between pounding your breast and indulging in empty rhetoric and going to war besides economic sanctions?” Richard Holbrooke, President Bill Clinton’s ambassador to the UN, asked in a 2003 New York Times Magazine article examining the impact of Clinton-era sanctions on Iraq.[21] However, statements from U.S. government officials exhibit ambiguity over what sanctions are intended to do: are they meant to protect the global financial system, effect changes in behavior, or create pressure for future negotiations? The unclear or changing justifications may be one factor encouraging other countries—especially China, which is sensitive to issues of national sovereignty—to push back against carrying out policies they didn’t sign on to or suspect have ulterior motives.A post titled “Sanctions 101” on the Treasury Department’s website describes the role of sanctions as “defending the U.S. and global financial systems against abuse and… using financial intelligence and authorities to combat those who threaten our nation’s security and core objectives.” The post goes on to explain “before taking action, we coordinate closely with a number of government agencies—including the State Department, the intelligence community, and others—to ensure that our actions are consistent with and complement other U.S. government activities.”[22] Zarate terms it “strategic suasion”: “the directed use of American power and influence to align influential state and nonstate actors and networks with American interests.”[23]

Zarate’s “bureaucratic insurgents”[24] who design sanctions regimes argue that it is necessary to sanction entities in third countries “both to combat sanctions abuse and to demonstrate our seriousness of purpose.”[25] But using sanctions to further foreign policy goals opens the United States to accusations of abusing sovereign privilege, especially after President Trump’s internationally unpopular decision to reimpose sanctions on Iran. “It is America’s central role in the global economy that gives it the exorbitant privilege of imposing its way in boardrooms across the world,” according to an Economist article about concerns of “creeping extraterritoriality” in sanctions enforcement.[26] Within China, there is growing concern that the United States “wants to use financial hegemony to achieve diplomatic goals.”[27]

However, there are important reasons to maintain these tools: these new methods wiped out Al Qaeda’s financing network within a decade.[28] Fighting terrorism, human-rights violations, and rogue nuclear states through financial means are all “single best effort” collective action problems[29] that are best addressed by a unitary actor. “It should concern us if certain international transactions would start circumventing the U.S. dollar or the international financial system because if that starts happening, we also lose track of those transactions and we might not have a good oversight of what’s going on outside of our purview,” said Heleen Bakker, deputy chief of mission at the Netherlands embassy, during a panel discussion this February sponsored by the Atlantic Council.[30]

China’s Experience as Sanctions Target and Enforcer

Tong Zhao, a doctoral student in the United States and former Chinese government worker, writes that China is one of the few countries to have “very rich experience” in both undergoing sanctions and having the capacity to impose sanctions over other countries.[31] Early experiences with American financial pressure set the tone for how China responds today. In 1950, the fledgling People’s Republic of China intervened on behalf of Kim Il Sung’s communist government during the Korean War. As a result, China faced trade embargoes from the UN and the United States, the latter of which was only lifted in 1972.[32]  During the war, Hong Kong businessmen such as Henry Fok Ying-tung, who later made a fortune building casinos in Macau and resorts in Guangzhou, found ways to circumvent the blockade, smuggling medication and iron sheets into mainland China.[33] After the deaths of student protesters in Tiananmen Square during June 1989, China was again the target of sanctions passed by U.S. Congress. Most of the restrictions have been lifted, but the arms embargo remains in place and came up in recent trade talks.[34]

When faced with supporting UN sanctions against other countries, China historically took a position of “radical anti-interventionism and deference to sovereignty.”[35] Over the past two decades, China supported some sanctions regimes. Joel Wuthnow analyzes China’s behavior in the UN Security Council regarding sanctions in his dissertation, “Beyond the Veto.” In the case of Iran, a major Chinese trading partner, Wuthnow points out, China agreed to three rounds of sanctions aimed at curbing Iran’s nuclear program. But in 2009 and 2010, China held out, ultimately agreeing to back the resolution in the face of increasing “intransigence” from Iran, concessions from the United States with regard to Iran’s energy sector, pressure from other members of the Security Council, and Russia’s changing position.[36]

On North Korea sanctions, Wuthnow argues that China acts based on concerns about three destabilizing factors: the North Korean government collapsing, harsh measures provoking extreme reactions from Pyongyang, or an American invasion of North Korea.[37] Throughout the 2000s, as Pyongyang conducted nuclear tests and Beijing encouraged six-party talks, China became more amenable to supporting sanctions regimes. However, China lobbied for concessions that narrowed the scope of sanctions, asking, for example, for softer language on the escalation of pressure and limits on the types of weapons embargoed in a 2006 resolution.[38] China cooperated with UN sanctions when alternatives narrowed, the United States made concessions on the scope and language of resolutions, American diplomats intervened, and, in most cases, regional partners came on board.[39]

