China Hawk: Fix Symbolic, Ineffective US Sanctions

“The Biden administration feels like it has made a significant move in terms of sanctioning China as traditionally we don't sanction many Chinese companies,” she said.“Do these things matter? Symbolically, yes. But do they have any deterrent effect in the way we're using them? No.”

“The US government really needs to think about an alternative approach because current methodologies are not punishing but ultimately weakening our sanctions' capabilities,” she said.

Since a trade war between the US and China broke out in 2018, Washington has sanctioned about 1,500 Chinese entities and accused them of supporting Moscow's war machine in Ukraine, violating human rights in Xinjiang, supplying high technology products to the People's Liberation Army and launching cyber attacks.

These sanctions were imposed following lengthy investigations. After Russia fired Iranian-made Shahed-136 suicide drones at Ukrainian troops in August 2022, it took one year for the US Commerce Department's Bureau of Industry and Security (BIS) to identify and sanction three Hong Kong firms involved supplying the drone parts.

In a visit to Beijing on April 8, Treasury Secretary Janet Yellen said the US could sanction Chinese financial institutions if they were involved in transactions related to shipments that bolstered Russia's military capacity.

Russian newspaper Izvestia reported on April 12 that four more Chinese banks had recently stopped accepting payments from Russia after three largest Chinese banks did the same in February.

On April 22, a US official told Reuters that the US did not have an immediate plan to sanction Chinese banks.

Nikakhtar said the threat of sanctioning Chinese banks is a real risk for China, especially when the country's de-dollarization plan has remained slow so far amid its own economic problems.

“I would encourage any administration to not look at the tools in the traditional way, but think about putting multiple tools together to really have maximum impact,” she said, adding that the other tools she referred to are tariffs and import restrictive measures.

“The government has a lot of intelligence about the way that the Chinese and the Russians are transacting,” she said.“It can impose sanctions on entities that may be indirectly involved in the transactions, and on those that are significant and big enough to really have a major economic impact on the Chinese economy.”

For example, she said, if any Chinese automakers are found to have supported Russia's war efforts by supplying Moscow with their armored vehicles, they should be sanctioned.

“By rethinking how we use sanctions and other tools, we could still proceed narrowly, but having a bigger and more significant economic impact,” she said.“I just don't think the US government is comfortable thinking outside the box.”

In fact, Washington has recently been expanding the coverage of its sanctions against Chinese firms.

On June 12, the US Treasury Department sanctioned VPower Finance Security, a Hong Kong-based logistics service provider, citing the firm's role in transporting Russian-origin gold, which was converted into fiat currency and cryptocurrencies through some companies in the UAE and Hong Kong. VPower's clients include big Chinese banks, retail brands and the Hong Kong government.

Over the past few years, the Biden administration has tightened its export controls to try to curb China's chip sector.

But media reports said China can still obtain high-end US chips through either third countries or smugglers – and Semiconductor Manufacturing International Corp (SMIC) successfully made 7 nanometer chips with deep ultraviolet (DUV) lithography last year. The country has also upgraded its electronic design automation (EDA) software in recent years.

On March 29, the US revised its export control rules to make it harder for China to access US artificial intelligence chips and chip making tools through third countries.

Sign up for one of our free newsletters

• The Daily Report Start your day right with Asia Times' top stories
• AT Weekly Report A weekly roundup of Asia Times' most-read stories

“If 90% of the export volume of certain chips traditionally goes to China but is now going through a third country which has no industry to support that kind of volume, I think the US government should think twice where it is going to,” Nikakhtar said.

“Before it provides license authorizations, the US government can start looking at parties involved in the financial transactions, their banks, beneficiaries and account holders,” she said.“It can initially license a very limited amount of trade and then send it to the end-use-check people to look at all of the institutions involved in the transaction to verify its legitimacy before it licenses more.“

She said there are many red flag indicators that the US government can look into, but unfortunately, the export control unit at the Commerce Department is“very much oriented towards export promotion, rather than really regulating controls.”

She said, at the same time, the US government should deregulate its export rules for partners and allies and set up a road map to restructure its chip supply chain.

“China has most of the end users of chips. So what do we do in the meantime when the US government's goal is to get the supply chain out of China? Can we have other markets to export semiconductors to? How long will that take to build out? What will happen to companies' revenue in the meantime?”

Nikakhtar also said the US government currently is a little bit superficial in its analysis of China's technological capabilities, and it tends to underestimate how smart Chinese engineers are.

“If a country wants to have a national security policy that works, it should always overestimate the other side, so that it will have a stronger policy,” she said.

Read: Chinese EV firms can absorb EU tariffs: expert

Read: Hong Kong exports rebound despite Sino-US trade war

Follow Jeff Pao on X:
@jeffpao3

Already have an account? Sign i Sign up here to comment on Asia Times stories OR

Thank you for registering!

An account was already registered with this email. Please check your inbox for an authentication link.