In 2005, with six-party nuclear talks with North Korea faltering, Treasury invoked section 311 of the USA PATRIOT Act to designate Macau-based Banco Delta Asia as a primary money laundering concern, alleging the bank provided financial services to North Korean government agencies and front companies.[40] Banco Delta Asia froze $25 million in North Korean assets, while other Chinese banks began freezing their North Korean assets. The news also caused a run on Banco Delta Asia, requiring the Chinese government to step in to stabilize it.[41] “Perhaps the most important lesson was that the Chinese could in fact be moved to follow the U.S. Treasury’s lead and act against their own stated foreign policy and political interests,” Zarate writes.[42] By 2007, the funds were returned to North Korea as part of an effort to restart nuclear talks.[43]The response from Beijing was fairly muted: a spokesperson expressed “deep regret” about the sanctions as the bank worked with American officials to return the funds to North Korea.[44]

Zhao divides sanctions into two categories: tactical and strategic. “Strategic sanctions were generally viewed by the Chinese government as intended to challenge the Communist rule” and as such do not have the intended effect.[45] In contrast, China usually complies when faced with “tactical” sanctions aimed at curbing a practice (i.e. development of nuclear weapons). In the case of North Korea, which is both China’s neighbor and an important regional trading partner, increased pressure from the United States may not be enough to push China into actions that counter its national interest. “China will not be strong-armed into a course of action that it believes imperils its national security,” warns Adam Szubin, distinguished practitioner-in-residence at the Johns Hopkins University School of Advanced International Studies and a former acting undersecretary in Treasury’s Office of Terrorism and Financial Intelligence, testifying before the Senate Banking Committee in 2017.[46]

China’s Growing Alarm

Wu Quan, a spokesperson for China’s Ministry of National Defense, called 2018 sanctions placed on China for military collaboration with Russia “a flagrant breach of basic rules of international relations” and “a stark show of hegemonism,” as reported in Xinhua.[47] Based on such concerns, Chinese academics have proposed a number of methods for improving the country’s “outside options”—“the expectations leaders have about what will happen if cooperation were to fail.”[48]

Sun Haiyong of the Shanghai Institutes of International Studies[49] argues, “when necessary, China needs to use the differences between the United States and Europe and other important economies to strengthen the coordination of interests and prevent the United States from forming a unified front against China.”[50] Sun encourages strengthening China’s power to compete, but also believes China has leverage because the United States needs China’s cooperation to pressure North Korea and Iran.[51] Zhou Fufang of China’s Ministry of Finance International Finance Center[52] calls financial sanctions “high intensity” economic sanctions.[53] Referencing Treasury‘s War, Zhou suggests the United States is acting “above international law,” since there’s no international channel that sanctioned countries can appeal to for relief or reconsideration.[54] Zhou also raises concern about the U.S. debt held in Treasury bonds, which could theoretically be frozen in the future, and suggests increasing the amount of foreign exchange China holds in currencies other than the dollar and increasing gold reserves; promoting more multilateral economic trade and financial cooperation; and speeding the internationalization of the RMB. Zhou also calls for an “early warning and response system”[55] to study the organizations and mechanisms for carrying out U.S. sanctions, and help Chinese financial institutions avoid “falling into the third-party sanctions trap.”[56] Finally, Zhou suggests China develop its own sanctions system in order to “better safeguard national interests, fairness, and justice.”[57] In an editorial for The Chinese Banker, Liu Dongmin and Shi Chen of the Chinese Academy of Social Sciences write that, with the globalization of finance, the financial system has become “one of the most important weapons in the U.S. foreign policy ‘arms arsenal’ to dominate the world.”[58]

Case Study: Bank of Kunlun

As of December 2019, there are 480 persons or entities in China charged with sanctions violations or otherwise designated by U.S. agencies, according to the U.S. Department of Commerce’s Consolidated Screening List, which draws from lists maintained by the departments of State, Commerce, and Treasury.[59] A good number are believed to be involved in some sort of illicit trade (serving as front companies for the North Korean government, for example) or other export violations. The development of Bank of Kunlun illustrates how China has begun to look for options outside the U.S. financial system, while continuing to be responsive to American pressure.Bank of Kunlun, the banking subsidiary of state-owned China National Petroleum Corporation, was structured to process Chinese oil payments to Iran without contact with the U.S. financial system.[60]It became subject to U.S. secondary sanctions in 2012 as part of Treasury’s “commitment to use all the tools at its disposal to intensify financial pressure against Iran while protecting the U.S. financial system from illicit activity,” Under Secretary for Terrorism and Financial Intelligence David S. Cohen said in a press release. The sanctions cut off Kunlun from the U.S. financial system,[61] but since the bank was designed to not touch the U.S. system or use dollars (transactions were usually processed in yuan or euros), they had no real impact on the bank. Even so, China suspended the bank’s activities. “The Chinese certainly objected diplomatically, but they reacted the way that we would have hoped,” Zarate said during Congressional testimony in 2017, noting similarities with the reaction to the Banco Delta Asia sanctions in 2005.[62]

When the United States exited the Joint Comprehensive Plan of Action (JCPOA, known commonly referred to as the Iran nuclear deal) last year, Chinese Foreign Ministry spokesperson Hua Chunying said China “regrets” the American decision and “noted the widespread opposition to the unilateral sanctions and long-arm jurisdiction among the international community.”[63] Although she said China will continue to trade with Iran in a responsible manner, in late 2018, Bank of Kunlun again stopped accepting yuan- and euro-denominated payments from Iran amid new U.S. pressure.[64] China initially received a waiver that would allow it to continue importing Iranian oil, a “more cautious approach” than defying the sanctions. Writing for Bloomberg Opinion, Esfandyar Batmanghelidj theorizes that waivers for China may be a strategic move by the United States to “undermine the broader international effort to defy the extraterritoriality of U.S. sanctions” and “could weaken Chinese resolve to find a purpose-built banking mechanism for other trade.”[65] Yet in April 2019, as the Trump administration withdrew those waivers. China again formally complained about the U.S. “long-arm jurisdiction,”[66] but took no additional action.

China’s Response and the Global Financial System

In 2019, China threatened to sanction American firms involved with a proposed $8 billion sale of F-16s to Taiwan.[67] The deal went through by the end of the summer, and although the sanctions never materialized, Chinese academics have begun outlining tactics for future cases. Throughout the history of the People’s Republic, Chinese leadership has balanced the need to be part of and protected from the global financial system. After the end of hostilities in the Korean War, the persistence of American sanctions “made China realize how dangerous it is to rely on the support of a single country for all its needs.”[68] The risk became even more acute after the Sino-Soviet split in 1960, when China increased trade with communist countries such as North Korea, Vietnam, and Mongolia; but also capitalist U.S. allies such as Japan and Western European countries.[69]

As Treasury took on a more prominent international role after 9/11, those within the department felt “we needed to bring China and Russia into the fold of the leading financial centers to give them a stake in the legitimacy, transparency, and defense of the international financial system.”[70] In 2007, China joined the Financial Action Task Force (FATF), an intergovernmental body set up to promote “legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system.”[71]

York University political science professor Gregory Chin argues China engages in “true revisionism” in global financial governance. The “PRC is seeking change in the system, as the immediate and medium-term goal, aiming to preserve a leading role for U.S. dollar, though not ‘the’ leading role.”[72] China played a key role in stabilizing the euro and the dollar after their crises, Chin notes, but also pushes for diversification away from the dollar. Chin looks at the public statements from Chinese officials, and finds appeals for reform and a more diversified system, but says “their normative and policy preferences have been left somewhat ambiguous.”[73] This ambiguity makes it hard to discern China’s true ambitions, even if they weren’t being affected by changing U.S. policies.

Within China, the great recession prompted questions of whether it is wise for the dollar to play such a central role in the global financial system. In 2009, Zhou Xiaochuan, China’s central banker, famously called for an international reserve currency “disconnected from economic conditions and sovereign interests of any single country” and increased use of special drawing rights (a basket of currencies mostly used as a unit of account by the IMF).[74] The RMB was designated a special drawing rights currency with the IMF in 2016, and other countries have increased their RMB holdings. The use of RMB has increased most dramatically in Asia, but has also gone up in some African and Latin American countries, according to Chin’s research.[75] In 2019, Russia, a frequent target of American sanctions, bought a quarter of the world’s yuan reserves (as well as yen and euros).[76] European central banks also traded some dollar reserves for yuan.[77]

UnionPay, the Chinese state-controlled credit card issuer, launched in 2002 to take the place of U.S. issuers Visa and MasterCard.[78] By the end of last year, more than 100 million cards had been issued outside of China, including a dual Euro-RMB debit card issued by the Bank of China Paris Branch.[79] President Xi advocates for expanded development and use of cryptocurrency, which could take more transactions out of U.S. jurisdiction.[80]

Although much of China’s financial market remains closed to international investors, China has begun allowing foreigners to purchase so-called “dim sum bonds,” RMB-denominated bonds issued by banks in Hong Kong.[81] “Panda bonds,” in contrast, are RMB-denominated bonds issued in China by foreign banks.[82] In 2016, China spearheaded the creation of the Asia Infrastructure and Investment Bank, a development bank headquartered in Beijing, with some of its loans denominated in RMB.[83]

However, international use of the RMB is far from widespread. According to SWIFT, in November 2019 the RMB was ranked fifth in global payments by value, yet that accounts for only 1.93 percent of payments recorded through the system,[84] and only about about 2.01% of the world’s reserves were held in RMB as of the third quarter of 2019.[85] Capital account controls, which limit the amount of RMB that can leave the country, do much to constrain the influence of the RMB.[86] China’s opaque financial system, including the lack of an independent central bank, also limits international use of the RMB.[87]

Although options for circumventing the dollar and American banks are limited in the short term, China seems to be pushing for incremental change. “The observable trends and patterns…suggest that the current CCP leadership leans normatively toward wanting change, however, given its low tolerance for destabilization, it will want the transition to be gradual and evolutionary,” writes Chin.[88]

At the same time, the Chinese government continues to develop and refine methods of financial confrontation. In some cases, this takes the form of mirroring American actions, such as floating the idea of creating an “unreliable entities list” in response to U.S. trade restrictions.[89] Writing for the Brookings Institution, Kaitan Vivian Zhang says Chinese sanctions are “by and large, symbolic and serve as a signaling device.”[90]Following the arrest of Meng Wanzhou, for example, China banned Canadian canola oil. In response to maritime disputes in the South China Sea, China suspended imports of bananas from the Philippines for a time.[91]

Other actions have had more lasting impacts. In 2010, at a time of increased tensions with Japan over disputed waters, China banned shipments of rare-earth minerals to Japan, cutting off a critical component for several high-tech manufacturing industries.[92] In 2017, when South Korea deployed the missile-defense system THAAD, which Chinese authorities believe could be used to spy into Chinese territory, China responded with “soft sanctions.” Travel agents received “unofficial” instructions to stop selling travel packages to South Korea,[93] and authorities closed several branches of South Korean supermarket Lotte (citing fire concerns) before the brand left the mainland market altogether.[94] Scholar of Chinese law Jacques deLisle suggests that China’s use of these sorts of coercive measures challenges universal norms, “but only uncertainly, given how uncertain and contested international law is in this area.”[95]

The Role of Global Governance

Within the UN, China can veto or abstain from sanctions packages, but it is largely powerless to oppose unilateral U.S. sanctions or find international redress when it feels that its companies or banks have been unfairly targeted. In international economic negotiations, China frequently lobbies on behalf of developing nations, employing what Scott Kastner, Margaret Pearson, and Chad Rector call a “hold-up strategy.” After 2008, for example, China lobbied for a greater proportion of voting rights and more representation for developing countries in the World Trade Organization (WTO).[96] Moreover, “Chinese initial investments in groups like the CMI [Chiang Mai Initiative] and the BRIC countries can be viewed as down payments on the development of outside options over the long run,” they write.[97]

Other countries have also sought ways to work around the United States. Chinese commentators also stress the importance of SWIFT neutrality. “If the United States can control SWIFT, it can control most of the cross-border payments in the world today,” write Liu and Shi.[98] The Belgium-based organization, the main body responsible for facilitating clearing transactions between international banks, cut off Iranian banks under pressure from America and began sharing information with the Treasury Department after 9/11.[99] Iranians began using faxes and exchanging messages online to get around SWIFT messaging,[100] illustrating the difficulty of working around American authorities. China has, in fact, developed its own alternative to the SWIFT system, the Cross-border Interbank Payment System, introduced by the People’s Bank of China in 2015. According to Nikkei Asian Review, its use increased 80 percent last year, and CIPS is especially attractive to countries “exposed to U.S. sanctions, such as Russia and Turkey, as well as African nations on the receiving side of China-led infrastructure projects under Beijing’s Belt and Road Initiative.”[101] While an important step, the value of all transactions processed by CIPS was still less that what SWIFT processes in a single day.

A Foreign Policy article titled “China and the EU Are Growing Sick of U.S. Financial Power” catalogs the ways that other countries are trying to erode American economic leverage, citing London banks that court Chinese and Russian customers as a key example. “If Beijing could count on a more cooperative London, with its key financial services, to circumvent U.S. jurisdiction, it could seriously damage the U.S. sanctions edifice,” the authors write.[102] Recently the European Union created the Instrument in Support of Trade Exchanges (INSTEX), a special purpose vehicle (SPV) to continue trading with Iran after the United States pulled out of the JCPOA.[103] The SPV will only be used in limited cases, but—much like China’s Bank of Kunlun, set up to sidestep contact with the U.S. system—it is an example of an innovation intended to avoid U.S. sanctions.   


Huawei’s Meng Wanzhou, who at this writing remains in Vancouver awaiting trial, has become a folk hero among Chinese netizens for her resistance to American pressure, making court appearances with her GPS-monitor ankle bracelet clearly visible above designer heels.[104] However her case is resolved, the response to her arrest is indicative of growing suspicion of how the United States imposes and enforces sanctions. The Economist writes, “America’s aims are often laudable. Much wrongdoing has been brought to light, and probably prevented, as a result of its actions.” However, the piece continues, critics have begun to refer to American “financial imperialism,” especially as it impacts foreign companies.[105] Former Treasury Secretary Jacob Lew and former Deputy Coordinator for Sanctions Policy at the State Department Richard Nephew raise similar concerns. “Secondary sanctions are a tempting policy tool, since using them is far easier than working through international institutions or diplomacy. But they should be used sparingly and in coordination with partners,” they write in Foreign Affairs. [106] “The outlook for U.S. economic statecraft, if it continues on its present trajectory, is bleak,” Lew and Nephew continue. “When it comes to sanctions, other countries will likely soon begin challenging or ignoring measures that have been imposed by Washington without international support.”[107] 

Aside from a few high-profile instances, disputes over sanctions rarely make front-page news. The details fill the fine print of legal documents and are pored over by compliance officers at international banks. But if current U.S.-China tensions continue, the weaponizing of both countries’ financial systems could continue apace. Last spring, former Trump chief strategist Steve Bannon wrote in The Washington Post that the United States and China are in “an economic and strategic war.”[108] If that sentiment prevails in Washington, the United States will likely use all the tools at its disposal to fight a new type of war without military conflict, and should anticipate an increasingly combative Chinese response.

[1] Lily Kuo, “Huawei: Chinese Media Accuses U.S. of ‘Hooliganism’ over Meng Wanzhou Arrest,” The Guardian, December 7, 2018. https://www.theguardian.com/technology/2018/dec/07/huawei-chinese-media-accuses-us-of-hooliganism-over-meng-wanzhou-arrest

[2] Kate Conger, “Huawei Executive Took Part in Sanctions Fraud, Prosecutors Say,” The New York Times, December 7, 2018. https://www.nytimes.com/2018/12/07/technology/huawei-meng-wanzhou-fraud.html

[3] Jeffrey D. Sachs, “The War on Huawei,” Project Syndicate, December 11, 2018. https://www.project-syndicate.org/commentary/trump-war-on-huawei-meng-wanzhou-arrest-by-jeffrey-d-sachs-2018-12

[4] Editorial, “Meng strikes back at U.S. political persecution against Huawei,” Global Times, March 4, 2019.


[5] “Donald Trump says he would intervene in arrest of Huawei CFO Sabrina Meng Wanzhou if it helped secure trade deal with China,” The South China Morning Post, December 12, 2018. https://www.scmp.com/news/china/diplomacy/article/2177540/donald-trump-says-would-intervene-arrest-huawei-cfo-sabrina

[6] Sara Salinas, “Six Top U.S. Intelligence Chiefs Caution Against Buying Huawei Phones,” CNBC, February 13, 2018. https://www.cnbc.com/2018/02/13/chinas-hauwei-top-us-intelligence-chiefs-caution-americans-away.html

[7] Ana Swanson and Kenneth P. Vogel, “Faced with Crippling Sanctions, ZTE Loaded Up on Lobbyists,” The New York Times, August 1, 2018. https://www.nytimes.com/2018/08/01/us/politics/zte-sanctions-lobbying.html

[8] Donald J. Trump, Twitter, May 13, 2018, 8:01 a.m. https://twitter.com/realdonaldtrump/status/995680316458262533?lang=en

[9] Lara Seligman, “Congress Caves to Trump in Fight Over China’s ZTE,” Foreign Policy, July 25, 2018. https://foreignpolicy.com/2018/07/25/congress-caves-to-trump-in-fight-over-chinas-zte/

[10] “U.S. Lawmakers Target China’s ZTE with Sanctions Bill,” Reuters, February 5, 2019. https://www.reuters.com/article/us-usa-trade-china-zte/u-s-lawmakers-target-chinas-zte-with-sanctions-bill-idUSKCN1PU2MU

[11] “U.S. Lawmakers Seek to Ban Chip Sales to China’s Huawei and ZTE for ‘Violating American Sanctions,’” South China Morning Post, January 17, 2019. https://www.scmp.com/news/china/diplomacy/article/2182439/us-lawmakers-seek-ban-chip-sales-chinas-huawei-and-zte

[12] United States Department of Justice, “Attorney General Jeff Sessions Announces New Initiative to Combat Chinese Economic Espionage,” remarks as prepared for delivery, November 1, 2018, Washington, D.C. https://www.justice.gov/opa/speech/attorney-general-jeff-sessions-announces-new-initiative-combat-chinese-economic-espionage

[13] United States Department of Justice, “Attorney General Jeff Sessions’s China Initiative Fact Sheet,” November 1, 2018. https://www.justice.gov/opa/speech/file/1107256/download

[14] Michael E. Leiter, Ivan A. Schlager, Donald L. Vieira, Jonathan M. Gafni, Daniel J. Gerkin, and Nicholas A. Klein, “Enhanced U.S. Export Controls and Aggressive Enforcement Likely to Impact China,” Skadden’s 2019 Insights, January 17, 2019. https://www.skadden.com/insights/publications/2019/01/2019-insights/enhanced-us-export-controls

[15] Gregory Chin, “True Revisionist: China and the Global Monetary System,” in China’s Global Engagement: Cooperation, Competition, and Influence in the 21st Century, ed. Jacques deLisle and Avery Goldstein (Washington, D.C.: Brookings Institution Press, 2017), 59.

[16] Juan C. Zarate, Treasury’s War: The Unleashing of a New Era of Financial Warfare (New York: PublicAffairs, 2013), xi.

[17] Zarate, ix.

[18] “Top 10 Things to Know About President Trump’s Decision to Withdraw from the Iran Nuclear Agreement,” Latham & Watkins Client Alert, May 10, 2018. https://www.lw.com/thoughtLeadership/top-10-president-trump-decision-withdraw-iran-nuclear-agreement

[19] Zarate, 151.

[20] Zarate, 211.

[21] David Rieff, “Were Sanctions Right?” The New York Times Magazine, July 27, 2003. https://www.nytimes.com/2003/07/27/magazine/were-sanctions-right.html

[22] Adam Szubin, “Sanctions 101, Part I of II: A Powerful Financial Tool,” Treasury Notes, U.S. Department of Treasury, May 30, 2014. https://www.treasury.gov/connect/blog/Pages/Sanctions-101-Pt-1-.aspx

[23] Zarate, 431.

[24] Zarate, xi.

[25] Secondary Sanctions Against Chinese Institutions: Assessing their Utility for Constraining North Korea: Hearing Before the Senate Subcommittee on National Security and International Trade and Finance, 115th Cong., 1st sess. (2017) (prepared testimony of Adam Szubin, distinguished practitioner-in-residence at the Johns Hopkins University School of Advanced International Studies).

[26] “America’s Legal Forays Against Foreign Companies Vex Other Countries,” The Economist, January 17, 2019. https://www.economist.com/business/2019/01/17/americas-legal-forays-against-foreign-firms-vex-other-countries

[27] Zhou Fufang, “Analysis of American Foreign Financial Sanctions Mechanisms and Risk Prevention (美国对外金融制裁机制简析及风险防范),” Fiscal Science 31, no. 1 (2019), 156. (Original: 欲用金融霸权达成外交目的) http://ow.ly/p9n150yLLU8

[28] Zarate, 90.

[29] Scott Barrett, Why Cooperate?: The Incentive to Supply Global Public Goods. (Oxford: Oxford University Press, 2007), 2.

[30] Heleen Bakker, “Sanctions Discussion with Former Treasury Secretary Jacob Lew,” filmed on February 19, 2019 at Atlantic Council, Washington, DC. https://www.atlanticcouncil.org/events/webcasts/sanctions-discussion-with-former-treasury-secretary-jacob-j-lew-2 Note: At other points in the conversation she raised concerns about the overuse of U.S. sanctions.

[31] Tong Zhao, “Sanction Experience and Sanction Behavior: An Analysis of Chinese Perception and Behavior on Economic Sanctions,” Contemporary Politics 16, no. 3 (2010): 265. https://www.tandfonline.com/doi/full/10.1080/13569775.2010.501639

[32] Xin-Zhu J. Chen, “China and the US Trade Embargo, 1950-1972,” American Journal of Chinese Studies 13, no. 2 (2006): 169. http://www.jstor.org/stable/44288827.

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[34] Michael Caster, “The ‘Tiananmen’ Sanctions Should be Strengthened, Not Lifted,” CNN Opinion, June 4, 2018. https://www.cnn.com/2018/06/04/opinions/tiananmen-sanctions-us-china-trade-caster-intl/index.html

[35] Jacques deLisle, “Remarks by Jacques deLisle,” American Society of International Law Proceedings of the Annual Meeting 111 (2017). https://search.proquest.com/docview/2194331890?accountid=11752

[36] Joel Wuthnow, “Beyond the Veto: Chinese Diplomacy in the United Nations Security Council” (Ph.D. thesis, Columbia University, 2011), 175.

[37] Wuthnow, 118.

[38] Wuthnow, 142.

[39] Wuthnow, 171.

[40] U.S. Department of the Treasury, “Treasury Designates Banco Delta Asia as Primary Money Laundering Concern under USA PATRIOT Act,” press release, September 15, 2005. https://www.treasury.gov/press-center/press-releases/pages/js2720.aspx

[41] Josh Meyer, “Squeeze on North Korea’s money supply yields results,”  Los Angeles Times, November 2, 2006. https://www.latimes.com/world/la-fg-macao2nov02-story.html

[42] Zarate, 243.

[43] Tan Ee Lyn, “Frozen North Korean funds released from Macau bank,” Reuters, June 13, 2007. https://www.reuters.com/article/us-korea-north/frozen-north-korean-funds-released-from-macau-bank-idUSTKV00349020070614

[44] Demetri Sevastopulo and Andrew Yeh, “China ‘Regrets’ U.S. Sanctions on Macao Bank, Financial Times, March 15, 2007. https://www.ft.com/content/c1b4ead8-d261-11db-a7c0-000b5df10621

[45] Tong Zhao, 266.

[46] Secondary Sanctions Against Chinese Institutions: Assessing their Utility for Constraining North Korea: Hearing Before the Senate Subcommittee on National Security and International Trade and Finance, 115th Cong., 1st sess. (2017) (prepared testimony of Adam Szubin, distinguished practitioner-in-residence at the Johns Hopkins University School of Advanced International Studies).

[47] “Chinese military voices ‘strong indignation’ over U.S. ‘sanctions,’” Xinhua, September 22, 2018. http://www.xinhuanet.com/english/2018-09/22/c_137486505.htm

[48] Scott L. Kastner, Margaret M. Pearson, and Chad Rector, China’s Strategic Multilateralism: Investing In Global Governance (Cambridge, United Kingdom: Cambridge University Press, 2019), 12.

[49] More information on his research can be found here: http://www.siis.org.cn/Research/Expert?id=101

[50] Sun Haiyong, “American Pressure Strategy on Chinese Science and Technology: Development Situation, Strategic Logic, and Influencing Factors 美国对华科技施压战略: 发展态势、战略逻辑与影响因素,“ Modern International Relations, no. 1 (2019), 44. (Original: 在必要时中国需利用美国与欧洲、其他重要经济体之间的分歧,有针对性地加强利益协调,防止美国结成对华制裁统一战线) http://ow.ly/4nr150yLM0e

[51] Sun, “American Pressure Strategy on Chinese Science and Technology: Development Situation, Strategic Logic, and Influencing Factors,” 44.

[52] 财政部国际财经中心

[53] Zhou, 155. (Original: 金融制裁作为一种”高烈度”的经济制裁措施)

[54] Zhou, 156. (Original: 只有美国长期凌驾于国际法)

[55] Zhou, 155. (Original: 及早研究构建对美国金融制裁预警和应对机制)

[56] Zhou, 159. (Original: 避免落入第三方制裁陷阱)

[57] Zhou, 159. (Original: 更好维护国家利益与公平正义)

[58] Liu Dongmin and Shi Chen, “U.S. Financial Sanctions Imposed on Other Countries: Trends, Characteristics, and the Technology Platform It Relies On 美 国 实施金融制裁的趋势 、

特征及其依赖的技术平台,” The Chinese Banker 银行家 (August 2018), 114-115. http://ow.ly/B6fW50yLMbn


[60] Chen Aizhu and Shu Zhang, “Exclusive: As U.S. Sanctions Loom, China’s Bank of Kunlun to Stop Receiving Iran Payments – Sources,” Reuters, October 23, 2018. https://www.reuters.com/article/us-china-iran-banking-kunlun-exclusive/exclusive-as-u-s-sanctions-loom-chinas-bank-of-kunlun-to-stop-receiving-iran-payments-sources-idUSKCN1MX1KA

[61] U.S. Department of the Treasury, “Treasury Sanctions Kunlun Bank in China and Elaf Bank in Iraq for Business with Designated Iranian Banks,” press release, July 31, 2012. https://www.treasury.gov/press-center/press-releases/pages/tg1661.aspx

[62] Secondary Sanctions Against Chinese Institutions: Assessing their Utility for Constraining North Korea: Hearing Before the Senate Subcommittee on National Security and International Trade and Finance, 115th Cong., 1st sess. (2017) (testimony of Juan C. Zarate, chairman and cofounder of the Financial Integrity Network). https://www.govinfo.gov/content/pkg/CHRG-115shrg26242/html/CHRG-115shrg26242.htm

[63] Ministry of Foreign Affairs of the People’s Republic of China, “Foreign Ministry Spokesperson Hua Chunying’s Regular Press Conference on November 5, 2018,” transcript, November 5, 2018. https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/t1610459.shtml

[64] Aizhu and Zhang, “Exclusive: As U.S. Sanctions Loom, China’s Bank of Kunlun to Stop Receiving Iran Payments – Sources.”

[65] Esfandyar Batmanghelidj, “Trump’s Iran Waivers Are Not the Concessions They Seem,” Bloomberg Opinion, November 8, 2018. https://www.bloomberg.com/opinion/articles/2018-11-08/trump-seeks-to-divide-with-iran-waivers-for-china-italy-greece

[66] Wendy Wu, “China Protests Over End to American Waivers on Iranian Oil Imports,” South China Morning Post, April 23, 2019. https://www.scmp.com/news/china/diplomacy/article/3007365/china-protests-over-end-american-waivers-iranian-oil-imports

[67] Chun Han Wong, “China Threatens Sanctions Over Planned U.S. Sale of Jet Fighters to Taiwan,” The Wall Street Journal, August 21, 2019. https://www.wsj.com/articles/china-threatens-sanctions-over-planned-u-s-sale-of-fighter-jets-to-taiwan-11566393409

[68] Chen, 180.

[69] Chen, 181.

[70] Zarate, 159.

[71] Financial Action Task Force, “Who We Are.” https://www.fatf-gafi.org/about/

[72] Chin, 36.

[73] Chin, 38.

[74] Zhou Xiaochuan, “Reform the International Monetary System,” essay posted on the Bank for International Settlements website, March 23, 2009. https://www.bis.org/review/r090402c.pdf

[75] Chin, 50-51.

[76] Natasha Doff and Anna Andrianova, “Russia Buys Quarter of World Yuan Reserves in Shift from Dollar,” Bloomberg, January 9, 2019. https://www.bloomberg.com/news/articles/2019-01-09/russia-boosted-yuan-euro-holdings-as-it-dumped-dollars-in-2018

[77] Eshe Nelson, “Europe’s Central Banks Are Starting to Replace Dollar Reserves with the Yuan,” Quartz, January 16, 2018.

[78] Martin Arnold and Gabriel Wildau, “China UnionPay Kicks Off European Expansion with UK Launch,” Financial Times, September 16, 2018. https://www.ft.com/content/61bceaf2-b98d-11e8-8274-55b72926558f

[79] UnionPay International, “UnionPay Cards Issued Outside Mainland China Exceeds 100 Million,” press release via PR Newswire, October 18, 2018. https://www.prnewswire.com/news-releases/unionpay-cards-issued-outside-mainland-china-exceeds-100-million-300733635.html

[80] Ryan Browne, “Bitcoin had a wild weekend, briefly topping $10,000, after China’s Xi sang blockchain’s praises,” CNBC, October 28, 2019. https://www.cnbc.com/2019/10/28/bitcoin-btc-price-climbs-as-chinas-xi-jinping-embraces-blockchain.html

[81] NASDAQ, Glossary of Stock Market Terms. https://www.nasdaq.com/glossary/d/dim-sum-bond

[82] Emma Dunkley, “Dim sum renaissance powered by rising RMB,” Financial Times, April 6, 2018. https://www.ft.com/content/7197f006-372a-11e8-8eee-e06bde01c544

[83] “Annual Corporate Procurement Report,” Asia Infrastructure and Investment Bank, 2016. https://www.aiib.org/en/opportunities/business/.content/index/_download/annual-corporate-procurement-report.pdf

[84] SWIFT, RMB Tracker, December 2019. https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/document-centre?tl=en#topic-tabs-menu

[85] International Monetary Fund, Currency Composition of Official Foreign Exchange Reserves, Q3 2019. http://data.imf.org/regular.aspx?key=41175

[86] “China’s Capital Controls to Hamper Yuan Internationalization: Fitch,” Reuters, May 2, 2017.

[87] Chin, 49.

[88] Chin, 58.

[89] “China publication of ‘unreliable entities list’ depends on Sino-U.S. trade talks: sources,” Reuters, October 11, 2019. https://www.reuters.com/article/us-usa-trade-china-entities/china-publication-of-unreliable-entities-list-depends-on-sino-u-s-trade-talks-sources-idUSKBN1WQ28L

[90] Ketian Vivian Zhang, “Chinese Non-Military Coercion: Tactics and Rationale,” The Brookings Institution, January 22, 2019. https://www.brookings.edu/articles/chinese-non-military-coercion-tactics-and-rationale/

[91] Michael Peel and Grace Ramos, “Philippine Banana Bonanza Sparks Debate on Shift to China,” Financial Times, March 14, 2017. https://www.ft.com/content/3f6df338-056b-11e7-ace0-1ce02ef0def9

[92] Keith Bradsher, “Amid Tension, China Blocks Vital Exports to Japan,” The New York Times, September 23, 2010. https://www.nytimes.com/2010/09/23/business/global/23rare.html

[93] Ankit Panda, “China and South Korea: Examining the Resolution of the THAAD Impasse,” The Diplomat, November 13, 2017. https://thediplomat.com/2017/11/china-and-south-korea-examining-the-resolution-of-the-thaad-impasse/ and Jethro Mullen, “China’s ‘Unofficial’ Sanctions Rattle South Korea,” CNN Money, March 3, 2017. https://money.cnn.com/2017/03/03/news/economy/china-south-korea-thaad-tourism-trade-sanctions/

[94] Ketian Vivian Zhang, “Chinese Non-Military Coercion: Tactics and Rationale.”

[95] deLisle, “Remarks by Jacques deLisle,” American Society of International Law Proceedings of the Annual Meeting.

[96] Kastner et al, 159.

[97] Kastner et al,156.

[98] Liu and Shi, 115. (Original: 美 国 如 果 能够 控 制SWIFT 系统 , 就能够控制 当 今世 界大部分 的跨境货 币 支付)

[99] Zarate, 53.

[100] Zarate, 284.

[101] Kazuhiro Kida, Masayuki Kubota, and Yusho Cho, “Rise of the yuan: China-based payment settlements jump 80%,” Nikkei Asian Review, May 20, 2019. https://asia.nikkei.com/Business/Markets/Rise-of-the-yuan-China-based-payment-settlements-jump-80

[102] Elizabeth Rosenberg and Edoardo Saravalle, “China and the EU are going Sick of U.S. Financial Power,” Foreign Policy, November 16, 2018. https://foreignpolicy.com/2018/11/16/us-eu-china-trump-sanctions/

[103] Stephanie Zable, “INSTEX: A Blow to U.S. Sanctions,” Lawfare blog, March 6, 2019. https://www.lawfareblog.com/instex-blow-us-sanctions

[104] “Huawei CFO Meng Wanzhou in the limelight in China for her fashion taste,” Global Times, December 4, 2019. http://www.globaltimes.cn/content/1172220.shtml

[105] “America’s Legal Forays Against Foreign Companies Vex Other Countries,” The Economist, January 17, 2019. https://www.economist.com/business/2019/01/17/americas-legal-forays-against-foreign-firms-vex-other-countries

[106] Jacob J. Lew and Richard Nephew, “The Use and Misuse of Economic Statecraft,” Foreign Affairs, October 15, 2018. https://www.foreignaffairs.com/articles/world/2018-10-15/use-and-misuse-economic-statecraft

[107] Lew and Nephew.

[108] Stephen K. Bannon, “We’re in an Economic War with China: It’s Futile to Compromise,” The Washington Post, May 7, 2019.

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